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TMI Blog2011 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... lementary partnership deed dated 1st April,1992, the tribunal was right in holding that remuneration of Rs. 21,40,000/- paid to the two partners cannot be allowed as a deduction under Section 40(b)(v) of the Act?" 3. Relevant part of Section 40 of the Act reads as under:- "40. Amounts not deductible.-Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",-- ** ** ** (b) in the case of any firm assessable as such,-- (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as remuneration) to any partner who is not a working partner; or (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city" and "person so represented", respectively),- (i) interest paid by the firm to such individual otherwise than as partner in a representative capacity, shall not be taken into account for the purposes of this clause; (ii) interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause. Explanation 2.-Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person. Explanation 3.-For the purposes of this clause, "book-profit" means the net profit, as shown in the profit and loss account for the relevant previous year computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. Explanation 4.-For the purposes of this clause, "work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the partnership deed dated 1st May, 1976 reads as under:- "7. That the profits or losses of the partnership, as the case may be, shall be divided amongst and borne by the partners equally." 8. Clauses 1 and 2 of the supplementary partnership deed dated 1st April, 1992 read: "1. That subject to mutual consent of the partners, and subject to the provisions of the Income Tax Act, 1961, the working partner or partners shall be paid such remuneration as may be mutually agreed between themselves, from time to time, and such remuneration shall be deductible expense before arriving at the share of the partners as allocable from the net profits. 2. That both the partners (hereinafter referred as working partners), shall devote their time and attention in the conduct of the affairs of the partnership firm, as the circumstances and need of the firms business may require. The total remuneration payable to the working partners shall be an amount permissible as remuneration to the working partners under the Income Tax Act, 1961 and as applicable from time to time." 9. The partnership as noticed above is between two partners and under clause 7 of the partnership deed dated 1st May, 197 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and give effect to their true meaning. The second sentence of clause 2 neither quantifies nor lays down the manner of quantifying the total remuneration payable to the partners. Clause 2 stipulates the maximum amount that can be paid as remuneration to the two partners but does not quantify the remuneration payable in a particular year. Quantum or the amount of remuneration and the manner of computing is not specified or stipulated but as noticed under clause 1 has been left to be decided by a mutual agreement in future. 12. The appellant in actual practice has not read and understood clause 2 as stipulating that the two partners are entitled to remuneration equal to the maximum amount stipulated in Section 40(b)(v) of the Act. As per the return of income filed on 23rd August, 2007, the appellant firm had declared income of Rs. 1,44,59,522/-. It is prudent to note that as per the books and the Act Rs. 98,81,165/-would be the maximum remuneration payable to the two partners but the remuneration actually paid was Rs. 21,40,000/-. This is admitted by the appellant and further in grounds of appeal it is stated that Rs. 98,81,165/- represents the maximum amount payable under Section 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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