2013 (7) TMI 577

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....tners under section 40(b) without excluding interest income credited to P & L account even if it is not business income?" 2. The issue pertains to the ceiling of deduction on remuneration on a partnership firm which can be claimed in terms of Section 40 of the Income Tax Act, 1961 ('the Act' for short). 3. Brief facts are that; 3.1 The respondent-assessee is a partnership firm and is engaged in the business of purchasing raw cotton, ginning the same, making cotton beds and selling such cotton beds and cotton seeds. For the assessment year 2004-05, the assessee filed the return of income on 27.10.2004 declaring total income of Rs. 20.35 lacs (rounded off). The Assessing Officer framed a scrutiny assessment on 27.10.2006 determining the to....

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.... after considering the various decisions has held as under:- 4. Section 40 of the Act pertains to amounts which are not deductible. Relevant portion of Section 40 reads as under :      "Notwithstanding anything to the contrary in [sections 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",-      (a) in the case of any assessee- ..... ...... ..........    [(b) in the case of any firm assessable as such,-      (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as "remuneration") to any partner who is not a work....

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....ayment to all the partners during the previous year exceeds the aggregate amount computed as hereunder:- (a) On the first Rs.3,00,000 of the book-profit or in case of a loss per cent of the book-profit, whichever is more; Rs. 1,50,000 or at the rate of 90 (b) On the balance of the book-profit At the rate of 60 per cent 5. From the above provision it can be seen that where an assessee is a partnership firm, any payment of salary, bonus, commission or remuneration to its partners under certain circumstances, if it exceeds the limits set out in Clause B, deduction to the extent of excess cannot be claimed. In the present case, such ceiling is prescribed in two slabs. On the first Rs. 30 lacs on the book profit or in case of loss such ceil....