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14a v/s 40(b)

CA Hardik Bunha (self) (2121 Points)

31 January 2013

section 14A applicable to section 40(B) interest to partner or remuneration to partner.

If Firm earns exempt income then 40(b) applicable or not.

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6 Replies

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 31 January 2013

A partner is earning Interest and Remuneration Income from the firm- These are Taxable .

He is also receiving tax free income from frim- i.e. Share in profit.

14A is applied to find -whether the partner has incurred any expenditure in earning exempt income.

Suppose the partner has paid interest in his personal capacity and

-simultaneously he is receiving interest from firm also- 14A can not be applied.

-Only receivng exempt income from firm- 14A is applied. Such interest is not allowable.

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CA Hardik Bunha (self) (2121 Points)
Replied 01 February 2013

suppose partnership deed mentioned clause of 40(b), but in actual sense FIRM never paid interest to capital and remuneration then

IS IT CHALENGABLE?

CA Hardik Bunha (self) (2121 Points)
Replied 01 February 2013

PARTNERSHIP DEED ALREADY MENTION CLAUSE 40(B) AND IN REAL SENSE IT IS PAID AS PER INCOME TAX ACT 1961 THEN HOW CAN IT WILL BE DISALLOWED?

SUPPOSE FIRM EARNS AGRICULTURE INCOME, IT IS A EXEMPT INCOME HENCE SECTION 14A WILL BE APPLICABLE BUT WHAT ABOUT SECTION 40(B)?

I APPRECIATE PARAS BAFNA'S SUGGESTION BUT WHAT ABOUT ABOVE MENTION QUOTE.

CA Hardik Bunha (self) (2121 Points)
Replied 05 February 2013

urgent required.......

CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 05 February 2013

Originally posted by : hardik bunha
	suppose partnership deed mentioned clause of 40(b), but in actual sense FIRM never paid interest to capital and remuneration then IS IT CHALENGABLE?

Assuming it as a fresh query....

The revenue is not going to loose anything if the firm is not paying any remuneration to partners. The sole "challanger" would not mind- as such-if the firm does not obey 40(b).

Coming back to the partner's Case-

If partner receives his Share from firm without receiving I&R... and.... suppose pay interest on capital borrowed to invest in the firm... In my view, AO may start thinking to disallow such interest in case it is claimed by the partner in his return ....against any income.

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CA PARAS BAFNA (Practising CA ) (33423 Points)
Replied 05 February 2013

Originally posted by : hardik bunha
	PARTNERSHIP DEED ALREADY MENTION CLAUSE 40(B) AND IN REAL SENSE IT IS PAID AS PER INCOME TAX ACT 1961 THEN HOW CAN IT WILL BE DISALLOWED? Reply-- In case the Deed Contains a clause like this -then remuneration and interest will not be disallowed. Income earned in the hands of partner remains taxable and if quauntum of I&R is sufficient to cover the expenditure on interest- In my view, 14A will not be invoked .