2012 (7) TMI 327 - AT - Income Tax

Disallowance u/s 40(b) - Remuneration to be paid to the partners Held that - Refusal to allow remuneration to the partners would result in holding the firm as un-registered firm which was not the case of the Assessing Officer. Having set a limit on firms income, the salary or remuneration to the partners can be varied by passing necessary resolution and would have to be inscribed in the books of account as such - Assessing Officer directed to allow the claim of remuneration paid to the partners. Claim of expenditure under head Drivers Commission - TDS u/s 194H - assessee was asked by the contractee to include the amounts paid to the drivers by them so that the payments under the transport charges Held that - Transportation charges receipts included payment to the drivers for the safe delivery of goods of the contractee was as per the terms of the contract therefore could neither be held disallowable in isolation in the hands of the assessee for the simple reason that the amount was separately shown claimed in the P & L account but was actually forming part of the bills raised by the contractee who deducted tax at source on payment to the assessee in accordance with the provisions of the I.T.Act disallowance deleted

Summary

Issues:
1. Disallowance of remuneration to partners
2. Disallowance of expenditure under head Drivers' Commission

Disallowance of Remuneration to Partners:
The appellant, a transportation firm, challenged the disallowance of remuneration to partners amounting to Rs. 11,52,000 by the Assessing Officer. The Commissioner of Income-tax (Appeals) upheld the disallowance citing Circular No.739 of the CBDT. However, the appellant argued that the Circular was no longer applicable post an amendment in the Income Tax Act. The appellant contended that partners' remuneration should be allowed as per the resolution passed by the partners, not limited to the amount mentioned in the partnership deed. The Tribunal agreed with the appellant, directing the Assessing Officer to allow the full claim of Rs. 12 lakhs as remuneration paid to the partners.

Disallowance of Expenditure under Head Drivers' Commission:
Regarding the disallowance of Rs. 63,84,528 claimed as drivers' commission, the appellant explained that this amount was a reimbursement from the contractee and not income. The Assessing Officer insisted on disallowance under Section 194H for non-deduction of TDS. The Tribunal observed that the expenditure was not incurred by the appellant as the drivers were not employed by them, and the trucks did not belong to the appellant. The Tribunal found that the amount was part of the bills raised by the contractee, not forming income for the appellant. Consequently, the Tribunal directed the deletion of the disallowance of Rs. 63,84,528.

In conclusion, the Tribunal partly allowed the appeal of the assessee, directing the Assessing Officer to allow the full remuneration to partners and deleting the disallowance of expenditure under the head Drivers' Commission.