TaxTMI 
TaxTMI 
2013 (9) TMI 605
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....and addition of Rs. 30,61,317/- towards remuneration to the partners. 2. The CIT (A) has erred in law and on facts in directing to allow the total deduction u/s. 10B of the Act at Rs. 36,02,046/- as against the allowable deduction worked out by the Assessing Officer at Rs. 18,52,845/- after deducting the interest on partners capital and remuneration payable to the partners as per partnership deed. 3. The CIT (A) has erred in law and on facts in holding that it was not mandatory to pay interest and remuneration to partners even though there was a clear provision in partnership deed. The CIT (A) failed to appreciate that the dubious method adopted by the assessee firm to reduce tax burden cannot be allowed in view of the judgment of Hon'ble Supreme Court in the case of Mac Dowell & Company v. CIT [154 ITR 148]. 4. That on the facts and in the circumstances of the case, the CIT (A) ought to have upheld the order of the Assessing Officer. 5. It is therefore prayed that the order of the CIT (A) be set aside and that of the Assessing Officer be restored. 6. Th....
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....assessee for the Assessment Year 2006-07 at Rs. 50,56,540/-. The assessment records were called for and examined by the ld. Commissioner of Income-tax u/s 263 of the Income-tax Act pursuant to which a revision order was passed by him on 28.03.2011 by which the order of assessment passed by the Assessing Officer on 30.12.2008 for the Assessment year 2006-07 was set aside with the following observations:- "4. I have carefully considered the submission made by as the assessee but the same is not accepted. The supplementary deed furnished by the assessee is not found authentic and genuine. The xerox copy of deed submitted by the assessee bears no signature or seal of the notary. It was also ascertained that, during the assessment proceedings itself, the assessee was asked to produce the partnership deed for verifying the distribution of interest and remuneration among the partners. In reply, the AR of the assessee said that the firm had not made any supplementary deed for the distribution of interest and remuneration among the partners. Consequently, the firm was unable to produce the partnership deed at that time. It clearly appears that the supplementary dee....
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....ph 6 and 6.1 in the appellate orders passed by the ld. CIT(A) for both the assessment years read as under:- "6. I have carefully considered the submission made by the appellant and the discussion made by the AO in the assessment order. The basic argument of the appellant is that it is not mandatory to allocate interest on partners' capital and remuneration to partner u/s. 40(b) merely on the fact that the partnership deed contained provisions of interest and remuneration. The payment of interest and remuneration to the partners is governed by mutual consent of the partners. If partners mutually decide not to pay interest and remuneration, in spite of having clause of the same in partnership deed, assessing authority is not justified in enforcing deduction of interest on capital and remuneration to the partners. 6.1 In the instance case, it is correct that the terms of partnership provided payment of interest @ 12% on capital of partners and remuneration to the working partners. However, the appellant did not make payment thereof to the partners not made any provision of liability in the books of account. On perusal of deed of part....
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.... capital and remuneration was required to be paid to the partners in conformity with section 40(b) of the Income-tax Act. He further submitted that another partnership deed was executed on 14.09.2005 between two existing partners, namely, (1) Shri Vallabhbhai Shamjibhai Shiyani and (2) Shri Bharatkumar Gopaldas Faldu and two retiring partners, namely, (1) Shri Karsanbhai Shamjibhai Shiyani and (2) Shri Vallabhbhai Shamjibhai Shiyani. Inviting our attention to clauses 16 and 17 of the said partnership deed dated 14.09.2005, he submitted that interest on capital and remuneration was required to be paid to the partners in conformity with section 40(b) of the Income-tax Act. He also referred to a supplementary partnership deed executed on the same date, i.e., 14.09.2005 between existing two partners, namely, (1) Shri Vallabhbhai S. Shiyani and (2) Shri Bharatkumar G. Faldu as per which they mutually agreed not to pay any interest or any remuneration, bonus and/or commission for FY 2005-06 (AY 2006-07) to any of the partners. Relying upon the supplementary partnership deed executed on the same date on which the main deed of partnership deed was executed, he submitted that payment of int....
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....ofession". Section 40(b) however places certain restrictions on the deductibility of amount of interest and remuneration payable to partners. The relevant clauses in the copies of partnership deeds filed before us do not violate the prescription of section 40(b) of the Income-tax Act. Therefore interest on capital and remuneration payable to partners are admissible for deduction u/s 37 and is therefore required to be taken into account for computing the profits eligible for exemption u/s 10B of the Income-tax Act. 13. Perusal of the partnership deed dated 28.11.2002 requires payment of interest on capital and remuneration to partners. There is similar stipulation in partnership deed dated 14.09.2005. It is interesting to observe that the partnership deed was executed on 14.09.2005 which is not only duly signed by the existing partners as well as retiring partners but also registered with Sub-Registrar, Jamnagar. The supplementary deed is also stated to have been executed on 14.09.2005 but it is not registered with Sub-Registrar, Jamnagar. Both the deeds, i.e., the partnership deed and the supplementary partnership deed, have reportedly been executed on 14.09.2005. Supplementary de....