Hon’ble ITAT in case of M/s. Feelings Vs PCIT (ITAT Panaji) Appeal No: ITA No. 149/PAN/2019 Date of Order: 01-09-2023 held that in case of Partnership Firm, Interest income cannot notionally be excluded while determining allowable of deduction of remuneration to partners. The relevant para of judgement of the case is as follows:
6. A similar ratio also found laid by the Hon’ble Calcutta High Court in ‘Md. Serajuddin & Bros. Vs CIT’ reported in 80 DTR 46 [equivalent citation 24 com 46] and by the Jurisdictional Bombay High Court in ‘CIT Vs Paramount Premises Ltd.’ reported in 190 ITR 259, wherein their lordship have held that, any interest earned from the funds deployed which arose out business activity by no stretch of imagination can it be categorized under the head income from other sources. Further in similar facts and circumstance the Hon’ble Jurisdictional Bombay High Court ‘CIT vs. Lok Holdings’ reported in 308 ITR 356 [equivalent citation 189 taxman 452], has categorically held that interest earned from deposit of funds linked to any business activity is income from business & profession and thus, cannot be categorized as income arising from other sources.
7. It is a settled principle of law now that, income for the purpose of ascertaining ceiling on the basis of book profit, the profit shall be as appearing in the profit and loss account. The interest income, thus, cannot notionally be excluded while determining allowable of deduction of remuneration to partners u/s 40(b)(v) of the Act. In the extent case, the interest income shall form part of business income for the purpose of computing admissible deduction u/s 40(b)(v) of the Act.
8. In the light of aforestated judicial binding precedents, we see no reasons to deviate therefrom. Resultantly in the impugned revisionary order passed setting-aside the assessment order in our considered view deserves to be quashed, therefore order accordingly. 9. Before parting, we are heedful to state that, the CBDT vide para (iv) of Circular No. 12/2019 dt. 19/06/2019 instruction ‘to exclude all incomes such as capital gain, interest, rental income, income from other sources etc. which do not fall under the head ‘profit or gain of business or profession’, from the figure of book profit for the purpose of section 40(b)(v)’ shall failed make its application in the present case for two reasons that; (1) Firstly, circular although binding but in no case shall override aforestated judicial precedents (2) Secondly, assessment as well impugned revisionary order were framed anterior to circular coming into effect.
