Admissibility of deduction on account of salary/interest to partners of firms opting for estimation of income under sections 44AD and 44AE sections 44AD and 44AE

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....ions 44AD and 44AE Circular No. 737 Dated 23/2/1996 Sections 44AD and 44AE were inserted in the Income-tax Act, 1961, by the Finance Act, 1994, with effect from April 1, 1994. Section 44AD provides for a method of estimating income from the business of civil construction or supply of labour for civil construction work, where the gross receipts from the business do not exceed Rs. 40 lakhs.....

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.... clear on this issue and no separate deduction is to be allowed under section 40(b) in such cases. The doubt has primarily arisen because of the erroneous clarification given in paras. 31.3 and 32.2 of the Explanatory Notes on provisions of the Finance Act, 1994 (Circular No. 684, dated 10th June, 1994 (see [1994] 208 ITR (St.) 8)). The relevant portion of the Explanatory Note reads as under ....