2012 (5) TMI 635 - AT - Income Tax

Tribunal allows working partner's remuneration based on disclosed business income

The Deputy Commissioner of Income Tax, Circle-9, Versus. M/s. Shree Labdhi Prints,

The Tribunal upheld the CIT (A)'s decision, allowing remuneration to a working partner based on additional income disclosed as business income during a ... Disallowance of remuneration to working partner - Held that:- We are in agreement with the decision of the CIT (A) that once the additional income offered for taxation during the survey is accepted and it has been explained business as the source of additional income then there is no bar in the Act from claiming partner’s remuneration from such additional business income. Accordingly, we find no infirmity in the order of CIT (A). Hence this ground of the Revenue is dismissed. Issues:Disallowance of remuneration to working partner under section 40(b) based on undisclosed income declared during survey.Analysis:1. The Revenue appealed against the CIT (A)'s order deleting the addition of Rs. 10,00,000 made by the AO on account of disallowance of remuneration to a working partner for the Assessment Year 2003-04.2. The AO disallowed the remuneration as despite negative book profits, remuneration was allowed to partners. The AO contended that if income source is unknown, it should be classified under other sources, not business income. The CIT (A) allowed the appeal, stating that if additional income offered for taxation during a survey is explained as business income, remuneration to partners can be claimed from such income.3. The Assessee declared undisclosed income under business income during a survey. The Revenue argued that income disclosed under section 133A cannot be part of business profits for determining remuneration under section 40(b). The Assessee maintained that all undisclosed income was related to the business, thus considered for calculating remuneration.4. Legal precedents were cited by both parties. The CIT (A) relied on decisions stating that when additional income is from business, remuneration to partners should be allowed. The Tribunal noted that undisclosed income explained as business income can be used for calculating remuneration under section 40(b).5. The Tribunal agreed with the CIT (A) that if additional income disclosed during a survey is considered business income, there is no impediment in claiming partner's remuneration from such income. Relying on legal interpretations and precedents, the Tribunal dismissed the Revenue's appeal.6. The Tribunal upheld the CIT (A)'s decision, concluding that the disclosed additional income explained as business income can be used for determining remuneration to partners under section 40(b). The Revenue's appeal was dismissed accordingly.