AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 947
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....eturn of income on 28th September 2015 declaring taxable income of Rs. 9,420/-. During the course of assessment proceedings the AO noted that the assessee has debited Rs. 2,88,000/- as remuneration to partners. To verify the allowability of the same, the AO asked the assessee to produce the copy of partnership deed. From the partnership deed so submitted the AO noted at page 2 on point No. 5 where it is mentioned as under :- "That the parties hereto shall be entitled for interest on their capital investment and is entitled to a salary as per mutual consent which shall be deducted from the profit or losses of the firm before dividing the same in accordance with the proceeding but under Income Tax Act, 1961." 3. He, therefore, ask....
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....n quantified nor even the limit of total remuneration has been specified but the same has been left to be determined by the partners at the end of the accounting period, in such cases payment of remuneration to partners cannot be allowed as deduction in the computation of the firm's income. " 4. "It is clarified that for the assessment years subsequent to the assessment year 1996-97, no deduction under section 40(b) (v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration. " Since the partnership deed provided by AR of the assessee neither specifies the amount of remuneration payable to ....
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....early does not hold water. The Assessment Order in dated which was much after the issuance of the said circular. The payment of salary u/s 40(b) would be governed by the circular no.739. Also, the appellant's contention to restrict the disallowance as per the circular is not correct. This step could have been taken at the assessment stage itself which was not done. Irrespective of this fact, the disallowance itself is correct by made by the Assessing Officer. Therefore, the addition made by the Assessing Officer is sustained." 7. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :- 1. " That Ld. CIT (A) erred on the facts and circumstances of the case and ....
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....d the conditions laid down in CBDT circular No. 739 dated 25th March 1996 has held that claim of remuneration paid to the partners despite the quantum being not prescribed in the partnership deed was to be allowed. 8.2. Referring to the decision of Hon'ble Delhi High Court in the case of CIT vs Vaish Associates (2015) 63 taxman.com 90, he submitted that under somewhat similar circumstances the decision of the Tribunal allowing salary to two partners was upheld by the Hon'ble Delhi High Court. He submitted that merely because the partnership deed did not specify the amount of salary to be paid to each of the partners or had not laid down a specific method of computation thereof cannot be a ground to disallow the remuneration to partners. ....
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....shows that there is no mention of the quantum or manner of calculation of such remuneration. 11. I find the AO while disallowing the salary has followed the decision of Hon'ble Delhi High Court in the case of Sood Brij & Associates vs. CIT reported in (2011) 15 taxman.com 76 where it has been mentioned as under :- (Head notes) "Section 40(b) of the Income Tax Act, 1961- Business disallowance - interest, salary, etc. paid by firm to partners - Assessment year 2007-08 - Whether requirement of allowing deduction under section 40(b) is that remuneration paid to partners should be authorised and in terms of partnership deed - Held, yes - Whether expression ' in accordance with terms of partnership deed' read with sub-clause (iii) of ....