Remuneration paid to partners cannot be disallowed for want of registration of firm

Remuneration paid to partners cannot be disallowed for want of registration of firm. There is no requirement that partnership firm should be registered under the Partnership Act.

ABCAUS Case Law Citation:
ABCAUS 3136 (2019) (09) ITAT

The appeal of the assessee was directed against the order of the Commissioner of Income-tax (Appeals) in confirming the disallowance of remuneration paid to the Partners of the firm.

The appellant assessee was a Partnership Firm. The assessment of the firm was completed by the Assessing Officer (AO), u/s 143(3) of the Income Tax Act, 1961 (the Act) accepting the returned income.

Subsequently, the Assessing Officer based on the information that in the assessment completed, increased partner’s remuneration had been allowed despite the fact that supplementary partnership deed authorising the enhanced remuneration had not been registered. As per section 40(b) of the Act, only the amount authorized by the partnership deed is allowable as deduction towards remuneration paid by a firm to its working partner. Hence, the AO was of the view that in view of the excess remuneration allowed the income had escaped assessment to tax.

Accordingly the AO re-opened the assessment by issue of notice u/s.148 of the Act. In response to notice u/s.148, no return of income was filed and the assessment was completed after issuing notice u/s. 143(2) of the Act vide order passed u/s 143(3) r.w.s. 147 of the Act after making additions inter alia on account of excess remuneration paid to partners.

Aggrieved, the assessee preferred an appeal before the CIT(A), who vide the impugned order dismissed the appeal.

The Tribunal held that there is no requirement under the Act that the partnership firm should be duly registered under the Partnership Act. Therefore, remuneration paid to partners could not be disallowed for want of registration of firm.

Accordingly, the Tribunal directed the Assessing Officer to allow the remuneration paid to partners.

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