Salary paid to partner ,disallowed to the firm as it exceeds the limit. the same wrongly taken as business income by partner in his return

[Guest]

Sir , the firm where i am a partner was disallowed salary paid to me as they had loss and my salary exceeded the allowable limit. However i missed this information and claimed as salary in my return as business income and paid tax accordingly. This case is for a.y 2013-14. I did not file any revise return for this A.Y. I have filed a rectification petition for correction of excess business income as there is no scope of revised return now. now my query is can I say that the salary received by me in excess over the prescribed limit is my drawings from the firm , Can the firm pass a reverse entry for excess salary paid in the current F.Y 2016-17.

Please advice both accounting and taxation treatment.

thanks

[DR.MARIAPPAN GOVINDARAJAN]

Whether the partners insisted for the refund of excessively paid salary to you to the firm?

[Guest]

Sir , the firm had shown the entire amount as remuneration but the same was limited to rs 150000 in the ITR as the firm has a loss. There is no question of refund of excessive salary as it is as per deed.

[Surender Gupta]

Once partnership firm has paid the amount to the partner as per the partnership deed, where the question of passing reverse entry in the books of account arises? Whether the entries were incorrect or wrong? If the answer is no, merely because different treatment is to be given for the purpose of Income Tax, reversal of entry may not be necessary in the books of accounts.

On the other side, even if the period for revising the return u/s 139 of the Income Tax is over, you have further option to claim refund as per the provisions of Section 237 of the income tax.

Please refer:

Section 237	:	Refunds
Section 238	:	Person entitled to claim refund in certain special cases
Section 239	:	Form of claim for refund and limitation

[Guest]

Sir

I being the partner of the firm treated the remuneration received as business income and paid tax on the same. Also the firm paid tax on the remuneration disallowed. so the tax was paid twice. Now when i am claiming refund of same department is not allowing me to take the excess amount received as my drawings but taxing it as my other income. what should be my reply to this ?

[Surender Gupta]

I think the answer lies within the provision so of section 185

Section 185

:

Assessment when section 184 not complied with

The amount disallowed in the hands of firm shall be not be taxable in the hands of partner.

Further, I believe that what is not allowed to be done directly, cannot be done indirectly. Therefore, you need to take up the matter at appropriate forum or go for appellate remedy.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Surendar Gupta.

AI Summary

Taxability of disallowed partner remuneration: statutory assessment principle prevents firm's disallowance being taxed again in partner's hands. Salary paid to a partner was disallowed to the firm as it exceeded the allowable limit, yet the partner treated it as business income and paid tax; accounting reversal is not automatically required if the payment was made per the partnership deed. Remedies noted include claiming a refund under the relevant refund provisions and invoking the statutory assessment principle that amounts disallowed to the firm should not be taxed in the partner's hands, with appellate remedy recommended if double taxation persists.