Income Tax Appellate Tribunal - Hyderabad
National General Stores, Hyderabad vs Assessee on 7 March, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH ' B ', HYDERABAD
BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
SHRI CHANDRA POOJARI ACCOUNTANT MEMBER
ITA No.:920/Hyd/2008 Asstt. Year 2001-02
M/s National General Stores, ITO, Ward 5 (1), Hyderabad
Hyderabad. VS
(AADFN 1950 F)
(Appellant) (Respondent)
Appellant by : Shri Siva Kumar
Respondent by : Shri E.S. Nagendra Prasad
ORDER
Per: Chandra Poojari, Accountant Member:
This appeal preferred by the assessee is directed against the order passed by the CIT(A)-V, Hyderabad dated 7/3/2008 and pertains to the assessment year 2001-02.
2. The main grievance of the assessee in its appeal is with regard to disallowance of remuneration paid to the partners to the extent of Rs.84,205/-.
3. The authorised representative for the assessee submitted that the payment of remuneration to partners was authorised by the Partnership Deed and the total remuneration paid was within the limits 2 ITA No.920/Hyd/2008 M/s National General Stores, Hyderabad as laid down by Sec.40 (b) of the Income Tax Act. He drew our attention to Clause 8 of the Partnership Deed which reads as follows:
'8. The profit and loss of the business shall be shared or borne by the partners in the following ratio:
1. Shri Y. Lakshman 50%
2. Shri Y. Dayakar 50% Both the partners are eligible for remuneration and they will be paid remuneration of Rs.2000/- each per month. However, the partners will be paid a maximum remuneration of Rs.1,000/- p.m. irrespective of profit earned by the firm. The remuneration may be increased/decreased as per the responsibility shared by the partners.'
4. The authorised representative of the assessee further submitted that the Partnership Deed provides for extra remuneration as per the responsibility shared by the partners in the assessment year under consideration. The business of the assessee has improved substantially due to extra responsibility shared by the partners and the turnover increased by 71% during the year under consideration. Further, he submitted that in all the earlier assessment years, there was no addition on this count and therefore, there was no necessity of disallowance of their expenditure in the assessment year under consideration. In the original assessment, which was completed u/s 143(3) of the Income Tax Act, no addition was made and only in the reassessment the disallowance was made. This is only on account of change of opinion. He relied on the order of the Tribunal Pune Bench in the case of ACIT Vs. Suman Constructions (34 SOT 495). He also relied 2 3 ITA No.920/Hyd/2008 M/s National General Stores, Hyderabad on the order of the Amritsar Bench of the Tribunal in the case of ITO Vs. J.M.P. Enterprises (101 ITD 324) (ASR) (SMC).
5. On the other hand, the departmental representative submitted that in earlier years, the assessment was completed u/s 143(1) of the Act. It was argued that as per Clause 8 of the Partnership Deed, each working partner was entitled maximum amount of Rs.2000/- p.m. as remuneration. Further, it was mentioned in that Clause that remuneration may be increased or decreased as per the responsibility shared by the partners. The assessee cannot claim more than the stipulated amount of Rs.2000/- p.m. unless it makes an amendment to the Partnership Deed. As nothing has brought on record to show that any extra responsibility was shared by the partners in earning more profit, no further remuneration is payable to the partners. He submitted that there is no approval from Partnership Deed for payment of enhanced remuneration, as such, the same cannot be allowed.
6. We have heard both the parties and perused the material available on record. As per provisions of Sec.40(b) of the IT Act, as substituted by the Finance Act 1992 w.e.f. 1.4.1993, the deduction for payment of remuneration paid to partners cannot be allowed which is not authorised by, or is not in accordance with the terms of Partnership 3 4 ITA No.920/Hyd/2008 M/s National General Stores, Hyderabad Deed. As per sec.40 (b) (v), payment of remuneration to partners is limited to the amount specified thereon. In the present case, the bare reading of Clause 8 of the Partnership Deed shows that the partners are entitled for remuneration at maximum at Rs.2000/- p.m. with a minimum of Rs.1,000/- p.m. The Partnership Deed further provides that any amendment to the deed shall be done by some endorsement to this deed. However, the partners are not made any endorsement regarding the amendment of Clause 8. In our opinion, the enhanced payment of remuneration to the partners was not in accordance with the terms as authorised by the Partnership Deed. Therefore, the assessee is not entitled for allowance of excess remuneration paid, over and above the amount as stipulated in the Partnership Deed. The learned authorised representative for the assessee relied on the order of the Pune Bench of the Tribunal in the case of Suman Constrictions cited supra. In that case, the assessing officer disallowed the payment of remuneration to partners on the reason that the remuneration is not quantified in the Partnership Deed. However, in the present case, there is a specific quantification of payment to partners i.e., maximum of Rs.2000/- pm and minimum of Rs.1000/- p.m. As such, the said case law relied by the authorised representative, are not applicable to the present facts of the case. Further, the assessee's counsel relied on the order of Amritsar Bench in the case of JMP Enterprises cited supra. In that case also the 4 5 ITA No.920/Hyd/2008 M/s National General Stores, Hyderabad assessing officer disallowed the payment of remuneration to the partners on the reason that there is no specific name of the working partners mentioned in the Partnership Deed. Though the Partnership Deed itself indicated that all were working partners, and in that case, there is no dispute regarding quantification of payment of remuneration to partners, it was held that since the payment of remuneration to 4 partners is within the prescribed limit as per sec.40 (b) of the Act, it was allowed by the Tribunal. As such the ratio laid down by the above order is not applicable to the present facts of the case.
7. In view of the above discussion, we do not find any infirmity in the order of the lower authorities. Accordingly, we dismiss the appeal of the assessee.
8. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open Court 14 :5. 2010
Sd/- sd/-
N.R.S. GANESAN CHANDRA POOJARI
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 14th May, 2010
5
6 ITA No.920/Hyd/2008
M/s National General Stores, Hyderabad
Copy forwarded to:
1. M/s National General Stores,
c/o M/s Murthy & Co., CAs, 3-6-66/A, Bashirbagh, Hyderabad- 500029.
2. ITO, Ward No.5 (1), Hyderabad
3. CIT(A)-V, Hyderabad.
4. CIT, Hyderabad
5. The D.R., ITAT, Hyderabad.
Np 6