Section 40(b) of the Income Tax Act

Income-tax Act, 2025: s.35

Section 40(b) 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(b) is Textile Machinery Corporation Ltd. v. CIT (107 ITR 195), cited in 165 of the 428 judgments on BharatTax that turn on this section.

Leading authorities on Section 40(b)

Textile Machinery Corporation Ltd. v. CIT
107 ITR 195 · 1977 · Supreme Court
165
citing judgments

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.

7.14 In CIT v. Gwalior Rayon Silk Mfg. Co. Ltd.
196 ITR 149 · 1992 · Supreme Court
120
citing judgments

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.

CIT v. Ramniklal Kothari
74 ITR 57 · 1969 · Supreme Court
28
citing judgments

A partner's income from a firm, including salary, bonus, commission, or remuneration, is considered business income in their hands. Expenses necessary for earning this business income are deductible.

CIT vs. South Arcot Soc. (176 ITR 117, 119) (SC) Ct v. UO Co-op Fed. (
177 ITR 418 · 1989 · Supreme Court
26
citing judgments

Provisions granting deduction, exemption, or relief to an assessee are to be interpreted liberally and in favour of the assessee.

Haji Nazir Hussain v. ITO
91 ITD 42 · 2004 · ITAT
19
citing judgments

Section 68 additions can be made based on impounded papers, even if sums are not credited in books, to prevent assessees from benefiting from their own lapses.

Assam Bengal Cement Co. Ltd. v. CIT
159 ITR 253 · 1986 · High Court
16
citing judgments

Expenditure incurred with a view to producing profits is considered revenue expenditure.

Md. Serajuddin & Brothers v. CIT
210 Taxmann 84 · 2012 · High Court
16
citing judgments

Where a firm claims deduction for partner's remuneration under Section 40(b), income from other sources that is included in the profit and loss account cannot be excluded when calculating 'book profit'.

CIT v. Anil Hardware Store
323 ITR 368 · 2010 · High Court
7
citing judgments
Sanjeevi & Co. v. CIT
62 ITR 156 · 1966 · High Court
5
citing judgments
225 ITR 640 (MP) CIT vs Orissa Corporation (P) Ltd, 159 ITR 78 (SC) CIT v. Creative World Telefilms Ltd.
292 ITR 241 · 2007 · High Court
4
citing judgments

Judgments on Section 40(b)

Asst CIT 16(3), Mumbai vs. Wadia Ghandy & Co., Mumbai

In the result, the appeal by the assessee as well as by the Revenue stands dismissed

ITA 3400/MUM/2016[2011-12]Status: DisposedITAT Mumbai01 Mar 2018AY 2011-12

Bench: Shri Shamim Yahya, Am & Shri Ram Lal Negi, Jm आयकर अपील सं./I.T.A. No.3400/Mum/2016 ("नधा"रण वष" / Assessment Year: 2011-12) Asst. Cit-16(3), Wadia Ghandy & Co., Room No.446, 4Th Floor, N. M. Wadia Building, बनाम/ 2Nd Floor, 123, Aayakar Bhavan, M. K. Road, Vs. Mumbai-400 020 M. G. Road, Fort, Mumbai-400 001 "थायी लेखा सं./जीआइआर सं./Pan/Gir No. Aaafw 1081 H (Revenue) (Assessee) : & आयकर अपील सं./I.T.A. No.2835/Mum/2016 ("नधा"रण वष" / Assessment Year: 2011-12) बनाम/ Wadia Ghandy & Co., Jt. Cit, Circle 16(3), Mumbai-400 001 Mumbai-400 020 Vs. (Assessee) : (Revenue) Revenue By : Shri Ram Tiwari : Shri Millin Dattani & Assessee By Shri Parth Desai सुनवाई क" तार"ख / : 04.01.2018 Date Of Hearing घोषणा क" तार"ख / : 01.03.2018 Date Of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: These Are Cross Appeals By The Assessee & Revenue Arising Out Of The Order Of Ld. Commissioner Of Income Tax (Appeals) Dated 26.02.2016, Pertaining To Assessment Year 2011-12. Wadia Ghandy & Co. Assessee'S Appeal: 2. The Grounds Of Appeal Read As Under: 1. The Ld. Commissioner Of Income Tax (Appeals) Was Not Justified In Confirming The Assessing Officer’S Action Of Disallowance Of Deprecation On Tenancy Rights Of Rs.6,44,920/-. 2. The Ld. Commissioner Of Income Tax (Appeals) Failed To Appreciate That Tenancy Rights Were A Form Of License. Revenues Appeal:

For Respondent: Shri Ram Tiwari
Section 143(1)Section 143(3)Section 40