TMI Blog2012 (6) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable under the head income from other sources - held that:- The deduction qua the partner's remuneration is being claimed and, therefore, would stand to be allowed only in determining the income assessable u/c. IV-D, in which case it would automatically fall to be included in the 'book profit', and the assessee allowed its claim for remuneration allowed to the working partner/s with reference thereto - at the claimed/exigible amount, else not. The condition with reference to 'book profit', it may be appreciated, does not lay down any qualitative test, but only a quantitative one, so that the deduction, being in respect of expenditure to persons constituting the firm itself, is sought to be regulated by the Act. - The question as to whether 'book profit' would include income assessable under head of income other than that assessable Chapter IV-D, thus, does not arise for consideration, and the assessee's alternate ground is misconceived and misdirected. - IT APPEAL NO. 109 (COCH) OF 2010 - - - Dated:- 29-7-2011 - N. VIJAYAKUMARAN, SANJAY ARORA, JJ. K. Nithyananda Kamath for the Appellant. S.R. Senapati for the Respondent. ORDER Sanjay Arora, Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, we find that there is another ground for reopening of the assessment, which stands stated at para 2 of the impugned assessment order, and has led to a disallowance u/s. 36(1)(iii) at Rs. 20,545/-, i.e., at the same amount as stated in the reason. The said disallowance has not been agitated by the assessee either before the first appellate authority or before us, i.e., stands accepted. As such, its challenging the re-opening is without merit. The assessee fails on its Ground No. 2. 4. The second and the principal issue, projected per Ground Nos. 3(a) to 3(e), 4 5 (of the grounds of appeal) relates to the disallowance of Rs. 1,88,644/- in respect of excess remuneration to the working partners, effected u/s. 40(b)(v) of the Act. The said disallowance has been worked out by limiting the allowance in its respect w.r.t. the 'book profit', in terms of Explanation 3 to s. 40(b)(v), reckoned by excluding the income by way interest on bank deposits, on the ground that the same is assessable under the head 'income from other sources' and, thus, not liable to be included as a profit of the business, on which the quantum of deduction qua remuneration to the working partner/s is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the State Government with regard to the payments under the contract, and which were referred to arbitration. The assessee received certain amounts under arbitration award, and which included interest for the delay in the payment due to it. The question of the head of income under which the said interest was liable to be assessed, i.e., as 'business income' or 'income from other sources', arose for consideration. The apex court clarified that there was no rule that the interest had to be assessed only under the residuary head 'income from other sources', and which would be so only where it could not be brought within one of the several specific heads of charge. That is, the question of its assessability under one or the other heads of income is to be determined on the basis of the specific facts attending each case, and no omnibus or standard rule could be said to operate. It was further held that the interest payable to the respondent partook the same character as the receipt for payment of which it was otherwise entitled under the contract, and which payment had been delayed as a result of the dispute between the parties. The interest awarded could not be separated from the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or trade. The same premises informed the decision by the hon'ble jurisdictional high court in the case of Jose Thomas ( supra ), which was also in the context of the bank deposits held as collateral security for bank borrowing; it reversing the decision by the tribunal in the matter, holding that if agricultural land stood offered as a collateral security, going by the tribunal's logic, the agricultural income there-from would be assessable as business income! Again, the decision in the case of Collis Line (P.). Ltd. ( supra ) is with reference to the bank deposits representing investment of surplus funds, lying idle and thus kept in the form of deposits with the bank. 5.3 The bank deposits, in the facts of present case, to the contrary, were necessitated only for the availment of credit from the supplier's, who refused to extend trade credit and thus assume any credit risk against supplies to the assessee, except where the same stood mitigated by the issue of bank guarantee/s in their favour. The said bank deposits, being only in compliance of the terms of the availment of bank guarantee - a business arrangement - thus, constitute a business asset as any other. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable under Chapter IV-F of the Act, i.e., as income from other sources, the same would still qualify to be considered as a part of the 'book profit', being with reference to the books of accounts, which the AO cannot disturb, so that remuneration to the partners would stand to be allowed on its basis. The moot question, however, that would arise in this regard, and only as a direct corollary to the foregoing discussion, is whether a deduction in respect of business expenditure, as remuneration allowed by a firm to its working partner/s, which is allowable only u/s. 37(1) of the Act, could be allowed against income that is admittedly not assessable under Chapter IV-D, but under any other head of income instead, as (say) 'income from other sources' [Chapter IV-F]. This would arise in direct consequence of the argument advanced that the term 'book profit' under Explanation 3 to s. 40(b)(v) could include income which may not be assessable u/c. IV-D; the only qualification for the same being that it must find inclusion in the firm's 'profit and loss account' for the relevant year. As would be apparent, the same would go against the scheme of the Act, and the answer to the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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