TaxTMI 
TaxTMI 
2017 (2) TMI 1087
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..../- for the AY. 2009-10 and AO completed assessment determining the income at Rs. 21,20,780/- vide the order dt. 31-12-2011, inter alia, disallowing an amount of Rs. 1,51,637/- remuneration paid to Smt. Sama Sangitha Reddy, who is not a working partner. Later, invoking the Board Circular No. 739 dt. 25-03-1996, AO was of the opinion that entire remuneration claimed to working partners at Rs. 9,09,822/- should have been disallowed, on the reason that partnership deed does not specify the manner of quantifying such remuneration. Rejecting the assessee objections, AO disallowed the balance of Rs. 7,58,185/- in the order dt. 26-08-2013. 3. Before the Ld.CIT(A), it was submitted that the remuneration was paid to partners according to the Partn....
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....rred to two types of clauses which are generally incorporated in the partnership deeds. These are: (i) Tire partners have agreed that the remuneration to a working partner will be the amount of remuneration allowable under the provisions of section 40(b)( v) of the Income-tax Act; and (ii) The amount of remuneration to working partner will be as may be mutually agreed upon between partners at the end of the year. It has been represented that the Assessing Officers are not allowing deduction on the basis of these and similar clauses in the course of scrutiny assessments for the reason that they neither specify the amount of remuneration to each individual nor lay down the manner of quantifying such remuneration. 2 The Board have ....
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.... case of the assessee falls under para 1(i) and partly under para (ii) of the Circular, which is clearly made not be allowable at para 2. The same is made allowable as a measure of liberal approach upto assessment years 1996- 97 only. In view of the above, it is held that the remuneration claimed is allowable as the same is not quantified. Accordingly, the action of Assessing Officer is confirmed. The grounds raised by the appellant are rejected". 4. During the present proceedings assessee has raised an additional ground as under: "The initiation of proceedings u/s. 147, in the facts and circumstances of the case, is not valid". 5. After considering the rival contentions and perusing the record, I am of the opinion that the further....
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.... is allowable as deduction, subject to sub-clause (v), if such payment is authorized by and is in accordance with the partnership deed. Nowhere in sub- clause (b) of section 40 the mode of authorization is prescribed. However, the CBDT issued a circular stating that if the deed does not specify the amount of remuneration to each individual, it cannot qualify for deduction under section 40(b). No doubt the circular issued by the CBDT is binding on the Officers, but it does not bind the Courts or Tribunals, particularly when it is contrary to the provisions of the Act. An assessee is always entitled to claim that the circular issued by the CBDT is not in consonance with the plain language of the section. In the instant case, the partnership d....
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....ount of remuneration which does not exceed the amount given in the IT Act is deductable. The CBDT has provided that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration. In the present case when the partnership deed provides that the remuneration will be as per the provisions of the IT Act, it clearly means that the remuneration payable to the partners shall be quantified as per the provisions of the Act and shall not exceed the maximum remuneration provided. In the present case, it is not disputed that the partners were paid remuneration which was less than the maximum provided by the IT Act. None of the au....
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....that this itself provides a method of computation. In that case we had not gone into the validity of the CBDT circular. The CBDT circular can only be held to be valid if it is in terms of the main section. As held above, the section 40(b)(v) only lays down that either the working partner should be paid an amount specified in the partnership deed or it should not exceed the amount laid down in the section. In the present case the partners have been paid their remuneration/salary strictly in accordance with the terms of the partnership deed and this amount paid to the partners does not exceed the maximum permissible amount and therefore, the assessee is entitled to the deduction. 10. In view of the above discussion, the appeal is allowed a....