Page 270 - DCOM301_INCOME_TAX_LAWS_I

Unit 9: Income under the Head Business and Profession

c. any remuneration paid to a working partner or interest paid to any partner which is Notes
authorised by or is in accordance with the terms of the partnership deed but which
relates to any period falling prior to the date of such partnership deed would not be
allowable. However, in relation to any payment of remuneration to the partner
during the previous year relevant to the assessment year 1993–94, the terms of the
partnership may at any time during the said previous year, provide for such payment.
d. any interest which is paid in accordance with the terms of the partnership deed and
relates to any period falling after the date of such partnership deed but which is in
excess of simple interest @ 12% p.a., w.e.f. 1.6.2002 would not be allowable.

Further, interest paid by the firm to a person in his representative capacity (i.e. on
behalf or for the benefit of any other person) and the interest paid by the firm to the
person who is so represented shall also be subject to the limit laid down in this
clause.
However, where a person is a partner in his representative capacity in the firm, the
interest paid to him by the firm otherwise than as partner in a representative capacity
will not be subject to the limit laid down in this clause. Again, where a person is a
partner in a firm in his own capacity (and not as a partner in a representative
capacity), interest paid by the firm to him shall not be taken into account for the
purposes of this clause if such interest is received by him on behalf of or for the
benefit of any other person.

e. any remuneration to a working partner which is authorised by and is in accordance
with the terms of the partnership deed and in relation to any period falling after the
date of partnership deed is an allowable deduction subject however, to the condition
that the maximum amount of such payment made to all the partners during the
previous year should not exceed the limits given below:
Quantum of Book Profit Amount
Upto ` 3,00,000 or in ` 1,50,000 or 90% of the Book case of a loss profit, whichever is
more
on the balance 60% For the purposes of this clause, ‘working partner’ means an
individual who is actively engaged in conducting the affairs of the business or
profession of the firm of which he is a partner; and ‘Book profit’ means the net profit,
as shown in the profit and loss account for the relevant previous year, computed in
the manner laid down in chapter IV-D (i.e. Sections 28 to 44D) as increased by the
aggregate amount of remuneration paid or payable to all the partners of the firm if
such amount has been deducted while computing the net profit.
9. Payment by AOPs / BOIs [Section 40(ba)]: In the case of an association of persons or body
of individuals (other than a company or a Co-operative Society or a society registered
under the Societies Registration Act, 1860, or under any law corresponding to that Act in
force in any part of India) any payment of interest, salary, bonus, commission or
remuneration, by whatever name called, made by such association or body to a member
of such association or body shall not be allowed as a deduction.

Did u know? Where an individual is a member otherwise than as a member in a
representative capacity of an AOP or BOI, interest paid to such person by the AOP or BOI
shall not be taken into account for the purposes of this clause if such interest is received by
the person on behalf of or for the benefit of any other person.

LOVELY PROFESSIONAL UNIVERSITY 265