2019 (2) TMI 345 - AT - Income Tax

Addition u/s 40(b) - Addition being partner s remuneration - Held that - Reading of section 40(b)(v) clearly shows that amount of remuneration which does not exceed the amount specified in the Act is deductible. The Board has provided that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of qualifying such remuneration. The circular has to be read along with section 40(b)(v) and has to be made subject to section 40(b)(v). This section does not lay down any condition of fixing the remuneration or the method of remuneration in the partnership deed. All that the section provides is that in case the payment of remuneration made to any working partner is in accordance with the terms of the partnership deed and does not exceed the aggregate amount as laid down in the subsequent portion of the section the deduction is permissible. The remuneration had to be worked out based on certain percentage of the book profit. We are of the considered that that the provisions of section 40(b)(v) as well as clause of the partnership deed are to be interpreted harmoniously. While relying upon the judgments cited above, we are of the view that Clause-6 of partnership deed of the assessee specifically contains that the salary /remuneration is to be computed as provided in section 40(b)(v) or any statutory enactment thereto. It has also been quantified that the profit and loss in the business of the firm shall be arrived at after accounting for the said remuneration and interest so double to the partners as the business expenditure of the firm. Allow the claim of remuneration paid to the partners. With these observations, we allow this ground of appeal raised by the assessee.

Summary

Issues:
Challenge to disallowance of partner's remuneration u/s 40(b) for AY 2014-15.

Analysis:
1. The appellant firm filed an appeal against the order of Ld. CIT (Appeal) regarding the disallowance of partner's remuneration amounting to ?99,46,818 under section 40(b) for AY 2014-15.
2. The AO observed that the Partnership Deed did not specify the amount of remuneration payable to individual working partners or the method of quantifying such remuneration, essential for deduction u/s 40(b)(v). Referring to CBDT circular No. 739, the AO disallowed the claim based on the absence of quantification in the deed.
3. Ld. CIT(A) upheld the AO's decision after considering the arguments and case laws presented by both parties, emphasizing the importance of specific remuneration provisions in the partnership deed as per section 40(b)(v).
4. The appellant challenged Ld. CIT(A)'s decision, relying on judgments like Anil Hardware Stores. The argument centered on the interpretation of the partnership deed's clause regarding remuneration computation under section 40(b)(v).
5. After analyzing the partnership deed, relevant legal provisions, and case laws, the tribunal found that the remuneration clause in the deed aligned with the requirements of section 40(b)(v), allowing for deduction of partner's remuneration.
6. The tribunal emphasized the need for harmony between the partnership deed and section 40(b)(v) in determining the deductibility of partner's remuneration, ultimately setting aside the revenue authorities' decision and allowing the appeal.
7. The tribunal's decision, based on a comprehensive analysis of legal provisions and case laws, concluded that the appellant's claim for partner's remuneration was justified and should be allowed for AY 2014-15.