TMI Blog2022 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... et. The general prudence of the law is that the same income cannot be taxed twice. On other hand, the partners are not liable to pay tax on the remuneration which was already paid by the firm in its return of income. The beauty of the section 40(b)(5) is that the remuneration to the partner is fully regulated by the book profit. More book profit more remuneration of partner will be allowed. So as per act the assessee can claim more remuneration but it will be allowed subject to provision 40(b)(5) of the Act depending of its book profit. On the other hand, the same remuneration is taxed in the hands of the assessee. The learned Pr. Commissioner of Income Tax, during issuance of notice under section 263 of the act and also during passing the order under section 263 of the act did not cognizance on the calculation of tax and the benefit of the revenue. We consider the order under section 263 of the act. The two opinions were formed by two Authorities in the question of acceptance of clause of partnership deed related Partners' Remuneration. Respectful consideration of the judgments of Hon'ble Apex court is in the case of Malabar Industrial Company Ltd. vs CIT [ 2000 (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the interest of revenue. Considering this fact the order under section 263 was passed. The aggrieved assessee filed an appeal before us for further adjudication. 3. During the hearing the Council of the assessee Mr. Tarun Bansal, Advocate filed the written submission on dated 24th March 2022 which is kept in the record. As per Mr. Bansal the order passed by the learned Pr. CIT is perverse. In fact the Assessment order of the learned Assessing Officer is not erroneous because the issue related partnership deed is considered in assessment order during allowing the deduction U/s 40(b)(v) of the Act. During the assessment, the partnership deed was produced which is enclosed in Page number 5 of the paper book. In point number 7 of the deed, the remuneration is quantified. The point no. 7 of the deed is reproduced as under:- 7. That all the partners shall be working partners and shall be entitled to draw salary from the firm to the extent allowable under the provisions of Income Tax Act, 1961 but shall be drawing salary to the maximum of: 1. Sh. Sudershan Kumar Sharma -- Rs. 24,00,000 per Annum 2. Sh. Suresh Kumar Sharma -- Rs. 24,00,000 per Annum 3. Sh. Nares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to do so. Accordingly, in view of above discrepancies, I propose to hold the said order to be erroneous, in so far as it is prejudicial to the interest of revenue and take suitable remedial action, as per section 263 of the Income Tax Act, 1961. Your reply/objections, if any, to the proposed action can be filed before the undersigned by 29.01.2019 on which date your case stands fixed for hearing at 11.30 A.M. in the office of the undersigned. 2. In response to the show cause notice, the assessee's counsel Sh. Rakesh Ghai, CA, attended and filed requisite reply which is reproduced as under: We acknowledge the receipt of above mentioned notice in which the discrepancy with regard to salary allowable to partners has been observed and have mentioned that as per Para 7 of the Partnership Deed working partners shall be entitled to draw salary to the extent allowable under the provisions of Income lax Act, 1961 to the maximum of Rs. 24,00,000 - per annum to each partner. You have further mentioned that the salary to the partners has not been quantified in the deed as required u/s. 40(h) (ii). It is humbly submitted that while framing the assessment the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh Kumar Sharma III. Copies of ITR and computation of partner Mr. Sudershan Kumar Sharma IV. Copies of ITR and computation of partner Mr. Suresh Kumar Sharma. 7. Mr. Bansal bring our attention in the assessment order passed under section 143(3) read with 263 passed on 28/09/2021. In effect of the order of learned Pr. CIT the assessing Officer only added back Rs. 12 lakh with the total income of the assessee. He further mentioned that then on total remuneration amount to Rs. 36 lakhs the tax was paid in assessee's return. Accordingly the refund will be claimed in the hands of the partners related to tax on disallowed partners' remuneration. The same amount cannot be taxed twice. He had taken the prudence of the law. The amount would be liable for refund by the revenue authority. 8. The learned CIT-DR vehemently argued and mentioned that the tax will be levied in the hand of specific person. The question of refund or loss of revenue is not the point. He relied on the order of the learned Pr. CIT. 9. We heard the rival submission considered the documents available on record. The section 263 has two limbs, the erroneous order and prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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