2003 (1) TMI 250

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....he partnership deed should contain specific mention of the working partners". In other words, according to the AO, this statutory requirement that partners to whom salary was paid should be described in the instrument of partnership as "working partners" was not fulfilled. Otherwise salary could not be paid to them and allowed as a deduction in view of s. 40(b) of the Act. 3. In the two subsequent asst. yrs. 1996-97 and 1997-98, the salary paid to the partners was disallowed in regular assessments. In reply to query raised by the AO, the assessee did contend that salary was paid only to the partners who had worked for the partnership and were working partners. The AO disallowed the salary in asst. yr. 1996-97 with the following observatio....

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....tative once again reiterated that salary/remuneration paid to partners could not be allowed as no partner was described in the instrument of partnership as a "working partner". He brought to our notice the following statutory provisions: "40. Notwithstanding anything to the contrary in ss. 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession'— (b) in the case of any firm assessable as such— (v) any payment of remuneration to any partner who is a working partner, which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as the a....