Partner’s Expenses Incurred for Business Purposes are Deductible u/ Income Tax: ITAT Grants Relief to Former ICAI President Atul Gupta [Read Order]
The professional expenses included travel, car fuel, driver’s salary, repairs, telephone and depreciation on his vehicle.
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) recently held that expenses incurred by a partner for legitimate business and professional purposes are legitimate deductibles under the Income Tax Act, granting significant relief to Former ICAI President Atul Kumar Gupta against a disputed income of ₹24,00,000.
The assessee AtulKumar Gupta a Chartered Accountant by profession and partner in M/s A.P.R.A. & Associates LLP, received remuneration of ₹24,00,000 from his firm during the Assessment Year 2018 - 19. This income was earned by Gupta through various activities during which he incurred professional expenses of ₹6,76,456 including travel, car fuel, driver’s salary, repairs, telephone and depreciation on his vehicle, which were directly linked to duties as a partner in the firm, and offered the balance salary of ₹11,62,424 to tax.
The Assessing Officer (AO) disallowed the entire amount, holding that a partner cannot claim deductions from remuneration received from a firm. This view was upheld by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), leading the assessee to approach the Tribunal.
CA Anil Sharma, appearing for the assessee submitted that the expenses were wholly and exclusively incurred for professional purposes connected with the partnership. He argued that since the remuneration received by a partner constitutes business income, all related expenditures are deductible under the Act.
The Supreme Court decision in CIT vs. Ramniklal Kothari (1969) and the ITAT decision in Anil Gupta vs. ITO (2023) were added to further their case.
On the other hand, Sudha Gupta, Senior Departmental Representative appeared for the Revenue and prayed for dismissing the appeal.
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Judicial Member Vikas Awasthy noted that the remuneration from a partnership firm represents business income in the hands of the partner. Relying on the ruling of the Supreme Court in Ramniklal Kothari (supra), the Bench observed that when a partner’s income is business income, expenses incurred wholly and exclusively to earn such income are allowable deductions.
The Bench noted that Section 28(v) of the Income Tax Act, allows any interest, salary, bonus, remuneration by whatever name received by a partner from the partnership firm to be treated as business income.
Section 28(v) of the Income Tax Act, 1961 reads as follows:
28. Profits and gains of business or profession.
- The following income shall be chargeable to income-tax under the head "Profits and gains of business of profession",-
(v) [ any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm: [ Inserted by Act 18 of 1992, Section 11 (w.e.f. 1.4.1993).]
Consequently, any expenditure incurred by the partner exclusively and solely for the purpose of earning such business income was affirmed by Bench to be an allowable expenditure u/s. 32 and 37 of the Income Tax Act, 1961
Accordingly, the ITAT deleted the disallowance and allowed the deduction of ₹6,76,456, thereby reducing the taxable income from ₹24,00,000 to ₹17,23,544.
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