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2019 (8) TMI 1045 - AT - Income TaxRemuneration to partners - increase / change the quantum of the salary/remuneration by a separate agreement or supplementary deed - validity of resolution increasing the salary not singed by any witness - scope of the Partnership Act, 1932- Deduction u/s. 28 read with section 40(b) - reason for the disallowance is that the same is not admissible in view of section 40(b) - HELD THAT:- The assessee’s conduct, i.e., in first continuing with an impermissible clause (in the partnership deed) even years after clarification by the Board and, then, in not defining the manner of quantification, but passing resolutions, with no record as to the time when they were actually passed, stating to be valid amendment/s to the partnership agreement, itself betrays its’ case of having passed the resolutions on the date from which they are made effective, i.e., prospectively. The resolution/s also does not qualify the term ‘partners’ with the word ‘working’, so that in terms thereof, the salary is to be paid irrespective of whether a particular partner is a working partner or not, and which is not sustainable in view of section 40(b)(i). The entries in the books of account, even otherwise not decisive of the matter, also do not support the assessee’s case. The said resolution, or the one stated to be passed earlier thereto, cannot, in view of the fore-going factual and legal incidents, be regarded as a valid partnership deed, i.e., as a valid instrument of partnership, or as a valid amendment to the partnership deed dated 05.6.2007. One could argue that even ignoring the resolution/s the total salary provided in the partnership accounts could be regarded as agreed to by the partners, i.e., from time to time. The same implies that there is no need for a separate written agreement, which cannot be accepted in view of the same being a requirement of law for a firm to be assessed as a firm (ss. 184, 185). The decision in Suman Constructions [2008 (12) TMI 275 - ITAT PUNE-A] as well as ITO v. Kakkar Cold Storage [2002 (12) TMI 194 - ITAT AMRITSAR] – which pertains to AY 1993-94 (for which exception has been made by the Board circular (supra) itself), would, accordingly, be of no consequence, as would be the assessee’s reliance on Durga Dass Devki Nandan v. ITO [2011 (3) TMI 20 - HIMACHAL PRADESH HIGH COURT] would be of little assistance to the assessee. In fact the latter two decisions are distinguishable in-asmuch as in these cases the partnership deed provided for allowance of salary to the working partners in terms of the relevant clause of the Act (s. 40(b)(v)), and which is precise and definite, so that the salary could be quantified with reference thereto, even as explained in and therefore consistent with the board circular (supra), upheld by the Hon’ble jurisdictional High Court. Section 40(b)(v) defines the maximum remuneration admissible to the working partners of a partnership firm, assessed as such. The said decisions are thus distinguishable on facts. No merit in law in the assessee’s claim qua the allowance of remuneration to the working partners, i.e., in the facts and circumstances of the case. The salary allowed having however been, as given to understand during hearing, assessed in the hands of the partners (to whom it stands allowed), they shall be allowed relief by the AO in terms of s. 155 of the Act. - Decided against assessee.
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