2003 (2) TMI 425 - AT - Income Tax

Summary

Issues:
1. Justification of deletion of remuneration paid to working partners.
2. Compliance with Circular No. 739 dated 25-3-1996 for allowing deduction under section 40(b)(v).

Issue 1 - Deletion of Remuneration Paid to Working Partners:
The appeal was filed by the Revenue against the order of the CIT(Appeals) for the assessment year 1997-98. The Revenue contended that the deletion of Rs. 5,25,863 as remuneration paid to working partners was not justified. The Assessing Officer had added this amount to the income of the assessee as it was not in conformity with Circular No. 739 dated 25-3-1996. However, the assessee clarified that the Partnership Deed clearly specified the manner of distributing remuneration among working partners in accordance with section 40(b)(v) of the Income Tax Act. The CIT(A) considered the formula in the Partnership Deed and deleted the addition made by the Assessing Officer.

Issue 2 - Compliance with Circular No. 739 for Deduction under Section 40(b)(v):
The Revenue also contended that the remuneration paid to partners did not comply with Circular No. 739 for allowing deduction under section 40(b)(v). The Partnership Deed's formula for distributing remuneration was argued to be insufficient. However, the Partnership Deed clearly outlined the manner of distributing remuneration among working partners, as per the provisions of section 40(b)(v). The Tribunal observed that the remuneration claimed was ascertainable from the Partnership Deed and was in accordance with the law. The Departmental Representative acknowledged this in court, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision to delete the addition of remuneration paid to working partners and dismissed the Revenue's appeal. The Partnership Deed's formula for distributing remuneration was found to be compliant with the provisions of section 40(b)(v) and Circular No. 739.