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2013 (11) TMI 1064 - AT - Income TaxRemuneration to partner - Held that - In assessee s case the remuneration is clearly specified to be computed in the manner provided by Explanation 3 to Section 40(b) of the I.T. Act. The remuneration clause is further clarified in various clauses of the partnership deed - The terms and conditions of the assessee s partnership deed are specific and cannot be termed as non-specific - Following Durga Dass Devki Nandan Vs. ITO 2011 (3) TMI 20 - HIMACHAL PRADESH HIGH COURT - CBDT issued circular No.739, dated 25.3.1996 - for the assessment year 1996-97 and subsequent thereto, the circular provided that unless the partnership deed specified the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration, the benefit of Section 40(b)(v) would not be available to the assessee Firm - Decided against Revenue. TDS not deposited within the time limite - Held that - Following CIT Vs. Naresh Kumar 2013 (9) TMI 275 - DELHI HIGH COURT - Sec. 40(a)(ia) will not be attracted in case where relevant TDS is deposited before due date of filing of the return - The amended provision clearly states that the expression said due date used in clause A of proviso to unamended section refers to time specified in Section 139(1) of the Act. The amended section 40(a)(ia) expands and further liberalises the status when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance - Decided against Revenue.
Issues Involved:
1. Disallowance of salary/remuneration to partners under Section 40(b). 2. Disallowance under Section 40(a)(ia) for not depositing TDS within the stipulated time. Detailed Analysis: Issue 1: Disallowance of Salary/Remuneration to Partners under Section 40(b) The Revenue appealed against the CIT(A)'s decision to delete the disallowance of salary/remuneration to partners under Section 40(b), arguing that the partnership deed did not clearly specify the scale of remuneration payable to partners. The CIT(A) relied on the judgment of the Himachal Pradesh High Court in Durga Dass Devki Nandan vs. ITO (2011) 200 Taxman 318, which allowed such remuneration if it did not exceed the maximum permissible limits under Section 40(b). The partnership deed of the assessee specified that all partners would be working partners and would receive remuneration commensurate with their time and services, subject to the limits prescribed under Section 40(b). The CIT(A) found that the remuneration claimed by the assessee was within these limits and allowed the deduction. The Revenue argued that the specification of remuneration in the partnership deed was not clear, relying on the Delhi High Court judgment in Sood Brij & Associates vs. CIT, where remuneration was disallowed due to non-specific clauses in the partnership deed. However, the Tribunal found that the partnership deed in the present case was specific and different from the one in Sood Brij & Associates, where remuneration was to be mutually agreed upon from time to time. Thus, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground. Issue 2: Disallowance under Section 40(a)(ia) for Not Depositing TDS within the Stipulated Time Both the Revenue and the assessee appealed regarding the disallowance of Rs. 7,70,677 under Section 40(a)(ia) due to the non-deposit of TDS within the stipulated time. The CIT(A) dismissed the assessee's appeal but directed the AO to allow the expenditure in the subsequent assessment year (AY 2009-10), which the Revenue contested, arguing that the CIT(A) did not have the power to issue such a direction. The assessee contended that since the TDS was deposited within the financial year, no disallowance should be made. The Tribunal referred to the Delhi High Court judgment in CIT vs. Naresh Kumar, which held that Section 40(a)(ia) would not be attracted if the TDS was deposited before the due date of filing the return. Since the assessee deposited the TDS within the accounting period, the Tribunal held that the expenditure could not be disallowed under Section 40(a)(ia) and allowed the assessee's appeal on this ground. Conclusion: The Tribunal dismissed the Revenue's appeal regarding the disallowance of salary/remuneration to partners under Section 40(b), upholding the CIT(A)'s decision. It allowed the assessee's appeal concerning the disallowance under Section 40(a)(ia), holding that the expenditure should not be disallowed as the TDS was deposited within the financial year. The order was pronounced in open court on 22-11-2013.
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