Delhi HC Directs CBDT to Clarify Tax Treatment of Partner’s Addl. Remuneration & Rewards, Stays Recovery Proceedings [Read Order]

The Delhi High Court directed the Central Board of Direct Taxes (CBDT) to clarify the tax treatment of a partner’s additional remuneration and discretionary performance rewards while staying recovery proceedings arising from an assessment order that had added such amounts to the partner’s income despite the firm having already paid tax.

The case arose from a writ petition filed by Rajeev Sawhney, a partner in S.R. Batliboi & Co. LLP, challenging the action of the Assessing Officer who added to his income the amounts received as additional remuneration and discretionary performance reward. The petitioner argued that the partnership firm had already paid tax on these amounts, yet they were again brought to tax in his hands.

Before the High Court, the petitioner’s counsel argued that the Assessing Officer relied on Section 10(2A) Explanation and Section 28(v) of the Income Tax Act, 1961, while ignoring the proviso and its effect. They further argued that similar issues are pending before the High Court in another writ petition and that several proceedings have been initiated across the country where such amounts are being assessed or reassessed in the hands of partners even though the firms have already paid tax.

The bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the issue may have wider implications and could affect multiple assessees who are partners in different professional firms. It explained that in view of the broader impact of the issue, it would be appropriate for the CBDT to examine the matter and issue a clarification.

The court pointed out that a coordinated approach is necessary since similar proceedings are being undertaken by various assessing authorities across the country.

Accordingly, the court directed the petitioner’s firm to submit a representation to the Chairman of the CBDT within two weeks setting out the relevant facts and provisions. It also directed that the Chairman or a nominated officer examine the issue and issue a clarification in accordance with law.

The court further ordered that recovery proceedings pursuant to the assessment order shall remain stayed until further orders. The matter has been listed for further hearing on 18.05.2026.

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