Tribunal allows appeal on excess remuneration disallowance under Income Tax Act

The tribunal ruled in favor of the assessee, allowing the appeal regarding the disallowance of excess remuneration under section 40(b) of the Income Tax Act. The tribunal held that the partnership deed explicitly allowed for determining remuneration based on the amended provisions of section 40(b) for the relevant year. As a result, the tribunal reversed the lower authorities' decision and permitted the assessee to claim the maximum allowable remuneration for partners.

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Issues:
Dispute over disallowance of excess remuneration under section 40(b) of the Income Tax Act.

Analysis:
The appeal was filed by the assessee against the CIT(A)'s order confirming the disallowance of excess remuneration paid to partners. The AO observed that the partnership deed did not specify remuneration, and a supplementary deed made later could not be applied to the relevant year. The AO disallowed the excess amount and added it to the total income.

The assessee argued that the remuneration was allowed in a previous assessment year and relied on a High Court judgment to support their claim. However, the CIT(A) upheld the AO's decision, stating that the partnership deed specified remuneration and did not authorize determining it based on amended provisions of section 40(b).

In the second appeal, the assessee contended that remuneration was determined as per the partnership deed, which allowed for calculation based on amended provisions of section 40(b). The dispute centered on whether the assessee could determine remuneration based on the amended provision.

The tribunal noted that the partnership deed explicitly mentioned applying amended provisions of section 40(b) for the relevant year. Citing a High Court judgment, the tribunal held that the method of determining remuneration was specified in the deed, allowing the assessee to claim the maximum amount permissible. Consequently, the tribunal reversed the lower authorities' decision and allowed the appeal.

In conclusion, the tribunal ruled in favor of the assessee, holding that the remuneration payable to partners was determined in accordance with the provisions of section 40(b) of the Income Tax Act. The appeal was allowed, and the order was pronounced in open court on 31/05/2018.

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