Can a Partner Claim Expenses Against Remuneration? Delhi ITAT Gives a Landmark Clarification
A recent decision of the Delhi ITAT has sparked widespread interest among professionals and business partners across India. The question was simple but extremely important: Can a partner in a partnership firm claim expenses such as travel, telephone, fuel, car depreciation and driver salary from the remuneration received from the firm? The Tribunal has now answered this with clarity—and the implications go far beyond Chartered Accountants.
The case involved Atul Kumar Gupta, who received ₹24,00,000 as partner remuneration in AY 2018–19. Against this, he claimed ₹6,76,456 as expenses such as travel, phone, fuel, depreciation and driver salary. The Assessing Officer disallowed the entire amount and taxed the full ₹24 lakh as income, treating partner remuneration almost like salary where no deductions are permitted. But this interpretation had a serious flaw: partner remuneration is not “salary” under the Income Tax Act.
The law is clear. Remuneration received by a partner from a partnership firm is taxed under the head Profits and Gains of Business or Profession. Once income is treated as business income, all expenditures incurred “wholly and exclusively” for earning that income must be allowed. This flows directly from the Supreme Court judgment in CIT v. Ramniklal Kothari, a foundational ruling which held that a partner is carrying on business through the firm and, therefore, eligible for business deductions. This principle applies uniformly to all partners—whether they are lawyers, consultants, engineers, doctors, architects, or partners in any commercial or professional firm.
The Tribunal in this case also relied heavily on the “rule of consistency.” The assessee had, for many years, offered his partner remuneration as business income and claimed similar expenses. The department had accepted this position earlier. The ITAT held that the tax authorities cannot suddenly change their stand without any new facts or justification. Uniform treatment across years is essential for fairness and certainty.
The Delhi ITAT further examined the nature of expenses. Travel, vehicle running costs, depreciation, communication expenses and driver salary directly facilitate the earning of professional or partnership income. These are not personal in nature when incurred in the course of business. For any partner who needs to travel, meet clients, coordinate work or manage operations, such expenses are an integral part of business activity. The Tribunal concluded that they were indeed incurred wholly and exclusively for the purpose of earning partnership remuneration.
In a decisive verdict, the ITAT allowed the entire ₹6,76,456 as a deduction. It reaffirmed that once partner remuneration is assessed as business income, legitimate business expenses cannot be denied. The decision strengthens a long-standing legal principle that applies across professions and industries: a partner operates through the firm, and all business-related expenses necessary for earning partnership income are deductible.
This ruling is valuable not only for Chartered Accountants but for every partner in every type of partnership firm. Whether you are part of a consulting firm, medical practice, legal partnership, engineering company or any other partnership entity, the judgment provides a clear and authoritative basis for claiming legitimate expenses against partner remuneration.
Case Law: Atul Kumar Gupta vs ITO, ITAT Delhi, AY 2018–19, Order dated 24 October 2025.
This decision reinforces a vital principle: when your income is business income, your expenditure should also be treated as business expenditure. And that ratio is not profession-specific-it applies across the board.
The copy of the order is as under:
