Partner Remuneration is Business Income: Expenses (Including Depreciation) Allowed

-

Partner Remuneration is Business Income: Expenses (Including Depreciation) Allowed

Delhi ITAT Confirms Section 28(v) Classification and Upholds Consistency Rule.

The Delhi Income Tax Appellate Tribunal (ITAT) has provided critical clarity for partners of professional firms, confirming that remuneration received is classified as Business Income, not 'Salary'. This classification under Section 28(v) of the Income-tax Act, 1961, allows the partner to claim legitimate business expenditures against that income.

The Dispute: CA Partner's Expense Claim

The case involved an assessee, a chartered accountant partner, who received remuneration/salary from his partnership firm (Assessment Year 2018-19). The dispute arose over the treatment of expenses:

  • Assessee's Action: Claimed business-related expenses, including depreciation on a motor car, against the remuneration.
  • AO's Disallowance: The Assessing Officer (AO) disallowed the claim, holding that professional/business expenditure was not allowable from remuneration received by a partner.

ITAT’s Rationale: Business Income and Consistency

The Legal Mandate (Section 28(v)):

The Tribunal confirmed that any interest, salary, bonus, or remuneration received by a partner from a partnership firm is statutorily treated as business income under section 28(v). Consequently, any expenditure incurred exclusively and solely for the purpose of earning such business income is an allowable expenditure under Sections 32 (Depreciation) and 37 (General Expenses).

Rule of Consistency:

The ITAT also applied the rule of consistency. Since the assessee had been claiming such expenditure (depreciation on motor car, etc.) from the salary received in past assessment years, the Tribunal ruled that the same must be allowable in the subsequent assessment year as well.

The expenditure incurred by the assessee wholly and exclusively for the purpose of business and profession was therefore held to be an allowable expenditure, settling the matter in favor of the assessee.

Professional Insight: Key Takeaway 💡

This ruling strongly benefits partners in professional firms. It confirms the right to treat remuneration as Business Income and deduct necessary professional expenses against it. Ensure that you meticulously document that the expenditure was incurred wholly and exclusively for the firm's business and maintain consistency in claiming such deductions across assessment years.

Case Citation: Atul Kumar Gupta vs. Income-tax Officer [2025] 180 taxmann.com 120 (Delhi - Trib.).

Statutory Reference: Section 28(v), Section 32, and Section 37 of the Income-tax Act, 1961.

Comments

Post a Comment

Popular posts from this blog

Employee Cannot Be Penalized: TDS Credit Allowed Despite Employer's Default

-
Image
Delhi ITAT Upholds Tax Credit Based on Salary Slips, Overruling Form 26AS/Form 16 Denial. A recent ruling by the Delhi Income Tax Appellate Tribunal (ITAT) delivers crucial relief to employees facing denial of Tax Deducted at Source (TDS) credit due to non-compliance by their former employer. The Tribunal confirmed that the Revenue cannot deny tax credit to an employee if the employee can provide substantive evidence (like salary slips) showing that tax was actually deducted from their salary, regardless of the employer's failure to remit the tax or issue Form 16 . Background of the Dispute The Facts: The assessee (an ex-employee of TLPL) received gross salary and had TDS deducted under Section 192 . However, the employer neither provided Form 16 nor remitted the TDS amount to the government account. Disallowance: The assessee...
Read more

🏠 Section 54 Exemption: Investment in Spouse's Name is Valid, Rules ITAT

-
Image
Section 54 Exemption: Investment in Spouse's Name is Valid, Rules ITAT Ahmedabad Tribunal Remands Case for Ignoring High Court Precedents. A recurrent legal challenge under the Income-tax Act revolves around the validity of claiming capital gains exemption when the new residential property is purchased in the name of the assessee’s spouse. The Ahmedabad ITAT recently addressed this issue, reiterating a consistent judicial view and underscoring the necessity for tax authorities to consider binding High Court precedents. The Core Dispute and Disallowance The case (Assessment Year 2012-13) involved an assessee who sold a residential house and reinvested the sale proceeds in a new residential property, claiming exemption under Section 54 . Disallowance Rationale: The Assessing Officer (AO) and the Commissioner (Appeals) disallowed the exemption solely on the...
Read more