9911796707
TMI Blog2003 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable to the partners in terms of clause 13 of the partnership deed is to be worked out on the basis of the net profit without deducting the income-tax liability?" The brief facts necessary for adjudication of this question are as follows. The respondent-assessee, M/s. Kajah Company, is a partnership firm carrying on the business in the manufacture and sale of beedies. In the assessment of firm for the year 1993-94, the Assessing Officer disallowed a sum of Rs. 2,23,216 out of the remuneration payable to the partners under section 40(b) of the Act. The assessee had claimed deduction of a total sum of Rs. 5,24,140 as remuneration paid to the working partners. As per clause 13 of the partnership deed dated April 27, 1982, two of the working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for taxes appearing for the applicant and Sri P. Balakrishnan, learned counsel appearing for the respondent. As already noted, the dispute is regarding the disallowance of Rs. 2,23,216. The two working partners were to be paid a total remuneration of Rs. 5,24,140 as provided under clause 13 of the partnership deed dated April 27, 1982. The Assessing Officer has disallowed the claim under section 40(b) of the Act. The first appellate authority, found that clause (v) of section 40(b) prescribes the maximum permissible remuneration which can be allowed, and that in the instant case, the remuneration paid to the working partner is well within the limits prescribed in clause (v) of section 40(b). However, the first appellate authority, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the parties of the first and second parts." By virtue of the provisions of clause (ii) of section 40(b), the remuneration paid to any partner who is a working partner should be authorised by or in accordance with the terms of the partnership deed. Clause 13 which is already extracted above is the relevant portion with reference to which remuneration payable to the working partner were worked out by the assessee. Clause 13 clearly provides for remuneration to the partner for the general conduct and management of the day-to-day business activities of the firm, remuneration of 2.5 per cent. of the net profits of the business to each of the partners. It also provides that such remuneration shall be treated as an expenditure of the firm. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. It was on that basis they computed the remuneration paid to the working partners. When the contractual agreement between the partners has been understood by the parties concerned in that way and also acted upon thus, it would not be correct for the Department to interpret clause 13 in a different way, to insist that the net profit should have been worked out after deducting the tax liability. It appears that there was no dispute among the partners regarding the manner in which the remuneration payable to the working partners has been computed. All the partners had treated as if the payment of remuneration was in accordance with clause 13 only. In the circumstances of this case, we do not uphold the order of the Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
