IN THE INCOME TAX APPELLATE TRIBUNAL, “SMC” BENCH: KOLKATA
I.T.A No. 2555/Kol/2013 A.Y 2006-07

M/s. Suman Enterprise Vs. Dy. C I T Cir-Murshidabad, Berhampore
Date of Order: 10-09-2015

ORDER

This appeal by the assessee is arising out of the order of ld. CIT(A), Kolkata in appeal no.559/CIT(A)-XXXVI/Kol/Cir.MSD./2009-10 dated 30-08-2013. Assessment was framed by DCIT, Circle-Murshidabad for the assessment year 2006-07 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 3-12-2008.

2. The only issue raised by the assessee whether ld. CIT(A) is right in confirming the addition of Rs. 3,33,000/- towards disallowance of partners’ remuneration made by the ld. AO on the ground that individual share of remuneration is not mentioned in the partnership deed.

3. Briefly stated the facts are that the assessee firm has debited a sum of Rs.3,33,600/- in the P& L account on account of partners’ remuneration. The ld. AO required the assessee to produce the partnership deed. The assessee produced the partnership deed dated 29th March 2005, wherein following three partners are there:-

1. Abdus Salam S/o Mozaffer Hossain of Aurangabad P.S Suti
2. Md. Mostafa Hussain S/O Hazi Altab Hossain of Khidirpur P.O Chhabghati P.S Suti&
3. Mr. Faruk Abdullah S/O Hazi Altab Hossain of Khidirpur, P.O Chhabghati

4. The ld. AO observed that individual share of remuneration attributable to each partner is not mentioned in the partnership deed. It was seen by the ld. AO that partnership deed contains clause wherein remuneration to each partner shall be payable in accordance with the provisions of section 40(b)(v) of the Act. Since specified share of remuneration payable to each partner was not specified in the partnership deed, the ld. AO disallowed the partners’ remuneration in the assessment, which was also upheld by the ld.CIT(A). Aggrieved, assessee challenged this issue before the Tribunal on the following grounds:-

1) That on the facts and circumstances of the case, the CIT(A) erred in confirming the addition of Rs.3,33,000/- on account of “Partners’ Remuneration” without considering the facts of the case in proper perspective.

2) That on the facts and in the circumstances of the case, the ld.CIT(A) erred in confirming the addition of Rs.3,33,000/- without accepting the explanation as well as not considering the contents of the Partnership Deed executed in accordance with the Income Tax Law.

3) That on the facts and in the circumstances of the case, the addition of Rs. 3,33,000/- sustained by the ld. CIT(A) was arbitrary, unjust, unlawful and erroneous.”

5. None appeared on behalf of the assessee. Shri Md. Ghayas Uddin, JCIT/ld. Sr.DR appeared on behalf of the revenue. He has vehemently supported the orders of the lower authorities’ and pleaded before me that the addition made by the ld. AO be confirmed.

6. I have heard the ld. Sr.DR and perused the material available on record. I find that even though the partnership deed does not contain the remuneration payable to each partner specifically quantifying the figures, it does include a clause specifying the manner of computation of partner’s remuneration i.e in accordance with the provisions of section 40(b)(v) of the Act. In this regard reliance is placed on the decision of the Hon’ble Himachal Pradesh High Court in the case of Durga Dass Devki Nandan Vs. ITO reported in (2012) 342 ITR 17(HP), wherein it has been held as under:-

“ A reading of section 40(b)9v) clearly shows that amount of remuneration which does not exceed the amount specified in the Act is deductible. The Board has provided that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of qualifying such remuneration. It was not disputed that the partners were paid remuneration which was less than the maximum provided by the Act. None of the authorities had doubted the payment of remuneration and in fact account books of assessee had been accepted to be correct. The remuneration held deductible.

6.1 Hon’ble Rajasthan High Court in the case of CIT Vs. Asian Marketing reported in (2012) 254 CTR 453(Raj) has held as under:-

“The remuneration paid by the assessee-firm to its working partners held admissible which was based on partnership deed according to the norms and standards fixed by the relevant provisions of 1961 Act.“

7. Respectfully following the aforesaid judicial precedent, I am of the view that payment of partners’ remuneration is in accordance with the provisions of partnership deed and within the limit prescribed in the provisions of section 40(b)(v) of the Act though not specifically quantified in the deed, but the manner of quantification is mentioned in the partnership deed, the partners’ remuneration shall be allowed as a deduction in the hands of the assessee firm. Hence, the addition made by the ld.AO is hereby deleted.

8. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on -08-2015 10/09/2015

Sd/-
Dated :     -08-2015
10/09/2015
[ Mahavir Singh, Judicial Member ]