Section 40A(5) overrides section 20(1)(i), so related securities-income deductions cannot reduce employee-expenditure disallowance.

Section 40A(5) applies in computing business income and overrides contrary provisions, so employee-related expenditure falling within its ambit cannot be reduced by reference to a deduction allowed under section 20(1)(i) for income from interest on securities. The deduction under section 20(1)(i) is confined to that head of income and does not control the ceiling or exclusion exercise under section 40A(5). Accordingly, proportionate expenses deductible under section 20(1)(i) could not be excluded from the employee-expenditure computation, and the issue was answered in the negative in favour of the Revenue.

---

---

Issues: Whether, for disallowance under section 40A(5) of the Income-tax Act, 1961, the proportionate expenses deductible under section 20(1)(i) of the Income-tax Act, 1961 in relation to interest on securities could be excluded from the computation of the employee-related expenditure.

Analysis: Section 40A(5) operates in the computation of income under the head "Profits and gains of business or profession" and contains a non obstante clause overriding contrary provisions of the Act. The deduction permissible under section 20(1)(i) in computing income from interest on securities is confined to that head of income and does not control the ceiling or exclusionary exercise required under section 40A(5). Expenses or payments forming part of employee remuneration, if otherwise within the ambit of section 40A(5), cannot be carved out merely because a related allowance is available under section 20(1)(i).

Conclusion: The proportionate expenses deductible under section 20(1)(i) could not be excluded while applying section 40A(5); the question was answered in the negative and in favour of the Revenue.

---