2022 (12) TMI 1225 - HC - Income Tax

Deduction u/s 40(b)(v) - deduction of the amount of remuneration paid to the partners - Payment of remuneration to partners not authorized by the Partnership Deed - HELD THAT - According to the Tribunal, the appellant has to be authorized by the partnership deed and the same has to be in accordance with the terms of the partnership deed. Referring to the partnership deed constituting the appellant, Tribunal held that the partnership deed did not contain any terms for payment to the working partners. In that view of the matter, Tribunal while confirming the order of the assessing officer held that payment made to the partners amounting to Rs.1,08,000.00 is not an allowable deduction as per Section 40(b)(v) of the Act. On due consideration, we do not find any error or infirmity in the view taken by the Tribunal. No question of law, not to speak of any substantial question of law, arises from the said order of the Tribunal.Appeal is devoid of any merit and the same is accordingly dismissed.

Summary

Issues:
Claim of deduction of remuneration paid to partners under Section 40(b)(v) of the Income Tax Act, 1961.

Detailed Analysis:
1. The appeal was filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal. The main issue raised was the deduction of remuneration paid to partners under Section 40(b)(v) of the Act.

2. The appellant, a firm engaged in trading in egg packing materials, claimed a deduction of Rs.1,08,000.00 as remuneration paid to partners in the assessment year 2001-2002. However, the assessing officer disallowed this deduction as the partnership deed did not specify the amount of remuneration payable to each working partner.

3. The Commissioner of Income Tax (Appeals) upheld the disallowance, leading the appellant to appeal further to the Tribunal. The Tribunal, in its order, stated that the payment made to partners was not an allowable deduction under Section 40(b)(v) of the Act due to the absence of terms for payment to working partners in the partnership deed.

4. The Tribunal emphasized that the partnership deed must authorize and specify remuneration for working partners in accordance with its terms. Since the appellant's partnership deed lacked such provisions, the deduction claimed was deemed inadmissible under Section 40(b)(v) of the Act.

5. The appellant referred to a circular by the Central Board of Direct Taxes (CBDT) but the Tribunal held that the circular merely clarified the provision of Section 40(b)(v) and did not alter the requirement for authorization and specification of remuneration in the partnership deed.

6. Ultimately, the High Court concurred with the Tribunal's decision, finding no error in the view taken. The Court affirmed that no question of law, let alone a substantial one, arose from the Tribunal's order. Consequently, the appeal was dismissed as devoid of merit, and no costs were awarded.

7. In conclusion, the High Court upheld the Tribunal's decision, emphasizing the necessity for partnership deeds to clearly authorize and specify remuneration for working partners to claim deductions under Section 40(b)(v) of the Income Tax Act, 1961.