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Issues: Disallowance of partner's salary in assessment order despite amended deed of partnership produced. Disallowance based on lack of specific quantification in partnership deed. Interpretation of provisions of section 40(b) and CBDT Circular on partners' remuneration.
Issue 1: Disallowance of partner's salary despite amended deed of partnership The appellant's grievance in this appeal was against the order of the ld. CIT(A) upholding the assessment order that disallowed the partner's salary, even though the amended deed of partnership was presented during rectification under section 154 of the Income-tax Act. The Assessing Officer acknowledged the amended deed but did not permit the partners' salary, leading to a dispute. Issue 2: Lack of specific quantification in partnership deed The partnership, established on 31st March, 1993, between two partners with equal shares, designated both as working partners. The deed of partnership outlined that both partners would engage in business management and could draw a monthly salary as mutually agreed, subject to Income-tax Act provisions. However, the Assessing Officer disallowed the remuneration citing the absence of specific quantification in the partnership deed. Issue 3: Interpretation of section 40(b) and CBDT Circular on partners' remuneration The revenue contended that under section 40(b) and CBDT Circular, salary and remuneration could not be allowed due to the absence of quantification in the partnership deed. The appellant argued that while there was a relaxation by the revenue until assessment year 1996-97, technicalities should not lead to disallowance of remuneration for working partners. The appellant supported their stance with the partnership deed, firm's financial accounts, and relevant literature, urging for relaxation of the law's rigour. Judgment Analysis: After reviewing the records and arguments, the Tribunal found merit in the appellant's case. Both partners had been involved since the partnership's inception, with fixed share allocation and provisions for remuneration in accordance with tax laws. The Tribunal emphasized that commercial expediency and quantification within legal limits should not hinder partners from stipulating remuneration. Despite the Departmental Representative's strict stance, the Tribunal disagreed, ruling in favor of the appellant and against the revenue, allowing the appeal. In conclusion, the Tribunal allowed the appeal of the appellant, emphasizing the partners' right to stipulate remuneration within legal boundaries, even in the absence of specific quantification in the partnership deed. The judgment underscored the importance of adhering to tax laws while recognizing partners' autonomy in determining remuneration, ultimately ruling in favor of the appellant.
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