“Section 10(40)”
The decision most relied on for Section 10(40) is HDFC Bank Ltd. v. DCIT (383 ITR 529), cited in 408 judgments on BharatTax.
Leading authorities on Section 10(40)
Where an assessee has sufficient interest-free funds, investments yielding exempt income are presumed to be made out of such funds, precluding disallowance of related interest expenditure under section 14A.
A provision for doubtful debts cannot be added back while computing book profits under Section 115JB of the Income-tax Act for Minimum Alternate Tax (MAT) purposes.
A new industrial undertaking is not considered a reconstruction of an existing business for tax deduction purposes if it is a separate, independent production unit manufacturing commercially tangible products that can operate without losing its identity in the old business. The transfer and substantial use of assets and manpower from an old business to a new one may indicate reconstruction.
The reasonableness of an expenditure for business purposes must be assessed from the businessman's perspective, not the revenue's, and the primary motive to earn income directly is not a prerequisite for its admissibility as a deduction.
Incentive provisions in the Income-tax Act, particularly those granting deductions for new industrial undertakings, must be construed liberally to achieve their legislative purpose. This principle guides the interpretation of conditions such as what constitutes a 'new undertaking' versus a 'splitting up or reconstruction' of an existing business for claiming deductions.
An Indian company that exercises control and supervision over a seconded employee and bears the salary cost is an economic employer. Such a company is not liable to withhold tax on the reimbursement of salary to the overseas company, thereby avoiding disallowance under Section 40(a)(i).
There can be no presumption that an assessee must have incurred expenditure to earn tax-free income. Disallowance under section 14A requires actual expenditure, not notional or estimated amounts.
Additional depreciation under Section 32(1)(iia) can be claimed in the year an asset is acquired and installed, even if it is claimed in a subsequent year of acquisition and installation.
