Section 40(a)(i) of the Income Tax Act

Income-tax Act, 2025: s.35

Section 40(a)(i) falls under section 40 of the Income-tax Act, 1961, which corresponds to section 35 (Amounts not deductible in certain circumstances) of the Income-tax Act, 2025.

Read section 35 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 40(a)(i) is Rotork Controls India Pvt. Ltd. v. CIT (314 ITR 62), cited in 739 of the 2,009 judgments on BharatTax that turn on this section.

Leading authorities on Section 40(a)(i)

Rotork Controls India Pvt. Ltd. v. CIT
314 ITR 62 · 2009 · Supreme Court
739
citing judgments

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.

GE India Technology Centre Pvt. Ltd. v. CIT
327 ITR 456 · 2010 · Supreme Court
663
citing judgments

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.

CIT v. Samsung Electronics Ltd.
345 ITR 494 · 2012 · High Court
461
citing judgments

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.

Ishikawajima Harima Heavy Industries Ltd. v. DIT
288 ITR 408 · 2007 · Supreme Court
394
citing judgments

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.

Sassoon J. David & Co. Pvt. Ltd. v. CIT
118 ITR 261 · 1979 · Supreme Court
323
citing judgments

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.

Additionally, in CIT v. A. Raman & Co.
67 ITR 11 · 1968 · Supreme Court
321
citing judgments

The mere lawful reorganization of a business transaction does not automatically imply an intent to evade tax, and genuine business adjustments should not be considered suppressive actions without clear evidence of such intent.

CIT v. Toshoku Ltd.
125 ITR 525 · 1980 · Supreme Court
270
citing judgments

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.

Skycell Communications Ltd. v. DCIT
251 ITR 53 · 2001 · High Court
253
citing judgments

Technical services involve human intervention and expertise, not just routine or machine-based operations. Routine customer support and standard facility provision through technology do not constitute technical services under the Act.

Transmission Corporation of Andhra Pradesh v. CIT
239 ITR 587 · 1999 · Supreme Court
243
citing judgments

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.

Velayudhaswamy Spinning Mills (P) Ltd. v. ACIT
340 ITR 477 · 2012 · High Court
213
citing judgments

If unabsorbed depreciation or losses from years prior to the initial assessment year for Section 80-IA claim have already been set off against other income, they cannot be notionally carried forward again to reduce the profits of the eligible unit for computing deduction under Section 80-IA. The notional carry forward provision under Section 80-IA(5) applies only to unabsorbed depreciation or losses that have not yet been absorbed.

Judgments on Section 40(a)(i)

DCIT, New Delhi vs. M/S. Okaya Infocom Pvt. Ltd., Delhi

In the result, appeal of the revenue is dismissed

ITA 2209/DEL/2013[2009-10]Status: DisposedITAT Delhi22 Jan 2016AY 2009-10

Bench: Shri H.S.Sidhu & Shri Prashant Maharishidcit, Okaya Infocom Pvt. Ltd., Circle-13(1), Room No.406, Vs. D-7, Udyog Nagar, C.R.Building, I.P. Estate, Rohtak Road, New Delhi Delhi Pan:Aaaco8073E (Appellant) (Respondent) Assessee By : Sh. S.C. Gupta, Tax Consultant Revenue By : Sh.P Dam Kanunjna, Sr. Dr Date Of Hearing 23.11.2015 Date Of Pronouncement 22.01.2016 O R D E R Per Prashant Maharishi, A. M. 1. The Present Appeal Filed By The Revenue Is Directed Against The Order Of Learned Cit (A)- Xvi, Delhi Dated 31.01.2013 Passed For The Assessment Year 2009-10. The Revenue Raised Following Grounds Of Appeal: “1. The Ld, Cit (A) Has Erred In Law & On Facts In Deleting The Addition Made U/S 40(A)(I) Of The I.T. Act Amounting To Rs.3,78,73,836/-; 2. The Ld. Cit (A) Has Erred In Law Arid On Facts In Ignoring The Fact That The Assessee Has Computed Its Income Based On I.T.Act, 1961 & Not As Per Dtaa Between Usa & India. Therefore, All Provisions Of I.T.Act, 1961 Shall Apply. 3. The Ld, Cit (A) Has Erred In Law & On Facts In Not Considering The Fact That The Usa Office Being Merely A Branch Office & Provisions Of India Act Are Fully Applicable On It. 4. The Ld. Cit (A) Has Erred In Law Arid On Facts By Ignoring The Fact That Though The Payments Were Made By The Branch Office Out Of The Profits Earned; These Profits Were Directly Or Indirectly Attributed To India Office Of The Assessee. 5 The Ld. Cit (A) Has Erred In Law Arid On Facts In Failing To Consider The Fact That Sec.195 Of The Act Requires Tds To Be Deducted On All Payments For Any Managerial, Technical & Consultancy Fees

For Appellant: Sh. S.C. Gupta, Tax ConsultantFor Respondent: Sh.P Dam Kanunjna, Sr. DR
Section 115JSection 195Section 40Section 40aSection 9Section 9(1)(vii)