Payment made to legal heir of deceased partner for services rendered by him during his tenure in the firm is an allowable expenditure
Pr.CIT Vs Wadia Gandhi and Company:
Whether payment made to legal heir of deceased partner for services rendered by him during his tenure in the firm, as per the partnership deed, is allowable expenditure – YES: HC
– Revenue’s appeal dismissed: BOMBAY HIGH COURT
THE Assessee, a partnership firm, had paid certain amount to a retired partner on the basis of the provisions made in its partnership deed. The deed provided that the partner whose share was determined on account of resignation, retirement or death, shall also be paid by the continuing partners of the firm, a sum equivalent to one and a half times the share of the profits and remuneration received by him in the last accounting year immediately preceding the date of determination of his share. This was primarily based on the premise that the partner of the firm during his tenure would render service to the clients for which bills may have been raised, but payments in full might not have been received and would be received after the partner retires, dies or resigns. Accordingly, the assessee firm claimed such payment by way of a deductible expenditure. The AO however denied the same during the course of assessment. The matter ultimately reached the Tribunal, whereby the deduction on account of payments made to the legal heir of deceased partner Mr. Anand Bhat, was allowed as admissible expenditure under the provisions of the partnership deed.
On appeal, the HC held that,
Whether payment made to legal heir of deceased partner for services rendered by him during his tenure in the firm, as per the partnership deed, is allowable expenditure – YES: HC
++ the counsel for Revenue has fairly pointed out that an identical issue as to present appeal had come up before this Court in Income Tax Appeal No.1696/16, wherein it has been observed that: “….the partnership firm envisaged payment to a outgoing partner on the basis that the partner would have rendered service during his tenure as a partner of the firm but could not enjoy the fruits thereof on account of the fact that the work having remained incomplete, the concerned client had not been billed for the work already done. Therefore, payment to the partner would amount to diversion of income at source by overriding title….” In the result, the issue is answered in favour of assessee.
Income Tax Appeal No.273 of 2017
