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TMI Blog2017 (2) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was completed in December 2011. Thus, the reopening and disallowance of the amount is not permissible on these facts. - Decided in favour of assessee. - I.T.A. No. 1391/HYD/2016 - - - Dated:- 17-2-2017 - SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri K.A. Sai Prasad, AR For The Revenue : Smt Suman Malik, DR ORDER This appeal arises out of the order of the Commissioner of Income Tax (Appeals)-7, Hyderabad, dated 18-03-2016 for the AY. 2009-10, on the issue of disallowance made by the Assessing Officer (AO) invoking the provisions of Section 40(b) of the Income Tax Act [Act] in re-assessment proceedings u/s. 147. 2. Assessee declared an income of ₹ 12,33,490/- for the AY. 2009-10 and AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orce. 6.1 The CBDT upon receiving representations seeking clarification in the matter of allowability of remuneration to partners in terms of Sec.40(b)(v) issued Circular No.739 dated 25.07.1996 which is as under: Whether for assessment years subsequent to assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless partnership deed either specifics amount of remuneration payable to each individual working partner or lays down manner of quantifying such remuneration. 1 The Board have received representations seeking clarification regarding disallowance of remuneration paid to the working partners as provided under section 40(b)(v) of the Income-tax Act. In particular, the representations 'ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration to partners cannot be allowed as deduction in the computation of the firm's income. 4 It is clarified that for the assessment years subsequent to the assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration. 6.2 The issue to be decided is whether remuneration claimed is allowable in view of the clause 12 in Partnership Deed read with section 40(b)(v) and the circular issued by the CBDT. The appellant claim is that the remuneration is allowable in terms of Para 4 of Circular. The complete reading of the circulars shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Laxmi Sailaja Traders [1 SOT 608] (HYD)(SMC), dt. September, 8, 2004, wherein it was held that: ..Even on merits, the disallowance of the claim of deduction was not in accordance with law. The partnership deed having mentioned that 'E' was working partner, salary paid to such working partner was in accordance with the provisions of section 40(b) subject to the outer limits prescribed under sub-clause (v) thereof. 'E' was actually engaged in conducting the affairs of the firm Even as per Explanation 4, 'E' was to be treated as working partner. [Para 8] As per section 40(b), salary or remuneration paid to a partner is not allowable. However, exceptions are provide in the said clause whereby remuneration pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6.1. There is no contrary decision, so the same is binding on AO/CIT(A). 7. Further, Hon'ble Himachal Pradesh High Court in the case of Durga Dass Devki Nandan Vs. ITO [342 ITR 17] (Himachal Pradesh) has considered the CBDT Circular and held that the same cannot override the provisions of the Act. The judgment of the Hon'ble High Court is as under: 7. It is settled law that the CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A delegate or person authorized to issue delegated legislation cannot virtually set at naught the provisions of the main statute. A reading of s. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. Therefore, if in the partnership deed it was clearly mentioned that the partners would get remuneration calculated as per the provisions of the Income-tax Act which means that this would not exceed the maximum amount provided under the Act. 9. In CIT v. Anil Hardware Store [2010] 323 ITR 368 this Court was dealing with a partnership deed where the provisions of the Income-tax Act itself had been incorporated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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