Section 40(b)

Amounts not deductible – Partnership - Remuneration to Partners - CBDT Circular, which specifies that for section 40(b)(v), the partnership deed should specify the remuneration, is invalid.

Ø Section 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits.

 

Ø Section 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration.

 

Ø Accordingly, CBDT Circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnership agreement deed should lay down the manner of quantifying such remuneration goes beyond section 40(b)(v).

 

Ø The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute.

 

Ø A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remuneration provided in the Act is valid and deduction is admissible. ( A.Y. 1996-97)