The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that Remuneration paid to the partners cannot be disallowed for want of Registration of Firm.
The assessee, M/s. Tulip Valves and Controls is a Partnership Firm engaged in the business of manufacturing and assembling of valves. The return filed by the assessee was initially accepted by the Assessing Officer. Later, the assessment was re-opened on the basis of the information that income had escaped assessment to tax. The Officer, while concluding the proceedings, held that the partnership was not registered and therefore, the deduction cannot be granted towards the payment of remuneration to the partners.
The assessee, on the other hand, contended that the remuneration to the partners cannot be disallowed for want of registration of partnership firm.
While granting relief to the assessee, the Tribunal observed that “there is no requirement under the law that the partnership firm should be duly registered under the Partnership Act. Therefore, remuneration paid to partners cannot be disallowed for want of registration of the firm. Accordingly, we direct the Assessing Officer to allow the remuneration paid to partners of Rs.5,50,000/-.”
