Survey-surrendered excess stock treated as business income for book profit, supporting partners' remuneration computation.

Income surrendered during survey on account of excess stock was treated as business income where the assessee stated that the stock represented current-year earnings from the same business and credited the amount to the profit and loss account. As the Department brought no material to show a separate or unexplained source, the surrendered amount formed part of the net profit used for book profit computation. Accordingly, that amount had to be included while calculating partners' remuneration under section 40(b), and the remuneration deduction was allowable on that basis.

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Issues: Whether the income surrendered during survey on account of excess stock was business income forming part of book profit for the purpose of computing partners' remuneration under section 40(b).

Analysis: The assessee had explained in the survey statement that the excess stock of gold and silver represented income of the current year from the same business, and the amount was duly credited in the profit and loss account. The Department did not bring any material to disprove that the source of the stock was business income, nor was there any finding that the amount arose from any separate or unexplained source. Since book profit under section 40(b) is based on the net profit shown in the profit and loss account, the surrendered amount, being part of business profits, was required to be included while computing the partners' remuneration.

Conclusion: The surrendered amount was business income included in book profit, and the assessee was entitled to deduction of partners' remuneration on that basis.

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