The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the amount of interest on fixed deposit/SSNL Bonds would constitute business income and the same can be included for calculating the remuneration of the partners.
The two-member bench comprising Judicial Member Mr. Mahavir Prasad and Accountant Member Mr. Amarjith Singh was considering an appeal filed by the Revenue against the assessee wherein the first appellate authority deleted an order of the Assessing Officer disallowing Rs. 10,18,000/- under Section 40(b) of the Act on account of remuneration to partner on the ground that remuneration of partner was not allowable on the amount of interest received on Fixed Deposit/SSNL Bonds which was treated as income from other sources.
After hearing the arguments from both sides, the Tribunal bench observed that the assessee has claimed that interest on Fixed Deposit, interest on SSNL Fixed Deposit, and interest on SSNL Bonds was made out of surplus funds available with the assessee and the interest income as part of the business income.
“Therefore, the same was correctly included for calculating remuneration of the partners. The assessee has also placed a copy of the decision of the Jurisdictional High Court in the case of CIT vs. J.J. Industries (Supra) wherein it is held that interest from Fixed Deposit on spare funds cannot be excluded from book profit for the purpose of determining allowable deduction of remuneration paid to partners. After taking into consideration the decision of the Hon’ble Jurisdictional High Court we do not find any error in the decision of the Ld. CIT(A), therefore, this ground of appeal of the Revenue is also dismissed,” the bench said.
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