C I T JAIPUR vs. M/S ASIAN MARKETING

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ITA/275/2010HC RajasthanRJHC02043838201011 April 2012Author: NARENDRA KUMAR JAIN,MEENA V. GOMBER3 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that Clause 8 of the partnership deed authorized the payment of remuneration to working partners. The Tribunal found that the partnership deed specified that remuneration would be paid according to the standards and norms fixed by the relevant provisions of the Income Tax Act, 1961. The Tribunal clarified that the requirement in law is for the remuneration to be 'authorized,' not necessarily 'quantified' in the deed. The Tribunal relied on the decision in ACIT Vs. Suman Construction (43 SOT 495) which held that remuneration is deductible if the partnership deed authorizes salary payment. The Tribunal affirmed the CIT(A)'s decision to allow the remuneration. The High Court, in its judgment, found no substantial question of law involved as there was a concurrent finding of fact by the Appellate Authority and the Tribunal based on the partnership deed. The appeal was dismissed in limine.

What were the facts?

The Assessing Officer disallowed remuneration payable to partners. The Commissioner of Income Tax (Appeals) set aside the Assessing Officer's order. The Income Tax Appellate Tribunal (ITAT) affirmed the order of the CIT(A). The Revenue appealed this decision to the High Court. The dispute centers on whether the partnership deed authorized the payment of remuneration to working partners. The High Court noted that the finding regarding remuneration payment was based on Clause 8 of the partnership deed and that there was a concurrent finding of fact by the Appellate Authority and the Tribunal.

What were the issues?

1. Whether the remuneration payable to partners was authorized by the partnership deed, as required by Section 40(b)(v) of the Income Tax Act, 1961. The Assessee contended that Clause 8 of the partnership deed authorized the payment of remuneration to working partners and that the quantification was apparent from the deed itself, referencing the Income Tax Act's provisions. The Revenue's dispute was that the amount of remuneration was not quantified in the partnership deed. The Assessee argued that the law requires authorization, not quantification, and cited ACIT Vs. Suman Construction (43 SOT 495) to support the deduction if the deed authorizes salary payment. The Revenue did not record any specific arguments beyond the quantification issue.

Which sections of the Income-tax Act were involved?

Section 40(b)(v)

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1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR D.B. Income Tax Appeal No.275/2010 J U D G M E N T Commissioner of Income Tax, Jaipur-II, Jaipur vs. M/s. The Asian Marketing, CC-208, Gole Market, Jawahar Nagar, Jaipur. DATE : 11

th April, 2012

HON'BLE MR. JUSTICE NARENDRA KUMAR JAIN-I HON'BLE DR. JUSTICE MRS. MEENA V. GOMBER Mr.R.B. Mathur, for appellant. Heard learned counsel for appellant.

2.

The remuneration, payable to partners, was disallowed by Assessing Officer, however, on an appeal, the Appellate Authority set aside the order of Assessing Officer. The order of Appellate Authority i.e. Commissioner of Income Tax (Appeals)-II, Jaipur, has been affirmed by the Income Tax Appellate Tribunal, Jaipur Bench 'B', Jaipur. The finding of Tribunal reads as under :- “4. We have heard the ld. DR and considered the written submission filed by the ld. AR . Section 40(b) (v) specifies that remuneration is to be authorized by partnership deed to a working parter. The working partner has been defined in explanation 4 opportunity Section 40(b). It is not disputed that remuneration paid is to the working partners. Clause 8 of the partnership deed relates to the entitlement of remuneration to the to the partners. The relevant clause is reproduced as under :- “8. That both the parties, that is, the party of the First Part and the party of the Second Part will be actively engaged in the business of th epsf and wil be the working partners and as working partners will be entitled for remuneration / salary which will be paid to them according to the standards and norms fixed by the relevant provisons of the Income Tax Act, 1961. The remuneration/ salary so admissible will be paid / credited to their account provided that such remuneration / salary can be increased / decreased as per

2 mutual agreement as the partners mutually decide to be adjusted at the end of the year as per the relevant of the Income-tax Act, 1961. The excess amount so paid/credited, if any, would be debited / credited to their capital account.'' This partnership deed has authorized the remuneration to be payable to the partner. The only dispute by the Revenue is that the amount of remuneration has not been quantified in the partnership deed. It is mentioned in clause 8 of the partnership deed that remuneration will be payable as per norms fixed by the relevant provisions of the Income-tax Act. Thus the quantification of the remuneration is apparent from the clause 8 of the partnership deed. The requirement in law is that remuneration should have been authorized and the amount of remuneration shall not exceed the amount as mentioned in sub-clause (v) of Section 40 (b) of the Act. The relevant provisions has used the word 'authorised' and not the word used 'quantify'. the hands of the individual may be 30% while interest in the hands of the firm may be 35%. Thus tax effect is not substantial. Hence, Ground No.1 and 2 of the Revenue are dismissed.”

3.

The question of payment of remuneration is a question of fact and finding in this regard is based on clause 8 of the partnership deed. Clause 8 was also quoted and considered in the order of Tribunal. Therefore finding in this regard is a finding of fact. There is a concurrent finding of fact recorded by Appellate Authority as well as Appellate Tribunal, which cannot be interfered with by this Court.

4.

After considering submissions of learned counsel for appellant and the finding of the learned Tribunal, we are of the view that no substantial question of law is involved in the 3 present appeal. There is a concurrent finding of fact by both the Courts below based on relevant clause of partnership deed itself. Since, no substantial question of law is involved, hence, appeal is dismissed in limine.

(DR. MEENA V. GOMBER), J. (NARENDRA KUMAR JAIN-I),J. Sanjay, SNo.39 “All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.” Sanjay Solanki JUNIOR PERSONAL ASSISTANT.

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