TaxTMI 
TaxTMI 
2011 (3) TMI 20
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....Sections 28 to 40? b) Whether circular No. 739 dated 25.3.1996 over-rides the provisions of Section 40(b)(v)(i)(ii) of the Income-tax Act, 1961 so as to disallow the salary actually paid and recorded in the books of accounts? c) Whether the learned Assessing Officer was legally justified in disallowing the salary actually paid monthly and debited regularly in the books of accounts as an expense, just on the basis of the circular No. 739 dated 25.3.1996 surpassing the provisions of the Income-tax Act, 1961 which otherwise permits the allowing of expenses actual and regularly made and also clause 3 of the Circular referred to above? d) Whether the circular so issued by CBDT being a guideline for framing the assessment to the authorit....
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....f 60 the book-profit per cent; (c) on the balance of the book- at the rate of 40 Profit per cent; 3. This provision of law was the subject matter of a number of conflicting decisions and, therefore, Central Board of Direct Taxes (CBDT) issued circular No.739, dated 25.3.1996, wherein the Board clarified in para 4 of the circular as follows: "4. It is clarified that for the assessment years subsequent to the assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration." 4. It would be pertinent to mention that for the earlier assessment years....
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....xed in the partnership deed since the partnership deed clearly stated that the partners would be entitled to monthly salary as per the provisions of the Income-tax Act. However, the Income-tax Tribunal allowed the appeal of the revenue and held that the clause in the agreement quoted hereinabove did not meet with the requirements of the circular and therefore, deduction of the salary paid to the partners was not admissible. 7. It is settled law that the Central Board of Direct Taxes cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A delegate or person authorized to issue delegated legislation cannot virtual....
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.... 40(b)(v). This section does not lay-down any condition of fixing the remuneration or the method of remuneration in the partnership deed. All that the Section provides is that in case the payment of remuneration made to any working partner is in accordance with the terms of the partnership deed and does not exceed the aggregate amount as laid down in the subsequent portion of the Section the deduction is permissible. Therefore, if in the partnership deed it was clearly mentioned that the partners would get remuneration calculated as per the provisions of the Income-tax Act which means that this would not exceed the maximum amount provided under the Act. 9. In ITA 9 of 2005 decided on 2.9.2009 titled as Commissioner of Income-tax, Shimla ....