PGBP Charge

Section 26 — INCOME UNDER HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'

Section 26 is the charging section for the PGBP head — the most extensive computation regime in Chapter IV. It catches profits / gains of business carried on at any time during the tax year, plus eight enumerated categories of receipts (compensation on termination, association fees, export incentives, perquisite-receipts, capital-asset-on-s.46-deduction, non-compete consideration, keyman-insurance, etc.).

STATUTORY ARCHITECTURE

Section 26 is the gateway. The 'business or profession' carried on at ANY time during the tax year suffices — even one transaction can constitute business if intended as such. Adventure-in-the-nature-of-trade is a recurring s. 26 issue. The eight enumerated categories ensure that compensation receipts, perquisites, and similar quid-pro-quo receipts arising in the course of business are caught even where they do not fall under the primary 'profits and gains' limb.

JUDICIAL EVOLUTION — Pharma Freebies (Apex Laboratories)

The Supreme Court in Apex Laboratories (P.) Ltd. v. DCIT, (2022) 442 ITR 1 (SC), held that pharma freebies to medical professionals are not 'wholly and exclusively' for business and offend public policy. Disallowance under s. 37(1) Explanation [1961] / s. 35(1) [2025] is valid.

HELD: Pharmaceutical companies' gifting freebies to doctors is clearly 'prohibited by law'; the freebies are tainted by a violation of the medical practitioners' Code of Conduct under the Indian Medical Council Regulations, 2002. The expenditure is not allowable. (per Apex Laboratories ¶ 22).

JUDICIAL EVOLUTION — Export Incentives (Topman Exports)

Topman Exports v. CIT, (2012) 342 ITR 49 (SC) — DEPB credit on export = profits of export; entire DEPB amount represents profit for s. 80HHC type provisions.

JUDICIAL EVOLUTION — Dividend Stripping (Walfort Share)

CIT v. Walfort Share & Stock Brokers (P.) Ltd., (2010) 326 ITR 1 (SC) — loss arising from dividend-stripping transactions is allowable unless statutorily disallowed; FA 2002 inserted s. 94(7) prospectively.

JUDICIAL EVOLUTION — Adventure in Trade

G. Venkataswami Naidu & Co. v. CIT, (1959) 35 ITR 594 (SC) — even one transaction may constitute 'adventure in the nature of trade' and fall under PGBP, depending on the assessee's intention, the surrounding circumstances, and the nature of the asset. The single-transaction rule for businesses traces to this Constitution Bench decision.

PLANNING NOTES

(i) For pharma sector, document non-physician promotional spend separately; physician-related spend is disallowable per Apex Laboratories. (ii) For export businesses, classify each incentive (DEPB / MEIS / RoDTEP / drawback) under correct sub-clause. (iii) For non-compete consideration, classify under s. 26(viii) (PGBP) — capital-receipt route is foreclosed post FA 2002. (iv) For one-off transactions, examine intent + frequency + surrounding circumstances to determine PGBP vs. capital-gains characterisation; cite G. Venkataswami Naidu.

CROSS-REFERENCES

• Section 27 — Manner of computing profits (next section).
• Section 35 — Amounts not deductible (interaction).
• Section 36 — Expenses or payments not deductible.
• Section 67 — Capital gains charge (mutual exclusivity).