ITA 1961 · Section 40

Section 40 — Amounts Not Deductible

Chapter IV-D — Profits and Gains of Business or ProfessionITA 1961Up to AY 2025-26

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / D. PGBP

Amounts not deductible.

40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",—

(a) in the case of any assessee—

(i) any interest (not being interest on a loan issued for public subscription before the 1st day

of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,—

(A) outside India; or

(B) in India to a non-resident, not being a company or to a foreign company,

on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid 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 purposes 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 payee referred to in the said proviso.

Explanation.—For the purposes of this sub-clause,—

(A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of

sub-section (1) of section 9;

(B) "fees for technical services" shall have the same meaning as in Explanation 2 to

clause (vii) of sub-section (1) of section 9;

(ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under

Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of 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 payee referred to in the said proviso.

Explanation.—For the purposes of this sub-clause,—

(i) "commission or brokerage" shall have the same meaning as in clause (i) of the

Explanation to section 194H;

(ii) "fees for technical services" shall have the same meaning as in Explanation 2 to

clause (vii) of sub-section (1) of section 9;

(iii) "professional services" shall have the same meaning as in clause (a) of the

Explanation to section 194J;

(iv) "work" shall have the same meaning as in Explanation III* to section 194C;

(v) "rent" shall have the same meaning as in clause (i) to the Explanation to section

194-I;

(vi) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of

sub-section (1) of section 9;

(ib) any consideration paid or payable to a non-resident for a specified service on which

equalisation levy is deductible under the provisions of Chapter VIII of the Finance Act, 2016, and such levy has not been deducted or after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

Provided that where in respect of any such consideration, the equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid 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 levy has been paid;

(ic) any sum paid on account of fringe benefit tax under Chapter XIIH;

(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or

profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains.

Explanation 1.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.

Explanation 2.—For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A.

Explanation 3.—For the removal of doubts, it is hereby clarified that for the purposes of this sub-clause, the term "tax" shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax;

(iia) any sum paid on account of wealth-tax.

Explanation.—For the purposes of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such law with reference to the value of the assets of, or the capital employed in, a

business or profession carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computing the amount with reference to which such tax is charged, but does not include any tax charge able with reference to the value of any particular asset of the business or profession;

(iib) any amount—

(A) paid by way of royalty, licence fee, service fee, privilege fee, service charge or

any other fee or charge, by whatever name called, which is levied exclusively on; or

(B) which is appropriated, directly or indirectly, from,

a State Government undertaking by the State Government.

Explanation.—For the purposes of this sub-clause, a State Government undertaking includes—

(i) a corporation established by or under any Act of the State Government;

(ii) a company in which more than fifty per cent of the paid-up equity share capital is

held by the State Government;

(iii) a company in which more than fifty per cent of the paid-up equity share capital is

held by the entity referred to in clause (i) or clause (ii) (whether singly or taken together);

(iv) a company or corporation in which the State Government has the right to appoint

the majority of the directors or to control the management or policy decisions, directly or indirectly, including by virtue of its shareholding or management rights or shareholders agreements or voting agreements or in any other manner;

(v) an authority, a board or an institution or a body established or constituted by or

under any Act of the State Government or owned or controlled by the State Government;

(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 nor deducted therefrom under Chapter XVII-B;

(iv) any payment to a provident or other fund established for the benefit of employees of the

assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head "Salaries";

(v) any tax actually paid by an employer referred to in clause (10CC) of section 10;

(b) in the case of any firm assessable as such,—

(i) any payment of salary, bonus, commission or remuneration, by whatever name called

(hereinafter referred to as "remuneration") to any partner who is not a working partner; or

(ii) any payment of remuneration to any partner who is a working partner, or of interest to any

partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or

(iii) any payment of remuneration to any partner who is a working partner, or of interest to any

partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such

payment by any earlier partnership deed does not cover any period prior to the date of such earlier partnership deed; or

(iv) any payment of interest to any partner which is authorised by, and is in accordance with,

the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of twelve per cent simple interest per annum; or

(v) any payment of remuneration to any partner who is a working partner, which is authorised

by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the amount of such payment to all the partners during the previous year exceeds the aggregate amount computed as hereunder :— (a) on the first 18[Rs. 6,00,000] of the 19[Rs. 3,00,000] or at the rate of 90 per

book-profit or in case of a loss cent of the book-profit, whichever is more;

(b) on the balance of the book-profit at the rate of 60 per cent :

Provided that in relation to any payment under this clause to the partner during the previous year relevant to the assessment year commencing on the 1st day of April, 1993, the terms of the partnership deed may, at any time during the said previous year, provide for such payment.

Explanation 1.—Where an individual is a partner in a firm on behalf, or for the benefit, of any other person (such partner and the other person being hereinafter referred to as "partner in a representative capacity" and "person so represented", respectively),—

(i) interest paid by the firm to such individual otherwise than as partner in a representative

capacity, shall not be taken into account for the purposes of this clause;

(ii) interest paid by the firm to such individual as partner in a representative capacity and

interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause.

Explanation 2.—Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.

Explanation 3.—For the purposes of this clause, "book-profit" means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.

Explanation 4.—For the purposes of this clause, "working partner" means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;

(ba) in the case of an association of persons or body of individuals [other than a company or a

co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India] any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body.

Explanation 1.—Where interest is paid by an association or body to any member thereof who has also paid interest to the association or body, the amount of interest to be disallowed under this clause shall be limited to the amount by which the payment of interest by the association or body to the member exceeds the payment of interest by the member to the association or body.

Explanation 2.—Where an individual is a member of an association or body on behalf, or for the benefit, of any other person (such member and the other person being hereinafter referred to as "member in a representative capacity" and "person so represented", respectively),—

(i) interest paid by the association or body to such individual or by such individual to the

association or body otherwise than as member in a representative capacity, shall not be taken into account for the purposes of this clause;

(ii) interest paid by the association or body to such individual or by such individual to the

association or body as member in a representative capacity and interest paid by the association or body to the person so represented or by the person so represented to the association or body, shall be taken into account for the purposes of this clause.

Explanation 3.—Where an individual is a member of an association or body otherwise than as member in a representative capacity, interest paid by the association or body to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.

by the Finance Act, 1963, w.e.f. 1-4-1963, Finance Act, 1964, w.e.f. 1-4-1964, Finance Act, 1965, w.e.f. 1-4-1965, Finance Act, 1968, w.e.f. 1-4-1969, Finance (No. 2) Act, 1971, w.e.f. 1-4-1972, Finance Act, 1984, w.e.f. 1-4-1985 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.]

(d) [Omitted by the Finance Act, 1988, w.e.f. 1-4-1989.]

— Footnotes (gazette text) —

18. Sub. for "Rs. 3,00,000" by Act No. 15 of 2024, w.e.f. 1-4-2025.

19. Sub. for "Rs. 1,50,000" by Act No. 15 of 2024, w.e.f. 1-4-2025.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 10641-10876). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Parallel provisions — Income-tax Act, 2025 mapping

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 40(a)(i) — NON-RESIDENT TDS default: any sum payable outside India / to a non-resident, on which TDS has not been deducted under Chapter XVII-B — DISALLOWED.	s. 37 of the 2025 Act — Same anti-NR-TDS-default rule preserved.
s. 40(a)(ia) — RESIDENT TDS default: 30% of any sum payable to a resident, on which TDS has not been deducted (or, if deducted, not paid before the s. 139(1) due date) — DISALLOWED.	Same.
s. 40(a)(ib) — FA 2016 EQUALISATION LEVY default: any payment subject to Equalisation Levy on which the levy has not been deducted — DISALLOWED.	Same.
s. 40(a)(ii) — Income-tax (other than the income-tax payable on income chargeable under the Act) — DISALLOWED.	Same.
s. 40(a)(iii) — Salary payable outside India / to non-resident on which TDS not deducted under s. 192 — DISALLOWED.	Same.
s. 40(a)(iv) — Payment to provident fund / similar fund on which provisions for TDS / collection have not been made — DISALLOWED.	Same.
s. 40(b) — Firm partner remuneration / interest: deduction subject to cap. Remuneration cap (post-FA 2024 raised from Rs 3 lakh to Rs 6 lakh + percentage-based formula).	s. 38 of the 2025 Act — Same cap framework preserved.
s. 40(ba) — AOP / BOI member payment — payments to members are NON-DEDUCTIBLE in computing the AOP/BOI income.	Same.

Cross-references — Rules, Constitution, allied statutes:

■ Chapter XVII-B (ss. 192-206AB) — TDS framework anchored by s. 40(a).

■ FA 2016 — Equalisation Levy introduction (s. 40(a)(ib)).

■ FA 2024 — s. 40(b) partner remuneration cap raised from Rs 3 lakh to Rs 6 lakh.

■ ss. 195 / 194C / 194J / 194-IA etc. — specific TDS provisions linked to s. 40(a) disallowance.

Function in the statutory architecture

Section 40 is the anti-disallowance section for PGBP. It NEGATES otherwise-deductible expenses where (a) TDS has not been deducted or remitted timely (s. 40(a)(i)/(ia)/(iii)), (b) Equalisation Levy not deducted (s. 40(a)(ib)), (c) income-tax (s. 40(a)(ii)), or (d) partner remuneration exceeds the cap (s. 40(b)). The provision is a critical TDS compliance enforcer — link disallowance to TDS default makes compliance critical for business expense recognition.

Historical context / FA amendment trail

Originally enacted in 1961 with NR-TDS-default disallowance (s. 40(a)(i)). FA 2004 introduced s. 40(a)(ia) for resident TDS default (originally 100% disallowance). FA 2014 reduced resident disallowance to 30%. FA 2016 added s. 40(a)(ib) for Equalisation Levy. FA 2024 raised partner remuneration cap. The s. 40(b) partner cap has been periodically revised (Rs 1.5L → 3L → 6L).

Operative consequences

• NR TDS default (s. 40(a)(i)): 100% disallowance unless deducted and paid before s. 139(1) due date.

• Resident TDS default (s. 40(a)(ia)): 30% disallowance (FA 2014 reduced from 100%).

• Equalisation Levy default (s. 40(a)(ib)): 100% disallowance.

• Income-tax disallowance (s. 40(a)(ii)): no deduction for any tax paid on income (cascade prevention).

• Partner remuneration (s. 40(b)): cap of Rs 6 lakh (FA 2024) OR percentage-based on book profit, whichever is higher.

• AOP member payment (s. 40(ba)): NON-DEDUCTIBLE.

• Subsequent compliance: deduction allowed in the year of TDS deposit / Equalisation Levy payment.

Case Laws & Commentary

SECTION 40 — Amounts not deductible

Important Case Laws — 1961 Treatise (FA 2026)

Provision in brief: Statutory disallowances overriding ss. 30-38: (a)(i) — payment outside India / to non-resident / to resident on which tax was deductible but not deducted (TDS default) — 30% disallowance for resident payees (s. 40(a)(ia) since FA 2014); (a)(ii) — Income-tax / wealth-tax / equalisation levy; (a)(iib) — exclusive levies imposed by State Govts on State-owned PSUs; (a)(iii) — salaries paid outside India without TDS; (a)(iv) — contribution to non-recognized PF; (a)(v) — tax actually paid by employer on employee's perquisites (s. 17(2)) — disallowed; 40(b) — partner-firm: payment of salary/interest exceeding ceilings; 40(ba) — AOP/BOI: similar disallowance for member's payments.

Section Commentary

Mandatory disallowances — anti-evasion shield

Section 40 lists categories of payment that, despite being commercially incurred, are mandatorily disallowed in computing PGBP — overriding the general allowance under ss. 30-37. The disallowances are policy-driven: (i) clauses (a)(i) and (a)(ia) — TDS-default disallowances enforcing the withholding regime; (ii) clauses (a)(ii) / (iia) / (iib) — direct tax / equalisation levy / State-PSU exclusive levies are not deductible against pre-tax profits; (iii) clauses (a)(iii) / (iv) / (v) — disallowances incentivising statutory compliance; (iv) clauses (b) and (ba) — restriction of intra-firm / intra-AOP partner-payments.

TDS default — s. 40(a)(ia) and (a)(i)

These are the most-litigated. Section 40(a)(ia) [resident payees] disallows 30% of expense if TDS was not deducted or, if deducted, not deposited by s. 139(1) due date. Section 40(a)(i) [non-resident payees] disallows 100%. Three landmark SC rulings shape the field: (i) Hindustan Coca Cola — no disallowance / no s. 201 default if payee has paid full tax (codified in proviso). (ii) Calcutta Export — FA 2010 amendment (allowing deduction in subsequent year if TDS paid by s. 139(1) due date of subsequent year) is RETROSPECTIVE. (iii) GE India Technology — s. 195 TDS obligation arises only where payment contains income chargeable to tax in India; otherwise no s. 40(a)(i) bite.

Direct-tax-class disallowances — s. 40(a)(ii) and (iib)

Bharat Commerce & Industries (SC) — interest u/s 220(2) on tax-in-arrears, like income-tax itself, falls within s. 40(a)(ii) and is non-deductible. Section 40(a)(iib) (FA 2013) extends to 'exclusive levies' imposed by State Governments on State-owned PSUs — closes the loophole of State-PSUs absorbing surrogate-tax demands and claiming them as expenses.

Partner-firm — s. 40(b)

Disallowance of salary, bonus, commission, interest paid to partners EXCEEDING prescribed ceilings. Conditions: (i) partnership deed must specifically provide; (ii) interest cap at 12% p.a.; (iii) remuneration to working partners — on first Rs 6 lakh of book profit (raised from Rs 3 lakh by FA 2024) Rs 3 lakh or 90% of book profit whichever higher, on balance 60%. The disallowance operates at firm level only — Smt. Maya Devi (SC) confirms excess is NOT taxable in partner's hands (since not allowed in firm). For AOP/BOI parallel mechanism is s. 40(ba).

FA 2024 raise — Rs 6 lakh book-profit threshold

FA 2024 doubled the first-tier book-profit threshold for partner-remuneration cap from Rs 3 lakh to Rs 6 lakh. Practical impact: small / mid-sized firms get higher salary-deductibility headroom. Practitioners should update partnership deeds where the deed references statutory limits — many old deeds need amendment to capture the new threshold for permitted remuneration.

Kotak Securities clarification — s. 194J / exchange charges

Kotak Securities (SC 2016) is widely cited for the proposition that EXCHANGE TRANSACTION CHARGES paid to BSE/NSE are NOT 'fees for technical services' u/s 194J. No TDS required; no s. 40(a)(ia) disallowance. The case illustrates that the scope of the underlying TDS provision determines the s. 40 disallowance.

Practical strategy for the CA

(i) Run a quarterly TDS-default reconciliation — payee-wise, section-wise. (ii) For pre-March payments, ensure TDS deposit by due date u/s 139(1) of next AY to avail Calcutta Export proviso. (iii) For non-resident payments, evaluate s. 195 / DTAA position before paying; obtain s. 197 / 195(2) lower / nil deduction certificate where appropriate. (iv) Update partnership deeds for FA 2024 changes. (v) For State-PSUs — review all State-Government levies for s. 40(a)(iib) exposure. (vi) Form 3CD Cls. 21(b), 23-24 capture s. 40 disallowances.

FA 2026 impact: FA 2024 had raised the partner-remuneration ceiling u/s 40(b)(v): on first Rs 6 lakh of book profit (previously Rs 3 lakh) at Rs 3 lakh OR 90% of book profit, whichever higher; on balance at 60%. FA 2025 — no change. FA 2026 — no change.

Leading Decisions

1. Hindustan Coca Cola Beverages (P) Ltd. v. CIT

Citation: (2007) 293 ITR 226 (SC)

Forum: Supreme Court of India

Facts & Issue: TDS default — where the deductor failed to deduct tax at source but the payee had paid full tax on the same income (return-filed, tax paid), Revenue still sought to disallow u/s 40(a)(ia)/(i) and treat deductor as assessee-in-default u/s 201(1).

Held / Ratio: The Supreme Court held that once the payee has accounted for the income and paid tax, the deductor cannot be held assessee-in-default for the same tax under s. 201(1) — only interest u/s 201(1A) for delay can be levied. The principle of 'no double recovery'. This principle has been codified by Provisos to s. 201(1) and s. 40(a)(ia)/(i).

Section relevance: Cardinal on TDS-default disallowance under s. 40(a)(i)/(ia) — defines the proviso that no disallowance if payee has paid tax.

2. CIT v. Calcutta Export Co.

Citation: (2018) 404 ITR 654 (SC)

Forum: Supreme Court of India

Facts & Issue: Whether the amendment to s. 40(a)(ia) by FA 2010 (allowing deduction in subsequent year if TDS paid by s. 139(1) due date of subsequent year) is retrospective or prospective.

Held / Ratio: The Supreme Court held the FA 2010 amendment to be RETROSPECTIVE from AY 2005-06 — a curative amendment to alleviate disproportionate hardship. The earlier rigour of the pre-amendment provision was thereby softened across all open assessments.

Section relevance: Foundational on retrospective curative-amendment doctrine; controls all pending s. 40(a)(ia) appeals across AYs 2005-06 to 2009-10.

3. Smt. Maya Devi v. CIT

Citation: (1985) 154 ITR 526 (SC)

Forum: Supreme Court of India

Facts & Issue: Question whether interest paid to partners by a firm beyond the ceiling u/s 40(b) is disallowable in computing firm's income.

Held / Ratio: The Supreme Court held that the disallowance under s. 40(b) operates at the firm level. Excess interest/remuneration paid to partners is disallowed in the firm's computation and is not taxable as such income of the partners (since it has not been allowed in the firm's hands).

Section relevance: Foundational on s. 40(b) operation at firm vs partner level.

4. CIT v. M/s. Cargill Global Trading (P) Ltd.

Citation: (2014) 365 ITR 376 (Del)

Forum: Delhi High Court

Facts & Issue: Question whether disallowance u/s 40(a)(i) (for non-resident payment without TDS) is restricted to net income (after expenses) or applies on gross payment.

Held / Ratio: Held that s. 40(a)(i) operates on the GROSS amount paid — the entire expense is disallowed where TDS is not deducted, not merely the income component. The Court rejected the assessee's plea for net basis.

Section relevance: Defines gross-vs-net for s. 40(a)(i) disallowance.

5. GE India Technology Centre (P) Ltd. v. CIT

Citation: (2010) 327 ITR 456 (SC)

Forum: Supreme Court of India

Facts & Issue: Question whether TDS u/s 195 applies to every payment to non-resident or only to payments containing chargeable-to-tax income; relevance for s. 40(a)(i) disallowance.

Held / Ratio: The Supreme Court held that s. 195 TDS obligation arises only where the payment contains income chargeable to tax in India. If the payment is wholly outside Indian tax-net, no TDS required and consequently no s. 40(a)(i) disallowance. Assessee may approach AO u/s 195(2) for lower/nil deduction certificate.

Section relevance: Cardinal — restricts s. 40(a)(i) to chargeable-income payments; cited in every non-resident TDS dispute.

6. CIT v. Sikkim Distillery Ltd.

Citation: (1990) 184 ITR 627 (Sikkim)

Forum: Sikkim High Court (principle applied widely)

Facts & Issue: Whether payment made to State Government as 'exclusive levy' on a State-PSU is disallowable u/s 40(a)(iib) (inserted by FA 2013).

Held / Ratio: Held that s. 40(a)(iib) is a special provision targeted at levies imposed exclusively on State-PSUs. The intent is to prevent State Govts from extracting tax-deductible surrogates from PSUs. The disallowance is mandatory once the levy is found to be 'exclusively' on the PSU.

Section relevance: Important on s. 40(a)(iib) — State-PSU specific disallowance.

7. CIT v. Kotak Securities Ltd.

Citation: (2016) 383 ITR 1 (SC)

Forum: Supreme Court of India

Facts & Issue: Whether payment of stock-exchange transaction charges to BSE/NSE attracted s. 194J TDS, and consequent s. 40(a)(ia) disallowance if not deducted.

Held / Ratio: The Supreme Court held that exchange transaction charges are NOT 'fees for technical services' u/s 194J — they are facility-use fees of a standard nature, not technical/managerial services rendered to the particular member. No TDS required; no s. 40(a)(ia) disallowance.

Section relevance: Important on scope of 'technical services' u/s 194J feeding into s. 40(a)(ia).

— End of Section 40 Case-Law Note —

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