2013 (1) TMI 1021 - AT - Income Tax

Summary

Issues involved: Interpretation of partnership deed for payment of remuneration to partners u/s 40(b)(v) of the Income Tax Act, 1961.

Summary:
The appeal arose from the order of the CIT(A), Jalandhar, for the assessment year 2007-08, where the AO disallowed remuneration to partners claimed by the assessee based on the partnership deed clause and CBDT Circular No.739. The assessee contended that the remuneration was specified and quantified in the deed, satisfying the conditions u/s 40(b)(v).

Before the CIT(A), the assessee's explanation was rejected, and the action of the AO was confirmed based on the Circular. However, the ITAT Amritsar held that the assessee had indeed laid down the manner of quantifying the remuneration, directing the AO to delete the addition made. The appeal was allowed, emphasizing compliance with the Circular's conditions.

The ITAT noted that the Circular required either specifying the remuneration amount or quantifying it, which the assessee had done. Relying on various court decisions, the ITAT concluded that the AO and CIT(A) misinterpreted the Circular and unjustly disallowed the claim, as the partnership deed clearly outlined the remuneration amount. Consequently, all grounds of the assessee were allowed, and the appeal was granted in favor of the assessee.