Partner remuneration and interest require reference to the firm's deduction treatment; matter remanded for fresh examination.

Remuneration and interest credited to a partner are governed by the firm's deduction treatment, and the proviso to section 28(v) applies where such amounts are not allowed as a deduction under section 40B. The mere absence of business profits in the firm did not itself determine the partner's tax liability; the firm's assessment records had to be examined to apply the correct tax treatment. The matter was therefore remanded to the Assessing Officer for fresh decision after verifying the firm's assessment, with the assessee receiving only partial relief.

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Issues: Whether the remuneration and interest credited to a partner by a firm can be taxed in the partner's hands when the firm has no business profits, and whether the matter required fresh examination with reference to the firm's assessment records.

Analysis: The credited amounts were treated by the Assessing Officer as taxable in the partner's hands. The governing framework recognises that remuneration and interest paid to partners are governed by the provisions relating to deduction in the firm's assessment, and the proviso to section 28(v) operates where such amounts are not allowed as deduction under section 40B. The absence of business profits in the firm did not by itself answer the issue, and the record of the firm's assessment needed to be examined to determine the correct tax treatment in accordance with law.

Conclusion: The issue was remanded to the Assessing Officer for fresh decision after examining the firm's assessment records, and the assessee obtained only partial relief.

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