TMI Blog2011 (10) TMI 384X X X X Extracts X X X X X X X X Extracts X X X X ..... OS. 210 TO 212 OF 2002, 116 OF 2003, 43 & 80 OF 2004 AND 315 TO 317 OF 2005 - - - Dated:- 5-10-2011 - HEMANT GUPTA AND JASWANT SINGH, JJ. Akshay Bhan and Alok Mittal for the Petitioner. Ms. Savita Saxena for the Respondent. ORDER Hemant Gupta, J. This order shall dispose of afore mentioned writ petition; one reference under Section 256(1) of the Income Tax Act, 1961 and; nine Income Tax Appeals arising out of the factum of addition in the income either on account of payment of salary or interest on their capital to partners, when there is no prior agreement to pay either the determined amount of salary or rate of interest. 2. The question of law, as raised in ITR No. 38 of 1999, reads as under: "Whether on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership deed or the authenticated partnership deed as such deed is not signed by the partners. The Assessing Officer also found that the interest and salary is required to be authorized and should be in accordance with the terms of the partnership deed, which test is not satisfied by the petitioner. With the said finding, an addition of Rs. 92,421/- was made. The appeal against the said order was dismissed by the Commissioner of Income Tax (Appeals), Patiala on 13.12.1996. Since in the meantime, the Board has issued a circular on 25.3.1996 clarifying that where neither the amount of wages has been quantified nor even the limit of total remuneration has been specified and that the same has been left to be determined by the partners at the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(b) have been introduced only with effect from the assessment year 1993-94 and these may not have been understood correctly the Board are of the view that a liberal approach may be taken for the initial years. It has been decided that for the assessment years 1993-94 to 1996-97 deduction for remuneration to a working partner may be allowed on the basis of the clauses of the type mentioned at 1(i) above. 3. In cases, where neither the amount has been 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 authorized by, or is not in accordance with, the terms of the partnership deed; or ** ** ** 7. On the other hand, learned counsel for the Revenue pointed out that the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner has not filed such partnership deed, therefore, the petitioner does not satisfy the requirement of amended provisions of Section 184 of the Act. It may be noticed that it is not the case of the petitioner, though it may not be necessary in view of the amended provisions of Section 184 of the Act, that the petitioner was assessed to income tax, as a registered firm for any period prior to 01.04.1993. Once the petitioner was not registered as a firm prior to amendment of the Act by Finance Act, 1992, the petitioner has to comply with the requirement of Section 184 as amended by Finance Act, 1992. 9. The argument that the partnership deed authorizes the payment of salary and interest to the partners, therefore, such amount is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital contribution of the partners. Such payment was left to the discretion of the partners at the end of the financial year. Section 40(b)(ii) contemplates the authorization of remuneration or interest. The authorization does not mean an agreement to pay, but to quantify the amount of salary or the rate of interest payable to the partners. If the said aspects are not determined prior to the financial year, the same are capable of adjustment at the end of the financial year keeping in view the profits earned with a view to increase expenditure and reduce income. The circular issued by the Board explains the expression authorized in the aforesaid circular dated 25.03.1996. The said circular does not run counter to any of the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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