M/s. Clasis Law, New Delhi V. ACIT, New Delhi

ITA 3403/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4043 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 09-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ALKA GAUTAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 3403/DEL/2016 AY: 2012-13 CLASSIC LAW, VS ACIT, 14 TH FLOOR, CIRCLE 61(1), DR. GOPAL DAS BUILDING, CIVIC CENTRE, 28, BARAKHAMBA ROAD, NEW DELHI. NEW DELHI. (PAN: AASF1859P) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SAMEER KAPOOR, CA ASSESSEE BY: MS ALKA GAUTAM, SR. DR DATE OF HEARING: 04.01.2018 DATE OF PRONOUNCEMENT: 15.01.2018 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGA INST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(A)-20, NEW DELHI DATED 26.04.2016 WHEREIN VIDE THE IMPUGNED ORDER, T HE LD. COMMISSIONER OF INCOME TAX(A) HAS DISMISSED THE ASS ESSEES CHALLENGE TO DISALLOWANCE OF REMUNERATION TO PARTNE RS TO THE TUNE OF RS.63,00,000/- MADE BY THE ASSESSING OFFICER. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LAW FIRM. DURING THE YEAR UNDER CONSIDERATION, THE RETURN WAS FILED DECLARING INCOME OF RS. 2,00,12,580/-. THE CASE WA S SUBSEQUENTLY SELECTED FOR SCRUTINY AND THE ASSESSIN G OFFICER ITA NO. 3403/DEL/2016 ASSESSMENT YEAR 2012-13 2 OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM HAD PAID TOTAL REMUNERATION OF RS. 63,00,000/- TO THE PARTNERS. THE ASSESSING OFFICER FURTHER OBSERVED T HAT FROM THE PERUSAL OF THE PARTNERSHIP DEED, IT WAS EVIDENT THA T THE PARTNERSHIP DEED NEITHER SPECIFIED THE QUANTUM OF R EMUNERATION NOR THE METHOD OF ITS COMPUTATION AND IT SIMPLY MEN TIONED THAT THE REMUNERATION SHALL BE PAYABLE TO PARTNERS AS MU TUALLY FIXED BY THEM FROM TIME TO TIME. THE ASSESSING OFFICER F URTHER OBSERVED THAT THERE WAS ALSO AN ADDENDUM TO THE PAR TNERSHIP DEED WHICH AMENDED THE REMUNERATION CLAUSE AND PROV IDED THAT SHRI VINEET ANEJA WAS TO BE THE ONLY WORKING PARTNE R AND FURTHER THAT THE REMUNERATION PAYABLE TO THE WORKING PARTNE R WAS TO BE COMPUTED IN THE MANNER LAID DOWN U/S 40(B)(V) R/W E XPLANATION 3 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED ' THE ACT') AND FURTHER, THE UPPER CEILING FOR THE REMUNERATION WAS RS. 1.20 CRORES. THE ASSESSING OFFICER WAS OF THE OPINION T HAT THE ASSESSEE DID NOT SATISFY THE CONDITIONS PRESCRIBED BY SECTIO N 40(B) OF THE ACT AND CIRCULAR NO. 739 OF CBDT WITH RESPECT TO RE MUNERATION TO PARTNERS. THEREAFTER, AFTER ISSUING A SHOW CAUS E TO THE ASSESSEE, THE ASSESSING OFFICER PROCEEDED TO DISALL OW AN AMOUNT OF RS. 63,00,000/- ON THE GROUND THAT NEITHER THE QUANTUM OF ITA NO. 3403/DEL/2016 ASSESSMENT YEAR 2012-13 3 REMUNERATION NOR THE METHOD OF COMPUTATION OF REMUN ERATION TO THE PARTNERS WAS SPECIFIED. 2.1 ON APPEAL, THE LD. COMMISSIONER OF INCOME TAX(A ) CONFIRMED THE DISALLOWANCE AND NOW THE ASSESSEE HAS APPROACHED THE ITAT AND HAS RAISED THE FOLLOWING GROUND OF APP EAL :- 1. WHETHER THE LD. COMMISSIONER OF INCOME TAX(A) HAS ERRED IN LAW AND CIRCUMSTANCES OF THE CASE IN CONFI RMING THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF PARTNERS REMUNERATION AMOUNTING TO RS. 63,00,000/-. 3.0 LD. AR DREW OUR ATTENTION TO THE PARTNERSHIP DE ED AS WELL AS THE ADDENDUM TO THE PARTNERSHIP DEED AND SUBMITTED THAT THE CONTENTION OF THE DEPARTMENT THAT THE REMUNERATION TO THE PARTNERS WAS NOT SPECIFIED WAS INCORRECT AS IT HAD BEEN SPECIFICALLY MENTIONED THAT THE REMUNERATION WILL B E PAID TO THE PARTNERS IN TERMS OF PROVISIONS OF SECTION 40(B)OF THE ACT AND FURTHER, IT WAS ALSO SPECIFIED THAT REMUNERATION WA S PAYABLE ONLY TO ONE OF THE PARTNERS SHRI VINEET ANEJA AND AN UPP ER LIMIT OF RS. 1.20 CRORES WAS ALSO FIXED. THUS, IT WAS EVIDENT T HAT THE REMUNERATION PAYABLE TO THE PARTNER WAS SPECIFIED A ND THE SAME DID NOT VIOLATE THE MANDATE OF SECTION 40(B) OF THE ACT. 3.1 LD. AR ALSO PLACED RELIANCE ON A NUMBER OF JUDI CIAL PRECEDENTS AND ALSO SUBMITTED THAT THE DEPARTMENTS RELIANCE IN ITA NO. 3403/DEL/2016 ASSESSMENT YEAR 2012-13 4 THE CASE OF SOOD BRIJ & ASSOCIATES VS CIT IN ITA NO . 1154/2011, THE HONBLE DELHI HIGH COURT WAS DISTINGUISHABLE ON FACTS. 4. LD. DR PLACED RELIANCE ON THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITTED THAT THE ASSESSEES PARTNERSHIP DEED LACKED IN STIPULATING THE SPECIFICS OF REMUNERATION TO BE PAID TO THE WORKING PARTNERS AND, THEREFORE, IN THE ABSENCE OF SPECIFICS, THE DISALLOWANCE U/S 40(B) OF THE ACT WAS RIGHTLY MADE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO PERUSED THE PARTNERSHIP DEED AS WELL AS THE ADDENDUM PARTNERSHI P DEED PLACED ON RECORD AND IT IS OUR CONSIDERED VIEW THAT THE TERMS AND CONDITIONS OF THE ASSESSEES PARTNERSHIP DEED IN RE SPECT OF THE REMUNERATION TO THE WORKING PARTNER ARE SPECIFIC AS IT SPECIFIES THE NAME OF THE WORKING PARTNER, IT SPECIFIES THE M ANNER OF COMPUTING THE REMUNERATION PAYABLE I.E. IN TERMS OF SECTION 40(B) OF THE INCOME TAX ACT AND FURTHER IT ALSO SPECIFIES THE MAXIMUM AMOUNT OF REMUNERATION WHICH CAN BE PAID TO THE WOR KING PARTNER. THUS, IT CANNOT BE TERMED AS NON-SPECIFIC . RELIANCE PLACED BY THE DEPARTMENT ON THE CASE OF SOOD BRIJ & ASSOCIATES (SUPRA) DOES NOT HELP THE REVENUES STAND AS IN THA T CASE, AS PER THE RELEVANT TERMS AND CONDITIONS OF THE PARTNERSHI P DEED, THE ITA NO. 3403/DEL/2016 ASSESSMENT YEAR 2012-13 5 REMUNERATION WAS PAID AS MUTUALLY AGREED BETWEEN TH E PARTNERS. HOWEVER, THERE IS A SIGNIFICANT DIFFERENCE IN THE L ANGUAGE OF TERMS AND CONDITIONS OF THE PARTNERSHIP IN THE CASE OF SO OD BRIJ & ASSOCIATES (SUPRA) AND THE ASSESSEES CASE. THE HO NBLE HIGH COURT OF HIMACHAL PRADESH IN THE CASE OF DURGA DASS DEVKI NANDAN VS ITO REPORTED IN 342 ITR 17 (HP) WHILE EXA MINING THE BINDING NATURE OF CIRCULAR NO. 749 DATED 25.3.1996 ISSUED BY THE CBDT, ON WHICH THE LOWER AUTHORITIES HAVE PLACED RE LIANCE, HAD HELD THAT THIS CIRCULAR HAS TO BE READ ALONG WITH S ECTION 40(B)(V) OF THE ACT AND HAS TO BE MADE SUBJECT TO THE PROVIS IONS OF SECTION 40(B)(V). THE HONBLE HIMACHAL PRADESH HIGH COURT FURTHER HELD THAT WHERE THE PARTNERSHIP DEED PROVIDES THAT THE R EMUNERATION WAS TO BE AS PER THE PROVISIONS OF THE INCOME TAX A CT, THE SAME CLEARLY MEANT THAT THE REMUNERATION PAYABLE TO THE PARTNERS WAS TO BE QUANTIFIED AS PER THE PROVISIONS OF THE ACT. THE HONBLE HIMACHAL PRADESH HIGH COURT WENT ON TO HOLD THAT EV EN IF THE REMUNERATION WAS NOT FIXED IN THE PARTNERSHIP DEED, THE FIRM WAS ENTITLED TO DEDUCT THE AMOUNT PAYABLE U/S 40(B)(V). THEREFORE, ON THE FACTS OF THE CASE, IT IS OUR CONSIDERED OPINION THAT THE PROVISION RELATING TO REMUNERATION TO THE PARTNERS IS SPECIFIED IN THE CASE OF THIS ASSESSEE AND ACCORDINGLY, WE HOLD THAT THE ITA NO. 3403/DEL/2016 ASSESSMENT YEAR 2012-13 6 DISALLOWANCE MADE U/S 40(B)(V) WAS UNWARRANTED AND THE SAME NEEDS TO BE DELETED. ACCORDINGLY, WE ALLOW THE GRO UND RAISED BY THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JANUARY, 2018. SD/- SD/- (R.S. SYAL) (SUDHANSHU SRIVASTAVA) VICE PRESIDENT JUDIC IAL MEMBER DT. 15 TH JANUARY 2018 GS COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR