INCOME TAX ACT, 1961

Section 10AA

Deduction under section 10AA - Allowability - No provision of interest on capital and remuneration to partners in partnership deed -

Assessee-firm derived income from manufacturing activity and claimed deduction under section 10AA. AO found that the assessee did not claim interest and remuneration to partners from business income and supplementary partnership deed also did not provide any provision for payment of interest and remuneration to partners. However, the AO was of the view that the interest and remuneration to partners would be allowable even though it was not claimed in the partnership deed. Accordingly, he held that non-payment of interest and remuneration to partners was done to enhance the profit of the assessee, which was exempt from taxation and to reduce the taxable income of the individual partners. Hence, he calculated the payment of interest and remuneration to partners and excluded the same from the deduction under section 10AA. Held: Since assessee-firm did not charge any interest and remuneration in accordance with partnership deed, it could not be compelled to charge interest or remuneration, more particularly, when the partnership deed did not prescribe for the same. Therefore, disallowance of deduction under section 10AA made on account of non-provision of interest and remuneration would not be sustainable being erroneous and incorrect in law and facts.

Relied:Pr. CIT v. Alidhra Taxspin Engineers & 1 [Tax Appeal No. 265 of 2017, dt. 2-5-2017]

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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