06 December 2014
The limits for remuneration, interest on capital etc have been given under section 44(b). Anything paid in excess of those limits or if the conditions laid down under section 44(b) are not followed, then the amount will be dissallowed.
One of the most important conditions laid down under this section is that remuneration clause must be present in partnership deed and quantification of such remuneration payable to partners must be done in the partnership deed.
Keeping in mind this section, I have a query to ask here. What if the partnership firm is based on a slightly different business model? Like in case there are 3 partners and they undertake IT projects from overseas clients. Project A has been undertaken by first partner and project B by the second partner, Project C by the third partner and a Project D on which first and second partners are working. Now first partner will get all the income generated from project A plus 50 % from Project D and similarly second partner will get all income generated from Project B plus 50% from Project D, while the third partner will get all income genertaed from his project C.
Will limits of section 40(b) apply here as well? But under what head? This is not salary. Should all this sharing of income from projects be simply treated as sharing of profits because this cannot be treated as remuneration in my opinion.
I would really appreciate if somebody could guide me on this. Quite a technical issue for me.
CAclubindia
