Page 269 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes
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Caution Provided that where in respect of any such sum, tax has been deducted in 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.
Provided further that where an assessee fails to deduct the whole or any part of the tax in
accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be
an assessee in default under the first proviso to sub-section (1) of section 201, then, for the
purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the
tax on such sum on the date of furnishing of return of income by the resident payee
referred to in the said provision.
3. Rate or Tax Paid on Profits: Under Section 40(a)(ii), any sum paid by the assessee on
account of any tax or rate levied on profits on the basis of or in proportion to the profits
and gains of any business or profession, would be disallowed in full.

Example: Income-tax, foreign income-tax or a professional tax levied under the Municipal
Act on persons who exercise a profession, trade or calling within the municipal limit shall be
disallowed.
4. Wealth Tax [Section 40a(iia)]: Any wealth-tax paid or payable by the assessee in respect of
his business assets would be totally disallowed. It is immaterial whether the wealth-tax is
assessed and payable in India or in foreign country in respect of the business assets of the
assessee.

Notes However, any tax on business assets (other than wealth-tax) is deductible.

5. Salaries [Section 40a(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 or deducted thereon under
Chapter XVIIB of the Act.
6. Payment to Provident Funds etc. [Section 40a(iv)]: Any payment to a Provident Fund or
other fund established for the benefit of employees of the assessee would be disallowed in
cases where the assessee (employer) has not made effective arrangements to secure
deduction of tax at source from any payment made from the fund which are chargeable to
tax under the head ‘salaries’ in the hands of the employees.
7. Payment of Tax on Non-monetary Perquisites [Section 40a(v)]: Tax actually paid by an
employer under Section 10(10CC) shall not be deducted in computing the income chargeable
under the head “Profit and gains of business or profession”.
8. Payment to Partners: The new provision of Section 40(b) which is substituted by the
Finance Act, 1992 with effect from the assessment year 1993–94, provides as follows: In the
case of a firm which is assessable as such:
a. any payment of salary, bonus, commission or remuneration by whatever name
called to a partner other than a working partner would not be allowed as deduction
in the hands of the firm;
b. any remuneration paid to a working partner or interest paid to any partner, which
is not authorised by or not in accordance with the terms of the partnership deed
would not be allowable deduction in the hands of the firm;

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