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TMI Blog2019 (2) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... partners shall be quantified as per the provisions of the Income-tax Act and shall not exceed the maximum remuneration provided. It is not in dispute that the partners were paid remuneration which was less than the maximum provided by the Income-tax Act. There is no doubt with regard to the payment of remuneration and in fact account books of the assessee firm have been accepted as correct. There is no doubt that the partners are working partners and remuneration has been paid to such working partners. Therefore, the Circular has to read along with section 40(b)(v) and has to be made subject to provisions of section 40(b)(v) of the I.T.Act. Section 40(b)(v) does not lay down any condition of fixing the remuneration or the method of rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) Reason 1. Commission received 140810 Difference with 26AS 2. Disallowance u/s 40A(3) 92760 Cash payment 3. Audit fee 45000 TDS not deducted 4. Remuneration paid to Mrs.Neethu 136937 Not working partner 5. Remuneration paid to working partner 705754 40(b)(ii) 40(b)(v) 4. Aggrieved by the assessment completed, the assessee preferred an appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the provisions of the Act and cannot be relied on. 6. The learned Departmental Representative, on the other hand, strongly supported the orders of the Income-tax authorities. 7. I have heard the rival submissions and perused the material on record. The solitary issue for my consideration is whether the CIT(A) has erred in confirming the A.O. s action in disallowing the remuneration paid to the working partners. The allowance / disallowance of remuneration paid to working partners is governed by the provisions of section 40(b)(v) of the I.T.Act. Section 40(b)(v) reads as follows:- 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rized as per clause 8(a) in the partnership deed dated 15.09.2007. The remuneration payable to the working partners as per deed dated 15.09.2007 are as follows:- Upto ₹ 75,000/- of the book profit for the year Rs.50,000/- or 90% of the book profit whichever is higher On the next ₹ 75,000/- of the book profit 60% of ₹ 75,000/- On the book profit in excess of ₹ 1,50,000/- 40% of the excess over ₹ 1,50,000/- 7.2 The quantum of total remuneration to the working partners was revised by clause 8(b) of the partnership deed dated 08.01.2011 as follows:- If the book profit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration payable to each partner should be fixed in the agreement or the partnership deed. The agreement should lay down the manner of quantifying such remuneration. 7.4 It is trite law that 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 reading of section 40(b)(v) clearly shows that the amount of remuneration which does not exceed the amount given in the Income-tax Act is deductible. In the present case, the partnership deed provides that the remuneration will be as per the provisions of the Income-tax Act. It clearly means that the remuneration payable to the partners shall be quantified as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip deed where the provisions of the IT Act itself had been incorporated in the partnership deed. This Court held that this itself provides a method of computation. In that case we had not gone into the validity of the CBDT circular. The CBDT circular can only be held to be valid if it is in terms of the main section. As held above, the s. 40(b)(v) only lays down that either the working partner should be paid an amount specified in the partnership deed or it should not exceed the amount laid down in the section. In the present case the partners have been paid their remuneration /salary strictly in accordance with the terms of the partnership deed and this amount paid to the partners does not exceed the maximum permissible amount and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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