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Swaranandhra Ijmii Intergrated ... vs Assessee
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[Section 40A] [Complete Act]
Central Government Act
Section 40A(2) in The Income- Tax Act, 1995
(2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub- section, and the 3 Assessing] Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction:
999999. -" (c) in the case of any company- (i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, (ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub- clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Assessing Officer any such expenditure or allowance as is mentioned in sub- clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub- clause (i) shall, in no case, exceed- (A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of one hundred and two thousand rupees; (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of eight thousand five hundred rupees for each month or part thereof comprised in that period: Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub- section (5) of section 40A shall not be taken into account for the purposes of sub- clause (A) or sub- clause (B), as the case may be. Explanation.- The provisions of this clause shall apply notwithstanding that any amount not to be allowed under this clause is included in the total income of any person refer- red to in sub- clause (i);"
1. Prior to the omission, clause (d) read as under:" (d) in the case of a banking company, the amounts which have been allowed as a deduction in computing its income chargeable to income- tax under the head' Interest on securities" under the provisions of sub- section (1) of section 20."
2. Inserted by the Finance Act, 1968, w. e. f. 1- 4- 1968.
3. Substituted for" Income- tax" by the Direct Tax Laws (Amendment) Act, 1987, w. e. f.
1 Proviso omitted by the Direct Tax Laws (Amendment) Act, 1987 , w. e. f. 1- 4- 1989 .]
(b) The persons referred to in clause (a) are the following, namely:-
(i) where the assessee is an individual any relative of the assessee;
(ii) where the assessee is a company, any director of the firm, association of persons or company, partner of the Hindu undivided family firm, of member if the association or family, or family, or any relative of such director, partner or member;
(iii) any individual who has a substantial interest in the business or profession of the assessee, or any relative of such individual;
(iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member;
(v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member;
(vi) any person who carries on a business or profession,-
(A) where the assessee being an individual, or any relative of such assessee, has a substantial interest in the business or profession of that person; or
(B) where the assessee being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person. Explanation.- For the purposes of this sub- section, a person shall be deemed to have a substantial interest in a business or profession, if,-
(a) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and
(b) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession.
1. Prior to its omission, the proviso, as amended by the Finance (No. 2) Act, 1971, w. e. f. 1- 4- 1972, read as under:" Provided that the provisions of this sub- section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub- clause (i) of clause (C) of section 40 applies.'