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INCOME TAX ACT. 1961Presentation

OnIncome Tax Act. 1961, Sec. 40 to 44.

By ----- Jyoti PulukuriNirmala P.

Prajwala B.M.Vishal Shah

23nd Feb. 2012

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Flow of the Presentation

I. Sec 40 - 42 ------Jyothi

II. Sec 43 44 -----Nirmala P

III. Sec 44 A --------Prajwala BM

IV. Sec 44 B --------Vishal Shah

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Section 40:Amount not Deductable

n Notwithstanding anything to the contrary in section 30 to 38, thefollowing amount shall not be deducted in computing the income

chargeable under the head profits and gains of business or profession

n a)In case of any Assessee-

n i)Any interest, royalty, fees for technical services or other sum chargeable

under this Act, which is payable outside India, on which tax has not been

paid

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Provided that where in respect of any such sum, tax has been paid in any

subsequent year, such sum shall be allowed as a deduction in computing the

income of the previous year in which such tax has been paid

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Section 40:Expenses or Payments notdeductable in certain circumstances.

1) the provisions of this section shall have effect notwithstandinganything to the contrary contained in any other provision of this Act relating

to the computation of income under the Head profits and gains of business

or profession.

2)(a) where the Assessee incurs any expenditure in respect of which paymenthas been or is to be made to any person referred to in clause (b) of this sub-

section, and the assessing officer as 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 benefit derived by

or accruing to him thereon, so much of the expenditure as is so considered by

him to be excessive or unreasonable shall not be allowed as a deduction;

b) The persons referred to in clause a) are namely

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Section 40A(3)(a) of the Income-tax Act, 1961 provides that any

expenditure incurred in respect of which payment is made in a day

sum exceeding Rs.20,000/- otherwise than by an account payee cheque

drawn on a bank or by an account payee bank draft, shall not be allowed

as a deduction. However if payment is being made for plying, hiring or

leasing goods carriages then Limit for these section is Rs 35000/-,instead

Of 20000/-

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Section 41 Profits chargeable to tax

1) Where an allowance or deduction has been made in the assessment for any year in

respect of loss, expenditure or trading liability incurred by Assessee (herein referred

to as the first-mentioned person) and subsequently during any previous year,-a)the

first mentioned person has obtained, whether in cash or in any other manner

whatsoever, any amount in respect of such loss or expenditure or some benefit in

respect of such liability by way of remission or cessation thereof, the amount

obtained by such person or value of benefit accruing to him shall be deemed to be

profits and gains of business or profession and accordingly chargeable to income tax

as the income of that previous year, whether the business or profession in respect of

which the allowance or deduction has been made is in existence in that year or not

or

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b) The successor in business has obtained, whether in cash or in any other

manner whatsoever, any amount in respect of which loss or expenditure was

incurred by the first-mentioned person or some benefit in respect of the

trading liability referred to in clause a) by way of remission or cessation

thereof, the amount obtained by the successor in business or the value of

benefit accruing to the successor in business shall be deemed to be profits and

gains of the business or profession and accordingly chargeable to income-taxas the income of that previous year.

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Section 42 business of extraction or productionof mineral oil

n The provisions of section 42 provide for computation of business income,in case of an Assessee engaged in the business of extraction or production

of mineral oil in respect of which an agreement has been entered into

with the central government . The provisions of income tax shall stand

modified in accordance with the terms of such agreement by virtue of

section 42. it is to be noted that the provisions of section 42 apply only

for computation of total income under the provisions of act

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Section 43A

n Special provisions consequential to changes in rate ofexchange of currency

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Section 43B

n Certain deductions to be only on actual payment

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Section 43C

n

Special provision for computation of cost of acquisition of Certainassets.

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Section 43D

n

Special provision in case of income of public financial Institutions,etc.

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Section 44

n

Insurance business

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Section 44A. Special provisions fordeduction in the case of trade,

professional or similar association.

1) The amount received during a previous year by anytrade, professional or similar association from its members,whether by way of subscription or otherwise falls short of the

expenditure incurred by such association during that previousyear, solely for the purposes of protection or advancement ofthe common interests of its members, the amount so fallenshort shall, subject to the provisions of this section, beallowed as a deduction in computing the income of the

association assessable for the relevant assessment year underthe head "Profits and gains of business or profession.

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2) If there is no income assessable under that head or the deficiencyallowable exceeds such income, the whole or the balance of thedeficiency, as the case may be, shall be allowed as a deduction in

computing the income of the association assessable for the relevantassessment year.

3) In computing the income of the association for the relevantassessment year under sub-section (1), effect shall first be given toany other provision of this Act under which any allowance or loss in

respect of any earlier assessment year is carried forward and set offagainst the income for the relevant assessment year.

4) The amount of deficiency to be allowed as a deduction under thissection shall in no case exceed one-half of the total income of theassociation as computed before making any allowance under this

section.5) This section applies only to that trade, professional or similarassociation the income of which or any part thereof is not distributedto its members except as grants to any association or institutionaffiliated to it.

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Section 44AA . Maintenance of accounts bycertain persons carrying on profession orbusiness.

1) Every person carrying on legal, medical, engineering orarchitectural profession or the profession of accountancy ortechnical consultancy or interior decoration or any other

profession as is notified 707 by the Board in the Official Gazetteshall keep and maintain such books of account and otherdocuments as may enable the Assessing Officer to compute histotal income in accordance with the provisions of this Act.

2) Every person carrying on business or profession shall, -

(i) If his income from business or profession exceeds one lakh

twenty thousand rupees or his total sales, turnover or grossreceipts, as the case may be, in business or profession exceed orexceeds ten lakh rupees in any one of the three years immediately

preceding the previous year; or

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(ii) Where the business or profession is newly set up in anyprevious year, if his income from business or profession is likely toexceed one lakh twenty thousand rupees or his total sales, turnover

or gross receipts, as the case may be, in business or profession areor is likely to exceed ten lakh rupees, during such previous year; or

(iii) Where the profits and gains from the business are deemed tobe the profits and gains of the assessee under section 44AD orsection 44AE or section 44AF, as the case may be, and the

assessee has claimed his income to be lower than the profits orgains so deemed to be the profits and gains of his business, as thecase may be, during such previous year, keep and maintain such

books of account and other documents as may enable theAssessing Officer to compute his total income in accordance withthe provisions of this Act.

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3) The Board may, having regard to the nature of the business orprofession carried on by any class of persons, prescribe, the books

of account and other documents (including inventories, wherevernecessary) to be kept and maintained under sub-section (1) or sub-section (2), the particulars to be contained therein and the formthe manner in which and the place at which they shall be kept andmaintained.

4) The Board may prescribe, by rules, the period for which thebooks of account and other documents to be kept and maintainedunder sub-section (1) or sub-section (2) shall be retained.

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Section 44AB. Audit of accounts of certain persons carrying onbusiness or profession.

Every person, - (a) Carrying on business shall, if his totalsales, turnover or gross receipts, as the case may be, in

business exceed or exceeds forty lakh rupees in any previousyear, or

(b) Carrying on profession shall, if his gross receipts inprofession exceed ten lakh rupees in any previous year, or

(c) Carrying on the business shall, if the profits and gainsfrom the business are deemed to be the profits and gains of

such person under section 44AD or section 44AE or section44AF, as the case may be, and he has claimed his income to

be lower than the profits or gains so deemed to be the profitsand gains of his business, as the case may be, in any previousyear, get his accounts of such previous year audited by an

accountant before the specified date and furnished by that2020

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Section 44AD . Special provision for computing profits and gains ofbusiness of civil construction, etc.

In the case of an assessee engaged in the business of civilconstruction or supply of labour for civil construction, a sum equalto eight per cent of the gross receipts paid or payable to the assesseein the previous year on account of such business or, as the case may

be, a sum higher than the aforesaid sum as declared by the assesseein his return of income, shall be deemed to be the profits and gainsof such business chargeable to tax under the head "Profits and gainsof business or profession" :

Provided that nothing contained in this sub-section shall apply incase the aforesaid gross receipts paid or payable exceed an amountof forty lakh rupees.

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For the purposes of this section, the expression "civilconstruction" includes

a) The construction or repair of any building bridge, dam or otherstructure or of any canal or road;

b) The execution of any works contract.

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Section 44AE. Special provision for computing profits and gains

of business of plying, hiring or leasing goods carriages.

1) In this case an assessee, who owns not more than ten goodscarriages and who is engaged in the business of plying, hiring orleasing such goods carriages, the income of such businesschargeable to tax under the head "Profits and gains of business or

profession shall be deemed to be the aggregate of the profits andgains, from all the goods carriages owned by him in the previousyear.

2) The profits and gains from each goods carriage, -

(i) Being a heavy goods vehicle, shall be an amount equal to two

thousand rupees for every month or a part of month during whichthe heavy goods vehicle is owned by the assessee in the previousyear or, as the case may be, an amount higher than the aforesaidamount as declared by him in his return of income.

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ii)Other than a heavy goods vehicle, shall be an amount equal toone thousand eight hundred rupees for every month or part of amonth during which the goods carriage is owned by the assessee

in the previous year or, as the case may be, an amount higher thanthe aforesaid amount as declared by him in his return of income.

An assessee, who is in possession of a goods carriage, whethertaken on hire-purchase or on installments and for which the whole

or part of the amount payable is still due, shall be deemed to bethe owner of such goods carriage

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In the case of an assessee engaged in retail trade in any goods ormerchandise, a sum equal to five per cent of the total turnover in the

previous year on account of such business or, as the case may be, a sumhigher than the aforesaid sum as declared by the assessee in his return ofincome shall be deemed to be the profits and gains of such business

chargeable to tax under the head "Profits and gains of business orprofession" .

This section is applicable only if the following conditions areapplied:

1) The taxpayer may be an individual, HUF, AOP, firm, company, orany other person. He may be a resident or non-resident.

2) The taxpayer is engaged in the business of retail trade in goods ormerchandise.

3) Total turnover from the above business does not exceed Rs. 40 lakh.

Section 44AF. SPECIAL PROVISIONS FOR COMPUTING PROFITSAND GAINS OF RETAIL

BUSINESS.

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All deduction u/s 30-38 including depreciation and unabsorbed

depreciation, are deemed to have been already allowed and notfurther deduction is allowed under these sections.

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n Notwithstanding anything to the contrary contained in sections 28 to 43A in the

case of an assessee, being a non-resident, engaged in the business of operation of

ships, a sum equal to seven and a half percent of the aggregate of the amounts

specified in sub-section (2) shall be deemed to be the profits and gains of such

business chargeable to tax under the head "Profits and gains of business or

profession".

Section 44B. Special provision for computingprofits and gains of shipping business in the

case of non-residents.

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n (i) The amount paid or payable (whether in or out of India) to the assessee or to

any person, on his behalfon account of the carriage of passengers, livestock, mail

or goods shipped at any port in India; and

n (ii) The amount received or deemed to be received in India by or on Behalf of

the assessee on account of the carriage of passengers, Livestock, mail or

goods shipped at any port outside India.

Section 44B. profits and gains of shipping

business in the case of non-residents.

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n (a) The amount paid or payable (whether in or out of India) to the assessee or to

any person on his behalfon account of the provision of services and facilities in

connection with, or supply of plant and machinery on hire used, or to be

used, in the prospecting for, or extraction or production of, mineral oils in

India; and

(b) The amount received or deemed to be received in India by or on behalf of

the assessee on account of the provision of services and facilities in connection

with, or supply of plant and machinery on hire used, or to be used, in the

prospecting for, or extraction or production of, mineral oils outside India.

Section 44BB. Special provision forcomputing profits and gains in connection

with the business of exploration, etc., Ofmineral oils.

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n (a) The amount paid or payable (whether in or out of India) to the assessee or to

any person on his behalfon account of the carriage of passengers, livestock, mail

or goods from any place in India; and

n (b) The amount received or deemed to be received in India by or on behalf of

the assessee on account of the carriage of passengers, livestock, mail or

goods from any place outside India.

Section 44BBA . Special provision forcomputing profits and gains of the business

of operation of aircraft in the case of non-residents.

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n Being a foreign company, engaged in the business of civil construction or the

business of erection of plant or machinery or testing or commissioning thereof, in

connection with a turnkey power project approved by the Central Government 727

in this behalf and financed under any international aid programme, a sum

equal to ten per cent of the amount paid or payable

Section 44BBB . Special provision forcomputing profits and gains offoreign companies engaged in the business of

civil construction, etc., In certain turnkeypower projects.

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n (a) An amount equal to five per cent of the adjusted total income, or

n (c) The amount of so much of the expenditure in the nature of head office

expenditure incurred by the assessee as is attributable to the business or profession

of the assessee in India, whichever is the least : Provided that in a case

where the adjusted total income of the assesse is a loss, the amount under

clause (a) shall be computed at the rate of five per cent of the average adjusted

total income of the assessee.

Section 44C. Deduction of head office

Expenditure in the case of non-residents.

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n b) Salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites

or profits in lieu of or in addition to salary, whether paid or allowed to any

employee or other person employed in or managing the affairs of, any office

outside India;

n c) Travelling by any employee or other person employed in, or

managing the affairs of, any office outside India; and

n d) Such other matters connected with executive and general

n administration as may be prescribed.

Section 44C. Deduction of head office

Expenditure in the case of non-residents.

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Section 44D Special provisions for

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n (a) The deductions admissible under the said sections in computing the

income by way of royalty or fees for technical services received from Government

or an Indian concern in pursuance of an agreement made by the foreign company

with Government or with the Indian concern before the 1st day of April, 1976,

shall not exceed in the aggregate twenty per cent of the gross amount of suchroyalty or fees as reduced by so much of the gross amount of such royalty as

consists of lump sum consideration for the transfer outside India of, or the

imparting of information outside India in respect of, any data,

documentation, drawing or specification relating to any patent, invention,

model, design, secret formula or process or trade mark or similar property;

Section 44D. Special provisions forcomputing income by way of royalties, etc.,In the case of foreign companies.

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n (b)No deduction in respect of any expenditure or allowance shall be allowed

under any of the said sections in computing the income by way of royalty or fees

for technical services received from Government or an Indian concern in

pursuance of an agreement made by a foreign company with Government

or with the Indian concern after the 31st day of March, 1976;

Section 44D. Income by way of royalties

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