Salary & bonus paid to partners collectively termed as remuneration, not subject to TDS: ITAT

Case Details: ACIT v. Dhar Construction Company - [2023] 146 taxmann.com 81 (Gauhati-Trib.)

Judiciary and Counsel Details

• • Sanjay Garg, Judicial Member & Manish Borad, Accountant Member
  • Gaurav Chandak, FCA, Ld. AR for the Appellant.
  • I. Gyaneshori Devi, JCIT, Ld. SR-DR for the Respondent.

Facts of the Case

The assessee was a partnership firm, engaged in the construction business. It filed return of income for the Assessment Year 2017-18 declaring income of Rs. 1,21,98,600. Its case was chosen for scrutiny through CASS due to the high ratio of refund to tax deducted at source, a large claim for refund, and a significant increase in capital in a single year.

During the assessment, Assessing Officer made various disallowances including disallowance due to non-deduction of TDS on commission paid to partners. On appeal, the CIT(A) granted relief to the assessee. Aggrieved-AO filed the instant appeal before the Tribunal.

ITAT Held

The Tribunal ruled that, according to section 40(b)(i), salary, bonus, commission, and remuneration are all considered “remuneration” for section 40(b)(v). Therefore, the Assessing Officer (AO) should not make any disallowances if the total “remuneration” (which includes salary, bonus, commission, and remuneration) paid to working partners during the year falls within the limits set by section 40(b)(v).

In the instant case, the total amount of salary and commission paid to the working partners was within the limits prescribed by section 40(b)(v), so no disallowance was necessary.

AO argued that section 194H, which pertains to the payment of commission or brokerage (excluding insurance commission covered under section 194D), should also be applied in situations where a partnership firm pays commission to its partners as specified in the partnership deed. However, this contention is incorrect.

Explanation 2 to Section 15 states that any salary, bonus, commission, remuneration, or similar payment made to a partner of a firm by the firm should not be considered “salary” for the purposes of this section. Therefore, the provisions of Section 192 related to salary also do not apply in cases where a partnership firm pays remuneration to its partners.