ITAT deletes Disallowance of Partners Remuneration of CA Firm [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) in JRA & Associates v. ACIT, deleted an order disallowing Partners’ Remuneration of a Chartered Accountants Firm and observed that when the remuneration is quantified through method of prescribed under the Provisions of Section 40(b) (v) of the Income Tax Act then the remuneration has to be allowed by the Assessing Officer.

The assessee is a Firm of Chartered Accountants. While completing the assessment proceedings against the assessee, the Assessing Officer observed that the firm has paid remuneration of Rs.57,63,506/- to the partners. He invoked Section 40(b) of the Income Tax Act to disallow the payments to partners of the Firm by finding that the partnership deed neither specified the quantum of salary/remuneration payable to the partners nor provided method of their computation. He further relied on the Delhi High Court decision in case of Sood Brij & Associates.

Advocates Sh. Gaurav Jain and Ms. Deepika Agarwal, appeared for the assessee relied upon the decision of the Delhi Tribunal in case of ACIT Vs. M/s DCS International Trading wherein the similar clause which is incorporated in a present partnership deed has been discussed and taken into consideration.

The Tribunal bench noticed that as per clause 4 of the CBDT Circular, even the method of quantification can be accepted as per the provisions of Section 40(b) (v) of the Income Tax Act.

The bench further relied on the Delhi High Court decision in CIT Vs. Vaish Associates wherein it was held that when the remuneration is quantified through method of prescribed under the Provisions of Section 40(b) (v) of the Income Tax Act then the remuneration has to be allowed by the Assessing Officer.

The bench noted that the decision in Sood Brij & Associates not applicable to the present case because in that case, though the partners were equally distributing the remuneration yet it was on the terms of the mutual agreement of the partners which might have an element of uncertainty of the remuneration.

Allowing the appeal of the assessee, the bench held that “There was no method given in the partnership deed in that particular case. Therefore, the Hon’ble Delhi High Court decision in case of Sood Brij & Associated will not be applicable in the present case. In the present case, the Hon’ble Delhi High Court’s decision dated 11.08.2015 in case of Vaish Associates will be applicable. The Clause mentioned in Vaish Associates case is in toto similar in the present case for partnership deed relating to the remuneration of the partners. Therefore, in light of this the CIT(A) as well as the Assessing Officer has not taken a proper cognizance of the Clauses given under the partnership deed in consonance with the provisions of Section 40(b) (v) of the Income Tax Act.”