India - Income Tax Act 2010 - Saarc

1.259 CH. IV - COMPUTATION OF BUSINESS INCOME S. 40Aany director, partner or member of such company, firm, associationor 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 suchassessee, has a substantial interest in the business or professionof that person; or(B) where the assessee being a company, firm, association of personsor Hindu undivided family, or any director of such company,partner of such firm or member of the association or family, orany relative of such director, partner or member, has a substantialinterest in the business or profession of that person.Explanation.—For the purposes of this sub-section, a person shall be deemed tohave 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 beneficialowner of shares (not being shares entitled to a fixed rate of dividendwhether with or without a right to participate in profits) carrying notless 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 ofsuch business or profession.17[ 18 (3) Where the assessee incurs any expenditure in respect of which a paymentor aggregate of payments made to a person in a day, otherwise than by anaccount payee cheque drawn on a bank or account payee bank draft, exceeds17. Sub-sections (3) and (3A) substituted for sub-section (3) by the Finance Act, 2008, w.e.f.1-4-2009. Prior to its substitution, sub-section (3), as amended by the Direct Tax Laws(Amendment) Act, 1987, w.e.f. 1-4-1988/1-4-1989, Finance Act, 1995, w.e.f. 1-4-1996,Finance (No. 2) Act, 1996, w.e.f. 1-4-1997, Taxation Laws (Amendment) Act, 2006, w.e.f.13-7-2006 and the Finance Act, 2007, w.e.f. 1-4-2008, read as under :“(3)(a) Where the assessee incurs any expenditure in respect of which payment is made ina sum exceeding twenty thousand rupees otherwise than by an account payee chequedrawn on a bank or account payee bank draft, no deduction shall be allowed in respectof such expenditure;(b) Where an allowance has been made in the assessment for any year in respect of anyliability incurred by the assessee for any expenditure and subsequently during anyprevious year (hereinafter referred to as subsequent year) the assessee makes paymentin respect thereof, otherwise than by an account payee cheque drawn on a bank oraccount payee bank draft, the payment so made shall be deemed to be the profits and gainsof business or profession and accordingly chargeable to income-tax as income of thesubsequent year if the amount of payment exceeds twenty thousand rupees:Provided that no disallowance shall be made and no payment shall be deemed to be theprofits and gains of business or profession under this sub-section where any payment ina sum exceeding twenty thousand rupees is made otherwise than by an account payeecheque drawn on a bank or account payee bank draft, in such cases and under suchcircumstances as may be prescribed, having regard to the nature and extent of bankingfacilities available, considerations of business expediency and other relevant factors.”18. See also Circular No. 522, dated 18-8-1988, Circular No. 4/2006, dated 29-3-2006, CircularNo. 8/2006, dated 6-10-2006 and Circular No. 10/2008, dated 5-12-2008. For details as wellas relevant case laws, see Taxmann’s Master Guide to Income-tax Act.