partners remuneration
vivek
(Querist) 30 July 2010
This query is : Resolved
partners remuneration
in partnership deed it is meniotned that remuneration to both the partners shall be payable as per section 40 (b) of the IT act, and shall be reduced to Nil if there is a Loss.
Pls. clarify that is it mandatory to amend the Deed for giving hiegher rem. i.e up to Rs. 3.00 lacs to partners
A V Vishal
(Expert) 30 July 2010
Yes, the amount of remuneration payable should be quantified.
Conditions are defined in section 40(b) of the income tax act.
Salary should be paid to working partner.
Salary must be written/authorised by the Partnership deed
Salary should be related to the period after the partnership deed date.
Salary must be with in limit of % of Book profit.
Salary here means: salary ,commission ,remuneration (or any name whatever name called)
Now detail of each condition.
1. Working partner: salary to sleeping partner is not allowed .and working partner definition has been given in explanation 4 of the section 40(b)
working partner means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner
From above definition it is clear that " full time" attendance to any or all of the tasks of the partnership .
2.Salary must be written/authorised by the Partnership deed:To claim the expense of salary of partner in p& L salary should be authorised by the partnership deed and it should also be according to the conditions/terms defined in the partnership deed.
Clause in partnership should be clear and amount should be defined.
Board has issued a circular also related to clause in partnership deed for salary to partners
Whether for assessment years subsequent to assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless partnership deed either specifies amount of remuneration payable to each individual working partner or lays down manner of quantifying such remuneration
1. The Board have received representations seeking clarification regarding dis allowance of remuneration paid to the working partners as provided under section 40(b)(v) of the Income-tax Act. In particular, the representations have referred to two types of clauses which are generally incorporated in the partnership deeds. These are :
(i) The partners have agreed that the remuneration to a working partner will be the amount of remuneration allowable under the provisions of section 40(b)(v) of the Income-tax Act; and
(ii) The amount of remuneration to working partner will be as may be mutually agreed upon between partners at the end of the year.
It has been represented that the Assessing Officers are not allowing deduction on the basis of these and similar clauses in the course of scrutiny assessments for the reason that they neither specify the amount of remuneration to each individual nor lay down the manner of quantifying such remuneration.
2. The Board have considered the representations. Since the amended provisions of section 40(b) have been introduced only with effect from the assessment year 1993-94 and these may not have been understood correctly the Board are of the view that liberal approach may be taken for the initial years. It has been decided that for the assessment years 1993-94 to 1996-97 deduction for remuneration to a working partner may be allowed on the basis of the clauses of the type mentioned at 1(i) above.
3. In cases where neither the amount has been quantified nor even the limit of total remuneration has been specified but the same has been left to be determined by the partners at the end of the accounting period, in such cases payment of remuneration to partners cannot be allowed as deduction in the computation of the firms income.
4. It is clarified that for the assessment years subsequent to the assessment year 1996-97, no deduction under section 40(b)(v) will be admissible unless the partnership deed either specifies the amount of remuneration payable to each individual working partner or lays down the manner of quantifying such remuneration.
