Book profit for partners' remuneration includes income credited in the profit and loss account, even if taxable under another head.

For partners' remuneration under section 40(b)(v), book profit is the net profit shown in the profit and loss account, subject only to the statutory adjustments in the Explanation. Income credited in that account, including fixed deposit interest and income-tax refund, cannot be excluded merely because it may be assessable under another head. The provision does not require segregation of receipts in the profit and loss account for computing book profit, and binding precedent supported inclusion of such income. On that basis, the disallowance of partners' remuneration was held unsustainable and the assessee's position was accepted.

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Issues: Whether, for the purpose of computing the ceiling on partners' remuneration under section 40(b)(v), interest income credited in the profit and loss account from fixed deposits and income-tax refund could be excluded from book profit as income from other sources.

Analysis: Explanation 3 to section 40(b)(v) defines book profit as the net profit shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D. The provision does not require segregation of receipts shown in the profit and loss account into different heads of income for the purpose of arriving at book profit. The exclusion of interest income from fixed deposits and income-tax refund was therefore not warranted, especially when the income stood credited in the profit and loss account and the issue was covered by binding precedent holding that such income cannot be ignored while determining book profit for partners' remuneration.

Conclusion: The disallowance of partners' remuneration was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: For the purpose of section 40(b)(v), book profit is the net profit shown in the profit and loss account, subject only to the statutory adjustments in the Explanation, and income credited therein cannot be excluded merely because it is assessable under another head.

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