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DOUBT

M.PORNIMA (Coimbatore) (278 Points)

22 November 2009

Sec 40A(2)b gives relationship between the firm and its members likewise,who are the relatives of company?

one is Director i need the other one.

Plz anyone who knows the answer reply me at the earliest.

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3 Replies

Deeps (Article Assisstant) (2485 Points)
Replied 22 November 2009

EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES
[SECTION 40A]

Payments to relatives and associates - Sub-section (2) of section 40A provides that
where the assessee incurs any expenditure in respect of which a payment has been or is to be
made to a relative or to an associate concern so much of the expenditure as is considered to
be excessive or unreasonable shall be disallowed by the Assessing Officer. While doing so he
shall have due regard to :
(i) the market value of the goods, service of facilities for which the payment is made; or
(ii) the legitimate needs of the business or profession carried on by the assessee; or
(iii) the benefit derived by or accruing to the assessee from such a payment.
The word “relative” as defined in the section 2(41) of the Act, means, in relation to individual,
the spouse, brother or sister of any lineal ascendant or descendant of that individual. Whether
the assessee is a firm, H.U.F. or an association of persons the relationship will have to be
reckoned for the purpose, with reference to the partners of the firm and the members of the
family or association. Similarly, where the assessee is a company the relationship will have to
be reckoned with reference to the directors or persons having substantial interest in the
company. A person shall be deemed to have a substantial interest in a business or profession
if -
- in a case where the business or profession is carried on by a company, such person is,
at any time during the previous year, the beneficial owner of equity shares carrying not
less than 20% of the voting power and
- in any other case such person is, at any time during the previous year, beneficially
entitled to not less than 20% the profits of such business or profession.