1989 (1) TMI 146 - AT - Income Tax

Summary

Issues Involved:

1. Valuation of the property settled on trust.
2. Deduction for reasonable remuneration of partners.
3. Credit for stamp duty paid.

Issue-wise Detailed Analysis:

1. Valuation of the Property Settled on Trust:

The assessee, a solicitor, settled his right to receive a share in the profits of his former partnership firm on trust. The assessee initially valued this trust property at Rs. 40,000 but later revised it to Rs. 25,925 based on a computation method outlined in Annexure 'A'. The Gift Tax Officer (GTO) did not accept the revised valuation and instead assessed the value at Rs. 1,25,925, as detailed in Annexure 'B'. The Appellate Assistant Commissioner (AAC) upheld the GTO's assessment, leading the assessee to appeal to the Appellate Tribunal.

2. Deduction for Reasonable Remuneration of Partners:

The assessee argued that the valuation of his share should consider the reasonable remuneration paid to the partners, as per the notification dated 20th July 1977 issued by the Central Board of Direct Taxes (CBDT). This notification mandates adding back salaries and interest on capital to the income of the business and then allowing a deduction for reasonable remuneration for working partners. The GTO and AAC did not accept the assessee's claim for a Rs. 3 lakh deduction for reasonable remuneration, citing a lack of evidence in the partnership deed and assessment orders. The Tribunal noted that the partnership deed did mention various forms of remuneration for both junior and senior partners, and thus, the GTO should have considered these while computing the average annual income of the firm.

3. Credit for Stamp Duty Paid:

The assessee claimed a credit for Rs. 1,600 paid as stamp duty on the deed of settlement. The GTO allowed only Rs. 1,000, which the Tribunal identified as a typographical error. The Tribunal directed the GTO to correct this and give credit for the full Rs. 1,600.

Conclusion:

The Tribunal found that the authorities below did not properly consider the reasonable remuneration paid to the partners as required by the CBDT notification. The case was remanded back to the GTO to re-compute the value of the property settled on trust, considering the reasonable remuneration paid to the partners. Additionally, the Tribunal directed the GTO to correct the stamp duty credit to Rs. 1,600. The appeal was allowed for statistical purposes, and the matter was sent back to the GTO for re-evaluation in light of the Tribunal's observations and the CBDT notification.