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TMI Blog2003 (5) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... ners @ Rs. 17,000 per partner. This way, a total sum of Rs. 68,000 was claimed as deduction in terms of section 40(b)(v) of the Income-tax Act. However, instrument of partnership in operation provided payment of remuneration to the working partners as under:-- "6. That all matters of policy and import shall be mutual decided by the parties from time to time by devoting such time and attention as may be necessary for the smooth and efficient running of the partnership business. Sarvshri Gopal Dass, Kulwant Rai, Naresh Kumar and Jiwan Kumar the aforesaid parties of the 1st to 4th parts respectively being the working partners shall be entitled to a salary remuneration of Rs. 20,000 per annum each subject to the overall limits as laid down in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration was not paid in accordance with terms of the partnership deed and, therefore, rightly disallowed. 4. We have given careful thought to the rival submissions of the parties and examined them in the light of material available on record and relevant statutory provisions. 5. The salary/remuneration or interest paid by a firm to a partner was totally disallowed under section 40(b) of the Income-tax Act till assessment year 1992-93. However, w.e.f. 1-4-1993 changes have been made in the Income-tax Act by the Finance Act, 1992 allowing interest and remuneration to partners and working partners as per clauses (iv) & (v) of section 40(b) of the Income-tax Act. Clause (v) is relevant for our purposes and is reproduced as below:-- "(v) any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above that remuneration can be allowed as a deduction the following conditions are satisfied:-- (1) Payment of remuneration is made to a working partner. (2) It is authorised and in accordance with the terms of the partnership deed. (3) The total amount of remuneration to all the partners during the previous year should not exceed the aggregate amount computed as per sub-clause (1) or (2) to clause (v) of the sub-section. 7. Now when we consider clause (vi) of partnership deed in question, we find that as per the terms, each of the working partners is entitled to remuneration to Rs. 20,000 per annum. This is the remuneration which is fixed as per agreement between the partners. The sentence "subject to overall limits as laid down in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee claimed salary of Rs. 68,000 i.e. @ Rs. 17,000 per partner per annum. It is the contention of the assessee that the above salary was bona fidely claimed within the ceiling limits. It was further contended that the provision introduced in the statute was new and was not understood properly by the general public. The quantification of remuneration was difficult and, therefore, Board issued Circular No. 739, dated 25-3-1996, Para 2 of the aforesaid circular provided as under:-- "2. The Board have considered the representations. Since the amended provisions of section 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 liberal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch could be paid under the statutory provision. Therefore, the remuneration which was actually paid was less than the maximum amount payable under the statute. The sentence "subject to overall limit as laid down under section 40(b) of Income-tax Act" is not a term of partnership deed. It is a statutory provision which is applicable to all partnerships whether provided in the instrument of partnership or not. In that sense, the claim might not be as per the statutory provision but it cannot be said that the claim made was not in accordance with term of the instrument of partnership. However, we have already held after discussion that remuneration has been rightly claimed and should be allowed as deduction under section 40(b)(v) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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