Section 40(a)(i) of the Income Tax Act
The decision most relied on for Section 40(a)(i) is Rotork Controls India Pvt. Ltd. v. CIT (314 ITR 62), cited in 645 of the 281 judgments on BharatTax that turn on this section.
Leading authorities on Section 40(a)(i)
A provision for expenses, such as warranty, is a deductible liability for income tax purposes if it constitutes a present obligation arising from past events, and a reliable estimate of the amount of obligation is possible.
Tax must be deducted at source from payments made to a non-resident under Section 195 only if such payment is chargeable to tax in India. The Assessing Officer bears the onus to establish that the payments made are indeed chargeable to tax under the Income Tax Act.
Income from offshore supply of goods and services is not taxable in India if the entire transaction, including transfer of ownership and payments, occurs outside India.
Payments by Indian residents to non-resident foreign software suppliers for software are considered royalty, constituting income deemed to accrue in India under section 9(1)(v), thereby requiring tax deduction at source under section 195.
An expense incurred by an assessee for its own business, such as advertising, marketing, and promotional (AMP) expenses, cannot be disallowed merely because it incidentally or indirectly benefits the assessee's sister concerns or associated enterprises.
A taxpayer can legitimately arrange their commercial affairs to reduce tax liability, as permissible tax planning differs from tax evasion. Only real income is subject to tax, not hypothetical or notional income imputed by the Assessing Officer.
A non-resident commission agent is not chargeable to tax in India on commission income if no business operations are carried out in India. Consequently, no TDS is required under Section 195 on such payments.
Section 195 requires tax deduction at source on the gross sum paid to a non-resident even if no part of the income is chargeable in India, particularly if no application under Section 195(2) or 195(3) is filed.
The Supreme Court lays down principles for deducting tax at source (TDS) under Section 195 on payments to non-residents, including aspects of income deemed taxable in India and the application of Double Taxation Avoidance Agreements (DTAAs) under Section 90.
Fees for technical services (FTS) apply only to actual services provided for a fee, not merely the sale of a product with technical input. The term 'technical' refers to applied and industrial science, a definition crucial for classifying income like software sales or roaming charges and determining TDS liability.
Judgments on Section 40(a)(i)
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