Page 272 - DCOM301_INCOME_TAX_LAWS_I

Unit 9: Income under the Head Business and Profession

company, firm, association or family or any relative of such director, partner, or Notes
member as the case may be or any other company carrying on business or profession
in which the first mentioned company has substantial interest.
A company, firm, association of persons or H.U.F. of which a director, partner or
member, as the case may be, has 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 these persons.

Any person who carries on a business or profession in cases where the assessee is an
individual or any relative of the individual or a person having substantial interest
in the business or profession of that person or where the assessee is a company, firm,
association of persons or H.U.F. any director of such company, partner of such firm,
member of the association or family, or any of their relatives who has a substantial
interest in the business or profession of that person.
2. Cash Payments Exceeding ` 20,000 [(Section 40A(3)]: Where the assessee incurs any
expenditure in respect of which a payment or aggregate of payments made to a person in
a day, otherwise than by an account payee cheque drawn on a bank or account payee bank
draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such
expenditure.

Where an allowance has been made in the assessment for any year in respect of any
liability incurred by the assessee for any expenditure and subsequently during any previous
year (hereinafter referred to as subsequent year) the assessee makes payment in respect
thereof, otherwise than by an account payee cheque drawn on a bank or account payee
bank draft, the payment so made shall be deemed to be the profits and gains of business or
profession and accordingly chargeable to income-tax as income of the subsequent year if
the payment or aggregate of payments made to a person in a day, exceeds twenty thousand
rupees.
3. Provision for Gratuity [Section 40A(7)]: No deduction shall be allowed in respect of any
provision made by the assessee for the payment of gratuity to his employees on their
retirement or termination of their employment for any reason. However, any provision
made by the assessee for the payment of a sum by way of any contribution towards an
approved gratuity fund or for the purpose of payment of any gratuity that has become
payable during the previous year shall be allowed.

Did u know? Where any provision made by the assessee for the payment of gratuity to his
employees on their retirement or termination of their employment for any reason has
been allowed as a deduction in computing the income of the assessee for any assessment
year, any sum paid out of such provision by way of contribution towards an approved
gratuity fund or by way of gratuity to any employee shall not be allowed as a deduction
in computing the income of the assessee of the previous year in which the sum is so paid.
4. Restriction on Contribution by Kmployers to Non-statutory Funds [Sections 40A(9), (10)
and (11)]: With a view to discouraging creation of irrevocable or discretionary trusts
funds, companies, associations of persons, societies, etc. the Finance Act, 1984 has provided
that no deduction shall be allowed in the computation of taxable profits in respect of any
sums paid by the assessee as an employer towards the setting up or formation of or as
contribution to any fund, trust, company, association of persons, body of individuals or
society or any other institution for any purpose, except where such sum is paid by the
assessee as an employer towards the setting up or formation of or as contribution to any
fund, trust, company, association of persons, body of individuals or society or any other
institution for any purpose, except where such sum is paid or contributed (within the

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