Book profit for partner remuneration includes bank-deposit interest when credited in the firm's accounts under section 40(b)(v).

Interest income credited in the firm's profit and loss account formed part of the book profit for computing partner remuneration under section 40(b)(v). The provision uses the net profit shown in the accounts as the base for the remuneration ceiling, and that base cannot be split into separate heads to exclude income merely because it may be assessable under another head. Where the interest arises from the firm's commercial assets and is reflected in the accounts, it remains part of book profit for this purpose. The inclusion of bank-deposit interest was therefore upheld, and the Revenue's challenge failed.

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Issues: Whether interest income earned on bank deposits formed part of the firm's book profit for the purpose of computing the allowable remuneration to partners under section 40(b)(v).

Analysis: Section 40(b)(v) makes the deduction for partner remuneration dependent on the book profit of the firm as shown in the profit and loss account, computed in the manner laid down in Chapter IV-D. The provision does not contemplate splitting the net profit into separate heads so as to exclude interest income once it is credited in the profit and loss account. The legislative scheme treats the firm's net profit as the base for the remuneration ceiling, and the income embedded in that net profit, if reflected in the accounts and arising from the firm's commercial operations and assets, is relevant for the computation. On that basis, the interest income from bank deposits could not be removed from the book profit merely because it was contended to be assessable under another head.

Conclusion: The interest income from bank deposits was rightly included in the firm's book profit for the purpose of allowing remuneration to partners, and the Revenue's challenge failed.

Ratio Decidendi: For the purpose of section 40(b)(v), the firm's book profit is the net profit shown in the profit and loss account, and income forming part of that net profit cannot be excluded from the remuneration computation merely because it is separately characterised under another head of income.

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