TaxTMI 
TaxTMI 
2014 (12) TMI 508
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....erred in law as well as on the facts of the case in charging interest u/s 234A, 234B, 234C & 234D of the Act and as also in withdrawing of interest u/s 244A of the Act. The appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full." 3. The Ground No.1 was not pressed by the Ld. AR at the time of hearing hence; the same is dismissed as not pressed. 4.1 In ground No.2 the assessee has challenged the confirmation of the disallowance of Rs. 20,47,000/- made by the AO on account of bonus paid to the fourth partner namely Shri Nizamuddin. 4.2 Briefly stated, the facts of the case are that the assessee firm has four partners. On a perusal of the partnership deed dated 01.04.2003, copy of which is placed at pages 10 to 12 of the assessee's paper book, the AO noticed that salary was being paid only to three partners namely Shri Moinuddin, Shri Iqbal Ali and Shri Zahiruddin out of four partners. However, from the perusal of Profit & Loss A/c for this year it was found that bonus of Rs. 20,47,000/- was paid to all the four partners. In other word....
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....ssee firm's each partner is assessed at income of highest tax rate either in the hands of firm or partners.' The AO however, was not satisfied with the above reply. As per the AO vide Para 5 of the partnership deed, all the partners are actively engaged in the conduct of the affairs of the firm, but why salary was paid only to the three partners From clause 6 of the partnership deed, he has inferred that the bonus is to be paid only to those partners who are working partners. Thus, when only three partners were drawing salary hence, those only can be treated as the working partners. Hence, according to the A.O. , bonus is payable to those partners alone. The AO noticed that the word "working" in clause 6 of the partnership deed has been blackened for which no justification was offered by the assessee despite being asked. According to him, all the 'working partners' shall get the bonus in equal proportion then how Shri Nizamuddin was not drawing any salary although he cannot be called a working partner. In view of this stand, the bonus paid to fourth partner (i.e. Shri Nizamuddin) of Rs. 20,47,000/- was disallowed by the A.O. In the first appeal, the ld. CIT(A) has ....
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....hat the meaning of the word working partner assigned by the statute was confined only and only to clause (v) to Sec. 40(b) which is a computation clause. However, Explanation 4 provides the meaning of working partner for the clause (b) to section 40 and not for the purpose of sub clause (iv) only. Hr further submitted that the authorities below unduly stressed upon the word working and that this word was purportedly blackened out (erased), for the simple reason that in clause 5 of the said deed it is stated that all the parties to the partnership deed are actively engaged in the conduct of the business and in clause 6 states that "as aforesaid" which implies that all the partners are the working partners and hence, are entitled to bonus. This aspect was clarified also vide a detailed reply dated 20.12.2011 copy of which was placed at page 8 and 9 of the assessee's paper book. Thus, all the partners, who are already working partners, were made entitled to the bonus. As per the ld. AR the only condition for the allowability of the deduction u/s 40 (b) is that the remuneration should be paid to working partners only and such remuneration by whatever name called, has to be authoris....
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....lished by the authorities below that all the four partners were actively engaged in the conduct of the business of the firm and thus, are the working partners. The provisions contained u/s 40(b) provide that any remuneration by whatever name called, shall not be allowable if such payment is not made to a working partner. Secondly, such payment is not found to be authorized by or is not found to be in accordance with the terms of the partnership deed. Thus, the subjected payment has to be authorized by and has to be in accordance with the partnership deed. This further implies that the law does not interfere in the decision making by the partners and it is within the sole discretion of the partners to decide the amount payable (which is certainly allowable as per the limits prescribed) and also the particular partner to whom any payment of salary or bonus has to be made. The said clauses no. 5 and 6 of the partnership deed reads as under:- "5. That the parties to this deed are actively engaged in the conduct of the business of the firm but on account of devotion the parties from Second to Fourth part (ShriMoinuddin, Shri Iqbal Ali and Shri Zahirudddin) shal....