SARASWATI and CO. V. COMNR. OF INCOME TAX

TA/58/2000

AI Insights

The case involves an appeal against the order of the Income Tax Appellate Tribunal, Cuttack, which had disallowed the deduction of remuneration paid to working partners of a firm under section 40(b)(v) of the Income Tax Act. The appellant challenged the Tribunal's decision, arguing that the remuneration was authorized by the partnership deed and was in consonance with the CBDT circulars. The court referenced a similar case (T.A. No.56 of 1999) where it had previously ruled in favor of the assessee under similar circumstances. The court's decision was influenced by the interpretation of the partnership deed and the relevant CBDT circulars, leading to the reversal of the Tribunal's decision.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 674166 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 31-07-2019
• Assessment Year: misc
• Other Referred Cases: Indo-Gulf Fertilizers & C.C. Ltd. Vs. Union of India
• Laws Referred To: Income Tax Act, C.B.D.T. Circular No.739, C.B.D.T. Circular No.581, C.B.D.T. Circular No.549
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Business expenditure; Partnership deed; Remuneration; Tax appeal; Working partners
• Section: 40(b)(v)

Judgement Text

" 7. 31.07.2019 Heard learned counsel for the parties. 2. By way of this appeal, the appellant has challenged the order dated 07.07.2000 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in ITA No.265/CTK/1996 on the following questions of law: “Whether in facts and circumstances of the case, the learned Income Tax Appellate Tribunal is justified not to allow the amount of remuneration paid to the working partners u/s.40(b)(v) of the I.T. Act and C.B.D.T. Circular No.739, dated 25.3.1996? “Whether in the facts and circumstances of the case, the terms and conditions of the Deed of Partnership and Resolution adopted by the partners with regard to payment of remuneration to working partners are in consonance with Section 40(b)(v) of the I.T. Act and C.B.D.T Circular No.739, dated 25.3.2000?” 3. Learned counsel for the petitioner submits that the issues involved in the present appeal is covered by the decision of this Court rendered in T.A. No.56 of 1999 disposed of on 17.07.2019 which is reproduced herein below. “By way of this Tax Appeal, the appellant challenged the judgment and order dated 27.07.1999 in ITA No.117/CTK/1995 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, whereby learned Tribunal has allowed the appeal preferred by the Department on the ground as narrated in paragraph-5 of its order, which is quoted for ready reference. “5. I have considered the submissions of both the parties and TA No.58 of 2000 2 inclined to agree with the submission made by the learned DR as stated above. The return was not accompanied by the Resolution. Therefore, the action of the assessing officer in disallowing the salary and interest paid to the petitioners on the face of it is a in order. They are clearly not allowable. Circular No.581 dt.28.9.90 is not applicable to the facts of the present case. Therefore, considering the totality of the facts and circumstances of the case, I hold that the DC(A) is not justified in deleting the same and the same is accordingly reversed and the appeal is allowed.” Although the appeal was admitted on 06.09.2000, no question of law was framed. However, the question of law which have been formulated by the appellant are as follows:- 1. Whether that when filing of resolution along with return is not prescribed under law, whether Tribunal was justified in law in disallowing the claim for deduction of expenditure of Rs.1,10,297/- paid as salary and interest paid to the working partners when the payment is authorized by the partnership deed. 2. Whether the order of the Tribunal is vitiated in law for not referring to the circular No.549 argued before it and for Mis-interpreting the circular No.581 dated 28.09.1990. 3 3. Whether the claim for expenditure towards salary and interest paid to the partners should have been allowed as a business expenditure in the facts and circumstances of the case and order of the Tribunal is illegal. Learned counsel for the appellant placed reliance on Clause-8 of the Deed of Partnership, which is as follows:- “That the partners shall draw salary from the Firm which shall be fixed from time to time on mutual consent of the partners and interests shall be paid/charged on capital contributed on any loan given to the firm or taken from the Firm by the partners, the rate of which shall be determined by the partners on mutual consent.” Reliance is also placed on a decision of Delhi High Court in the case of Indo-Gulf Fertilizers & C.C. Ltd. Vs. Union of India, reported in (1992) 195 ITR 485, wherein Circular No.549 dated 31st October, 1989 having been placed reliance by the assessee before the Tribunal. The said circular has been held to be correct by the Delhi High Court. Thus, the issue is decided in favour of the assessee. Even otherwise, in view of clause-8 of the Partnership Deed, both the salary and interest are admissible as per the Clause-8 of the Partnership Deed. 4 In that view of the matter, the grounds as taken by learned Tribunal in paragraph-5 of its order is reversed. Accordingly, the appeal is allowed and the issue involved in this appeal is allowed in favour of the assessee and against the Department.” 4. In view of submissions of learned counsel for the appellants, this appeal is disposed of in terms of order dated 17.07.2019 disposing of T.A. No.56 of 1999. dutta ..………………….. K.S. JHAVERI (Chief Justice) ……..………………….. K.R. MOHAPATRA (Judge) "