Circular specifying that partnership deed should specify the remuneration, is invalid

By TG Team Income Tax Judiciary April 11, 2011

TaxGuru Citation: 2011 taxguru.in 330
Case Name: M/s Durga Dass Devki Nandan Vs. Income-tax Officer (Himachal Pradesh High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Himachal Pradesh High Court

CBDT Circular No. 739 dated 25.3.1996 which specifies that for section 40(b)(v), the partnership deed should specify the remuneration, is invalid

M/s Durga Dass Devki Nandan Vs. ITO (HP High Court) – The CBDT circular can only be held to be valid if it is in terms of the main section. As held above, the Section 40(b)(v) only lays down that either the working partner should be paid an amount specified in the partnership deed or it should not exceed the amount laid down in the Section. In the present case the partners have been paid their remuneration/salary strictly in accordance with the terms of the partnership deed and this amount paid to the partners does not exceed the maximum permissible amount and therefore, the assessee is entitled to the deduction.

HIGH COURT OF HIMACHAL PRADESH, SHIMLA

Income-tax Appeal No. 4 of 2005

Reserved on: 4.3.2011.
Date of decision:1 1.3.2011.

M/s Durga Dass Devki Nandan Vs. Income-tax Officer,

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Whether approved for reporting? Yes.

For the appellant: Mr. Goverdhan Sharma with Mr. Vayur Gautam, Advocate.

For the respondent: Mr. Vinay Kuthiala, Advocate.

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Per Deepak Gupta, J.

1. This Income-tax Appeal was admitted on the following questions of law:-

a) Whether Circular No. 739 dated 25.3.1996 issued by CBDT can exceed the domain of operation as permitted under the provisions of the Act i.e. Sections 28 to 40?

b) Whether circular No. 739 dated 25.3.1996 over-rides the provisions of Section 40(b)(v)(i)(ii) of the Income-tax Act, 1961 so as to disallow the salary actually paid and recorded in the books of accounts?

c) Whether the learned Assessing Officer was legally justified in disallowing the salary actually paid monthly and debited regularly in the books of accounts as an expense, just on the basis of the circular No. 739 dated 25.3.1996 surpassing the provisions of the Income-tax Act, 1961 which otherwise permits the allowing of expenses actual and regularly made and also clause 3 of the Circular referred to above?