40. Amounts not deductible.- Notwithstanding anything
to the contrary in sections 30 to 38, the following amounts
shall not be deducted in computing the income chargeable under
the head “Profits and gains of business or profession”,—
(a) in the case of any assessee—
(i) any interest (not being interest on a loan issued for
public subscription before the 1st day of April, 1938), royalty,
fees for technical services or other sum chargeable under
this Act, which is payable,—
(A) outside India; or
(B) in India to a non-resident, not being a company or to
a foreign company,
on which tax is deductible at source under Chapter XVII-B
and such tax has not been deducted or, after deduction, has
not been paid during the previous year, or in the subsequent
year before the expiry of the time prescribed under sub-section
(1) of section 200 :
Provided that where in respect of any such sum, tax has been
deducted in any subsequent year or, has been deducted in the
previous year but paid in any subsequent year after the expiry
of the time prescribed under sub-section (1) of section 200,
such sum shall be allowed as a deduction in computing the
income of the previous year in which such tax has been paid.
Explanation.—For the purposes of this sub-clause,—
(A) “royalty” shall have the same meaning as
in Explanation 2 to clause (vi) of sub-section (1) of section
9;
(B) “fees for technical services” shall have
the same meaning as in Explanation 2 to clause (vii) of sub-section
(1) of section 9;
(ia) any interest, commission or brokerage, rent, royalty,
fees for professional services or fees for technical services
payable to a resident, or amounts payable to a contractor
or sub-contractor, being resident, for carrying out any work
(including supply of labour for carrying out any work), on
which tax is deductible at source under Chapter XVII-B and
such tax has not been deducted or, after deduction, has not
been paid on or before the due date specified in sub-section
(1) of section 139 :
Provided that where in respect of any such sum, tax has been
deducted in any subsequent year, or has been deducted during
the previous year but paid after the due date specified in
sub-section (1) of section 139, such sum shall be allowed
as a deduction in computing the income of the previous year
in which such tax has been paid.
Explanation.—For the purposes of this sub-clause,—
(i) “commission or brokerage” shall have the
same meaning as in clause (i) of the Explanation to section
194H;
(ii) “fees for technical services” shall have
the same meaning as in Explanation 2 to clause (vii) of sub-section
(1) of section 9;
(iii) “professional services” shall have the
same meaning as in clause (a) of the Explanation to section
194J;
(iv) “work” shall have the same meaning as in
Explanation III to section 194C;
(v) “rent” shall have the same meaning as in
clause (i) to the Explanation to section 194-I;
(vi) “royalty” shall have the same meaning as
in Explanation 2 to clause (vi) of sub-section (1) of section
9;
(ib) Omitted
(ic) any sum paid on account of fringe benefit tax under
Chapter XIIH;
(ii) any sum paid on account of any rate or tax levied on
the profits or gains of any business or profession or assessed
at a proportion of, or otherwise on the basis of, any such
profits or gains.
Explanation 1.—For the removal of doubts, it is hereby
declared that for the purposes of this sub-clause, any sum
paid on account of any rate or tax levied includes and shall
be deemed always to have included any sum eligible for relief
of tax under section 90 or, as the case may be, deduction
from the Indian income-tax payable under section 91.
Explanation 2.—For the removal of doubts, it is hereby
declared that for the purposes of this sub-clause, any sum
paid on account of any rate or tax levied includes any sum
eligible for relief of tax under section 90A;
(iia) any sum paid on account of wealth-tax.
Explanation.—For the purposes of this sub-clause, “wealth-tax”
means wealth-tax chargeable under the Wealth-tax Act, 1957
(27 of 1957), or any tax of a similar character chargeable
under any law in force in any country outside India or any
tax chargeable under such law with reference to the value
of the assets of, or the capital employed in, a business or
profession carried on by the assessee, whether or not the
debts of the business or profession are allowed as a deduction
in computing the amount with reference to which such tax is
charged, but does not include any tax chargeable with reference
to the value of any particular asset of the business or profession;
(iii) any payment which is chargeable under the head “Salaries”,
if it is payable—
(A) outside India; or
(B) to a non-resident,
and if the tax has not been paid thereon nor deducted therefrom
under Chapter XVII-B;
(iv) any payment to a provident or other fund established
for the benefit of employees of the assessee, unless the assessee
has made effective arrangements to secure that tax shall be
deducted at source from any payments made from the fund which
are chargeable to tax under the head “Salaries”;
(v) any tax actually paid by an employer referred to in clause
(10CC) of section 10;
(b) in the case of any firm assessable as such,—
(i) any payment of salary, bonus, commission or remuneration,
by whatever name called (hereinafter referred to as “remuneration”)
to any partner who is not a working partner; or
(ii) any payment of remuneration to any partner who is a working
partner, or of interest to any partner, which, in either case,
is not authorised by, or is not in accordance with, the terms
of the partnership deed; or
(iii) any payment of remuneration to any partner who is
a working partner, or of interest to any partner, which, in
either case, is authorised by, and is in accordance with,
the terms of the partnership deed, but which relates to any
period (falling prior to the date of such partnership deed)
for which such payment was not authorised by, or is not in
accordance with, any earlier partnership deed, so, however,
that the period of authorisation for such payment by any earlier
partnership deed does not cover any period prior to the date
of such earlier partnership deed; or
(iv) any payment of interest to any partner which is authorised
by, and is in accordance with, the terms of the partnership
deed and relates to any period falling after the date of such
partnership deed in so far as such amount exceeds the amount
calculated at the rate of twelve per cent simple interest
per annum; or
(v) any payment of remuneration to any partner who is a
working partner, which is authorised by, and is in accordance
with, the terms of the partnership deed and relates to any
period falling after the date of such partnership deed in
so far as the amount of such payment to all the partners during
the previous year exceeds the aggregate amount computed as
hereunder :—
36 (a) on the first Rs. 3,00,000 of the book-profit or in
case of a loss Rs. 1,50,000 or at the rate of 90 per cent
of the book-profit, whichever is more;
(b) on the balance of the book-profit at the rate of 60 per
cent :
Provided that in relation to any payment under this clause
to the partner during the previous year relevant to the assessment
year commencing on the 1st day of April, 1993, the terms of
the partnership deed may, at any time during the said previous
year, provide for such payment.
Explanation 1.—Where an individual is a partner in a
firm on behalf, or for the benefit, of any other person (such
partner and the other person being hereinafter referred to
as “partner in a representative capacity” and
“person so represented”, respectively),—
(i) interest paid by the firm to such individual otherwise
than as partner in a representative capacity, shall not be
taken into account for the purposes of this clause;
(ii) interest paid by the firm to such individual as partner
in a representative capacity and interest paid by the firm
to the person so represented shall be taken into account for
the purposes of this clause.
Explanation 2.—Where an individual is a partner in
a firm otherwise than as partner in a representative capacity,
interest paid by the firm to such individual shall not be
taken into account for the purposes of this clause, if such
interest is received by him on behalf, or for the benefit,
of any other person.
Explanation 3.—For the purposes of this clause, “book-profit”
means the net profit, as shown in the profit and loss account
for the relevant previous year, computed in the manner laid
down in Chapter IV-D as increased by the aggregate amount
of the remuneration paid or payable to all the partners of
the firm if such amount has been deducted while computing
the net profit.
Explanation 4.—For the purposes of this clause, “working
partner” means an individual who is actively engaged
in conducting the affairs of the business or profession of
the firm of which he is a partner;
(ba) in the case of an association of persons or body of
individuals other than a company or a co-operative society
or a society registered under the Societies Registration Act,
1860 (21 of 1860), or under any law corresponding to that
Act in force in any part of India, any payment of interest,
salary, bonus, commission or remuneration, by whatever name
called, made by such association or body to a member of such
association or body.
Explanation 1.—Where interest is paid by an association
or body to any member thereof who has also paid interest to
the association or body, the amount of interest to be disallowed
under this clause shall be limited to the amount by which
the payment of interest by the association or body to the
member exceeds the payment of interest by the member to the
association or body.
Explanation 2.—Where an individual is a member of an
association or body on behalf, or for the benefit, of any
other person (such member and the other person being hereinafter
referred to as “member in a representative capacity”
and “person so represented”, respectively),—
(i) interest paid by the association or body to such individual
or by such individual to the association or body otherwise
than as member in a representative capacity, shall not be
taken into account for the purposes of this clause;
(ii) interest paid by the association or body to such individual
or by such individual to the association or body as member
in a representative capacity and interest paid by the association
or body to the person so represented or by the person so represented
to the association or body, shall be taken into account for
the purposes of this clause.
Explanation 3.—Where an individual is a member of
an association or body otherwise than as member in a representative
capacity, interest paid by the association or body to such
individual shall not be taken into account for the purposes
of this clause, if such interest is received by him on behalf,
or for the benefit, of any other person.
(c) [Omitted by the Direct Tax Laws (Amendment) Act, 1987,
w.e.f. 1-4-1989. Earlier, it was amended by the Finance Act,
1963, w.e.f. 1-4-1963, Finance Act, 1964, w.e.f. 1-4-1964,
Finance Act, 1965, w.e.f. 1-4-1965, Finance Act, 1968, w.e.f.
1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance
Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment)
Act, 1987, w.e.f. 1-4-1988.]
(d) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]
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