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Income Tax Appellate Tribunal, NEW DELHI BENCH : SMC-II, NEW DELHI
Before: SHRI SUNIL KUMAR YADAV
Date of hearing : 15.09.2016 Date of Pronouncement : 21.09.2016 O R D E R This appeal is preferred against the order dated 8.5.2015 of the CIT(Appeals)-20, New Delhi on a solitary ground that the CIT(A) has erred in confirming the disallowance of total remuneration of Rs.5,40,000 paid to the partners, whereas in the partnership deed specific provisions were prescribed; though various grounds are raised by the assessee in the appeal.
During the course of hearing, the ld. Counsel for the assessee has contended that in the partnership deed, there was a specific provision for the payment of salary to the partners, Shri B.R. Choudhary and Shri Sanjay Kumar Sharma at Rs.5,000 per month and thereafter salary of both the partners will be increased by Rs.1,000 per month w.e.f. 1.4.1995. It was also clarified in the partnership deed that the partners may however defer to later date increase in remuneration as may be mutually decided. The ld. Counsel for the assessee further contended that since specific clause was provided in the partnership deed, the findings of lower authorities are incorrect that there was a violation of provisions of section 40(b) of the Act.
The ld. DR, on the other hand, has placed reliance on the order of CIT(Appeals).
Having carefully examined the orders of lower authorities in the light of rival submissions and the partnership deed, I find that in clause 6 of the partnership deed, a specific provision was made for payment of salary of Rs.5,000 per month to Shri B.R. Chaudhary and Shri Sajjan Kumar Sharma and as per clause 7, the salaries to both the partners will be increased by RS.1,000 per month w.e.f. 1.4.1995 and option was given to the partners to defer the increase in remuneration. For the sake of reference, clauses 6 & 7 of the partnership deed are extracted hereunder:-
“6. The parties of the Ist and IInd part will be paid the following salary for effectively looking after the business of the firm.
Shri B.R. Chaudhary (Ist Party) Rs.5,000/- p.m. Shri Sajjan Kumar Sharma (IInd Party) Rs.5,000/- p.m. 7. The salaries of both the partners will be increased b Rs.1,000/- per month with effect from 1.4.95 each year. The partners may however defer to later date increased in remuneration as may be mutually decided.”
I have also examined the submission of the assessee that in some of the years on account of low profit, the salaries were not increased, but it does not mean that the right to increase salary of the partners was extinguished. But in the impugned assessment year, where there is sufficient profit, the salary was proportionately increased in accordance with the terms of partnership deed. Since a specific provision has been made for the increase of salary per year, I find no infirmity in the increase in salary made by the assessee. Moreover, it is the option of the assessee to make increase in salary as per partnership deed in a particular year or it may be deferred. But it does not mean that in subsequent year, the assessee lost the right to increase the salary relating to the years which have been expired. Accordingly, I find no unjustification in the increase in salary claimed by assessee. Therefore, I do not find myself in agreement with the order of CIT(Appeals) and accordingly I set aside his order and direct the Assessing Officer to allow the salary claimed by the assessee.
The last ground relates to disallowance of telephone, conveyance and vehicle expenses @ 10% on account of personal use. Since the element of personal use is always there, I find no unjustification in the disallowance of 10% of the total expenses of telephone, conveyance and vehicle expenses. Accordingly the findings of the CIT(Appeals) in this regard are confirmed.
In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on this 21st day of September 2016.