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TMI Blog2013 (1) TMI 875X X X X Extracts X X X X X X X X Extracts X X X X ..... per partnership deed. 2. The CIT (A) has erred in law and on facts in holding that it was not mandatory to pay interest remuneration to partners even though there was a clear provision in partnership deed. The CIT (A) failed to appreciate that the dubious method adopted by the assessee firm to reduce tax burden cannot be allowed in view of the judgment of Hon ble Supreme Court in the case of Mac Dowell Company Vs. CIT [154 ITR 148]. 3. That on the facts and in the circumstances of the case, the CIT (A) ought to have upheld the order of the Assessing Officer. 4. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the Assessing Office be restored. 5. That the revenue craves leave to add, amend, alte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on the business and also the status of the assessee decided on the basis of partnership. Therefore the assessee s argument regarding the payment of Remuneration and Interest is mutual and non-Compulsory is not accepted. Further the Hon Supreme Court in the case of MC Dowell Company Vs. CIT [154 ITR 148] held that tax planning should be legitimate and within the frame work of law. Colorful devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is no horable to avoid the payment of tax by resorting the dubious method. The assessee firm has made the colorful planning to avoid the tax by non-paying/Crediting the interest and Remuneration to its partner which is providing in the partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded from the profits eligible for deduction u/s.10B. The case of the assessee is that interest and remuneration has not been paid to the partners in spite of the fact that the partnership deed authorized such payment and therefore deduction u/s.10B cannot be reduced by the amount of interest and remuneration payable to partners. The relevant clauses in the partnership deed dated 8th March, 2005, a copy of which has been filed before us, read as under:- 6. INTEREST ON CAPITAL: That the parties have decided that simple interest at the rate as may be mutually agreed by the Partners from time to time or prescribed U/s.40(b) of the Income-tax Act, may be paid to the Partner on their capital invested, current, loan accounts and such int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Harsukh Babhubhai Sojitra Shri Digesh Kanjibhai Sojitra Shri Dipak Jivrajbhai Sojitra Remuneration, Bonus and /or commission on Profits for the services rendered to the firm by such Partner/s, of an amount and in the manner as may be mutually agreed by the partners from time to time provided that the aggregate of such remuneration etc. does not exceed the limits prescribed u/s.40(b)(v) of the Indian Income-tax Act, 1961 and the rules framed thereunder. 9. As regards interest on capital, Clause-6 of the Partnership Deed as reproduced above, is quite clear that it can be paid up to the limit prescribed u/s.40(b) of the Income-tax Act. Section 40(b) authorizes payment of interest not exceeding the amount calculated @ 12% pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of the assessee), laid down or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession. Section 40 (b) however places certain restrictions on the deductibility of amount of interest and remuneration payable to partners. The relevant clauses in the partnership deed do not violate the prescription of sec. 40(b) of the Income-tax Act. Therefore, they are admissible for deduction u/s.37. In this view of the matter, it was imperative on the part of the assessee to work out the amount of profit correctly so as to claim right amount of profit for exemption. The assessee has deliberately suppressed the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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