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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH, AM & MS. KAVITHA RAJAGOPAL, JM Dr. R. P. Road, Mulund (W),
per the amended provision based on the supplementary deed giving effect retrospectively.
For this proposition, we would be placing our reliance on the decision of the Hon’ble Allahabad High Court in the case of CIT vs. Alison Singh & Co. [2013] 358 ITR 458 (All), which was though on a different facts has upheld the validity of the retrospective effect given to a partnership deed based on a subsequent rectification deed. It has held that as the subsequent deed is executed in accordance with the primary deed, there would be no objection in giving retrospective effect to the subsequent deed. From this, it is evident that the supplementary deed executed by the assessee firm was in accordance with the provisions of the original partnership deed dated 30.07.2005in which clause 9 of the deed of partnership read as under:
7 (A.Y. 2018-19) Jetkool Exports India vs. National E-Assessment Centre The clause (9) of the deed of partnership read as under: “MODIFICATION OF REMUNERATION The partners shall be entitled to modify the above terms relating to remuneration payable to working partners by executing a supplementary Deed and any such deed payable to working partners by executing a supplementary Deed and any such deed when executed shall have effect, unless otherwise provided, from the first day of the accounting period in which such supplementary Deed is executed and the same shall form part of this Deed of partnership.”
This clause of the partnership deed facilitates the partners to execute supplementary deed which shall have effect either on the date of the accounting period in which such supplementary deed is executed unless otherwise provided. This clause elaborates that the supplementary deed will come into effect on the date as provided in the said deed. Though the A.O. has made addition u/s.40(b)(ii) of the Act, it is pertinent to point out either u/s.40(b)(ii) or as per section 40(b)(v) the partners were entitled to remuneration as per the partnership deed. A conjoined reading of the provision of the partnership deed makes it clear that the partners are entitled to modification of remuneration as per the terms and condition under the law. In this case, no doubt the amended provisions provided for higher remuneration to the partners and that the said remuneration is computed as in accordance with the provisions of the Income Tax Act.
The claim of the assessee is also supported by the case laws relied upon by the assessee in the case of Durgadas Devkinandan (supra), wherein it was held that the remuneration to partners should be calculated as per the partnership deed subject to the provisions of the Act where the said remuneration should not exceed the maximum amount provided under the Act. We would also like to place our reliance on the decision Hon’ble Allahabad High Court in the case of CIT vs. Great City Manufacturing Co. [2013] 33 taxmann.com 258 (All), wherein it was held that the A.O. has to see if the conditions of the partnership deed provided for remuneration to working partners and that the same is is cited hereunder for ease of reference:
……….. The Parliament in its wisdom had fixed a limit on allowing the remuneration to the working partners and if the remuneration are within the ceiling limit provided then recourse to provision of Section 40A(2)(a) of the Act cannot be taken. The assessing officer is only required to see as to whether the partners are the working partners mentioned in the partnership deed, the terms and conditions of the partnership deed provide for payment of remuneration to the working partners and whether the remuneration provided is within the limits prescribed under Section 40(6)(V) or not. If all the aforementioned conditions are fulfilled then he cannot disallow any part of the remuneration on the ground that it is excessive. Since in the present case, all the conditions required has been fulfilled the question of disallowance does not arise. 13. When we are already convinced of the fact that the supplementary partnership deed operates retrospectively, the calculation of the remuneration paid to partners if in accordance with the provisions of the Act is to be allowed. We would also like to draw our support to the contention of the assessee that in the earlier years that the said claim was not disputed by the lower authorities for which we would like to place our reliance on the decision of Hon'ble Apex Court in the case of Radhasoami Satsang (supra) for the proposition that when there are no change in facts and when the claim has been allowed in the earlier years without being in dispute, the same may be considered for the impugned year also. As it is observed that the assessee has been claiming the modified remuneration since the amendment of the provisions for which there was no dispute, we are of the considered opinion that the assessee’s claim for the impugned year should also be granted.
From the above observation and by respectfully following the decision cited above, we hereby delete the impugned addition and allow the assessee’s claim of remuneration to partners as per the amended provision of the Act. Hence, ground no.1 of the assessee is allowed. adjudication, as the assessee has been given a relief as prayed for in the previous ground.
Ground no.3 is general in nature and needs no adjudication.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 09.03.2023 Sd/- Sd/- (Amarjit Singh) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 09.03.2023 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,