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2011 (10) TMI 497 - AT - Income TaxRemuneration and interest to partners – dis-allowance u/s 40(b) - Revenue contended that reconstitution firm deed did not specify the quantum of remuneration - CIT(A) allowed the claim - Held That:- Explanation 3 to section 40(b) does not give any method of computation of remuneration payable to a working partner. It simply states what is "book-profit" for the purpose of working out the remuneration, under section 40(b). Clause (8) of the deed also states in the alternative that any other applicable provision which would be in force for the income-tax assessment has to be applied for such computation. There is a further mention that partners were entitled to increase or decrease the remuneration. Thus when all these read together would make the clause extremely vague for being applied in a meaningful manner. Assessee-firm through this clause is trying to find a method by which whatever remuneration claimed by it as payable or paid to the working partner would become allowable under the provisions of Income-tax Act. No doubt, in the case of Suman Construction (2008 (12) TMI 275 - ITAT PUNE-A) it was held that CBDT had no jurisdiction to substitute the term "authorise" occurring in section 40(b) by the term "quantify". However, this cannot be extended to mean that an authorization which is so vague that no proper quantification could be done would also be sufficient for a claim. Where the authorization is such that the correct quantification of the remuneration payable to a working partner cannot be done it cannot be construed as a type of authorization which would satisfy the requirement of section 40(b) as clause (8) of the deed dated 1st April, 2005 was vague and not susceptible to a meaningful quantification. The later deed dated 1st April, 2005 does not have any clause which would enable the assessee to fall back upon the old deed dated 10th April, 1997, in case of any deficiency therein. CIT(Appeals) fell in error directing the A.O. to delete the disallowance being remuneration paid to working partner considering it as not allowable as correct quantification of the remuneration payable to a working partner cannot be done, it does not satisfy the requirement of section 40(b) - Decided against assessee Dis-allowance of loss on account of sale of flat - CIT(A)allowed the claim - Held that:- Assessee is in a business of promoting commercial and residential flats and other lines of business, therefore cannot be said that purchase and sale of land would be alien and not a part of the business. As stated by the CIT(Appeals) that the land was treated as 'stock-in-trade' and this has not been disputed by the DR, thus when stock-in-trade is sold result can only be business profit or business loss. Assessee might have been forced to sell it at a loss for a myriad of reasons. It is not for the Revenue to sit on the arm chair of a businessman and to decide appropriate point of time in which a sale or purchase has to be effected in the course of his business. Sale deed, purchase deed, books of account, none of it being rejected nor the seller or purchaser had been called up by the Revenue for any verification. Thus the loss could not have been disallowed - in favour of assessee.
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