Quantum/Manner of computing remuneration should be stipulated in partnership deed

Sood Brij & Associates vs. CIT (Delhi High Court)– On reading the supplementary partnership deed, in the present case, it is clear that the remuneration is not specified. The manner of computing the remuneration is not specified. On the other hand, the remuneration payable is left to future mutual agreement between the partners who are entitled to decide and quantify the quantum. Remuneration can be any amount or figure but not more than the maximum amount stated in Section 40(b)(v) of the Act. Therefore, the requirements of Section 40(b)(v) are not satisfied.

Decision in the above case is in Contrast with M/s Durga Dass Devki Nandan vs. ITO (HP High Court) where it was held (after striking down CBDT Circular No. 739 dated 25.3.1996) that a provision in the deed that “remuneration would be as per the Act” was sufficient for section 40(b)(v) .

IN THE HIGH COURT OF DELHI AT NEW DELHI

Income Tax Appeal No. 1154 of 2011

Date of Decision: 4^th November, 2011

Sood Brij & Associates    

Versus

The Commissioner of Income-tax- XIII

SANJIV KHANNA, J.

The present appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) has been preferred by Sood Brij & Associates, a partnership firm, consisting of two partners namely A.K. Sood and B.M. Gupta, who are practicing Chartered Accountants. In their return for the assessment year 2007-08, Rs.21,40,000/- was claimed as a deduction towards salary/remuneration paid to the partners. This was disallowed  by the Assessing Officer on the ground of violation of Section 40(b)(v). The appellant- assessee has  been unsuccessful in appeals before the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, Delhi (tribunal, for short). The impugned order of the tribunal is dated 29^th October, 2010.