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2022 (6) TMI 1269 - AT - Income TaxDisallowance of remuneration paid by the assessee to its Working Partner u/s 40A(3) - Cash payment of expenditure in excess of specified limit - Scope of separate identity for the firm and its partners - HELD THAT:- It is trite that the partnership firm is not a juristic person and there is no separate identity for the firm and its partners. The partnership is only a collective of separate persons and not a legal person in itself. For the purpose of the Act, a firm is considered as a unit of assessment by special provisions. The Hon’ble Supreme Court in the case of CIT v. R.M. Chdambaram Pillai (1976 (11) TMI 2 - SUPREME COURT]while holding that payment of salary to a partner represents a special share of the profits and the salary paid to the partner retains the same character of the income, observed that remuneration paid to the partner is share of profits of the partnership firm and same cannot be treated to be in the nature of salary paid to the employee. It is not the case of Revenue that the transaction of payment of remuneration to the Working Partner was of colourable nature. As the remuneration is from the firm to the Working Partner, which is nothing but sharing of profits, the identity of the payer and payee is also not doubted by the Revenue. Further, the genuineness of remuneration and source is also not in dispute. Thus, even in view of the above, the applicability of section 40A(3) of the Act, in the present case, is not justified. As section 40A is a general provision and section 40(b) is a special provision and only in situation which are not covered by section 40(b), section 40A shall be applicable. In the present case, assessee being a partnership firm and section 40(b) being the special provision dealing with computation of income of firm, same shall be applicable for determining the amount of deduction available to the assessee. Further, in the present case, there is no dispute that the remuneration was paid to the Working Partner. Also, there is no allegation that conditions of section 40(b) of the Act are not complied with. Thus, in view of the aforesaid judicial pronouncements also, we are of the view that section 40A(3) was wrongly invoked by the Revenue for disallowing remuneration paid to the Working Partner, which is within the permissible limits as per section 40(b) of the Act. Therefore, in view of our aforesaid findings, the order passed by the learned CIT(A), affirming the disallowance made under section 40A(3) of the Act, is set aside and the grounds raised by the assessee in present appeal are allowed.
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