2018 (7) TMI 949 - AT - Income Tax

Disallowance of remuneration paid to partners - method of prescribed under the Provisions of Section 40(b)(v) - Held that - In the present case, the Hon ble Delhi High Court s decision in case of Vaish Associates 2015 (8) TMI 855 - DELHI HIGH COURT will be applicable. The Clause mentioned in Vaish Associates case is in toto similar in the present case for partnership deed relating to remuneration of the partners. Therefore, in light of this the CIT(A) as well as the Assessing Officer has not taken a proper cognizance of the Clauses given under the partnership deed in consonance with the provisions of Section 40(b)(v) of the Act. Therefore, we set aside the order of the CIT(A). The appeal of the assessee is allowed.

Summary

Issues:
Disallowance of remuneration paid to partners under Section 40(b) of the Income Tax Act for Assessment Year 2011-12.

Analysis:
The appeal was filed against the order disallowing remuneration paid to partners. The partnership deed did not specify the quantum or method of computation of remuneration. The Assessing Officer disallowed the remuneration as per Section 40(b) of the Act and a Delhi High Court judgment. The CIT(A) upheld the decision. The appellant argued that the partnership deed did mention the method of quantification of remuneration under Section 40(b) (iv & v). The appellant cited various decisions supporting their claim. The Department argued that the partnership deed did not clearly quantify remuneration. The Tribunal analyzed the partnership deed and relevant case laws. It found that the partnership deed did provide a method for quantifying remuneration as per Section 40(b) (v). The Tribunal distinguished the present case from the Delhi High Court judgment in Sood Brij & Associates, stating it was not applicable. The Tribunal allowed the appeal, emphasizing the correct interpretation of the partnership deed in line with Section 40(b) (v).

Conclusion:
The Tribunal allowed the appeal, setting aside the CIT(A)'s order and the Assessing Officer's disallowance of remuneration paid to partners. The Tribunal found that the partnership deed did specify the method of quantifying remuneration as per Section 40(b) (v) of the Income Tax Act. The Tribunal distinguished the present case from the Sood Brij & Associates judgment, stating that the partnership deed in the current case aligned with the provisions of Section 40(b) (v). The Tribunal's decision was based on a thorough analysis of the partnership deed and relevant legal interpretations, leading to the allowance of the appellant's claim regarding remuneration paid to partners for the Assessment Year 2011-12.