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[Cites 0, Cited by 1042] [Section 40A] [Entire Act]

Union of India - Subsection

Section 40A(2) in The Income Tax Act, 1961

(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 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;
[* * *] [ Substituted by Act 11 of 1987, Section 7, for certain words (w.r.e.f. 1.4.1987).]
(b)[ The persons referred to in clause (a) are the following, namely:- [ Inserted by Act 19 of 1968, Section 7 (w.e.f. 1.4.1968).]
(i) where the assessee is an individual any relative of the assessee;
(ii) where the assessee is a company, firm, association of persons or Hindu undivided family any director of the company partner of the firm, or member of the association 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.]