Quantification of Remuneration in Partnership Deed

In Asstt. CIT v. Suman Construction (2009) 27 (II) ITCL 329 (Pune 'A'-Trib), the assessing officer had noticed that the assessee had claimed salary to partners of Rs. 2,20,000. However, in his opinion as per the partnership deed filed along with the return in the past assessment year, there was no specification of this salary payable to the partners. According to assessing officer, there was neither the quantification of the salary payable to the partners nor it was prescribed the manner in which such quantification would be done. By referring CBDT Circular No. 739, dated 25-3-1996 the assessing officer said that the provisions of payment of salary have been made clear and since there was no specified quantification therefore, assessee was not entitled for claim of deduction under section 40(b) of the Act regarding salary to partners.

It was held that by Finance Act, 1992 with effect from 1-4-1993 an insertion was made in section 40 vide clause (b) which prescribes that in the case of a firm assessable as such any payment of remuneration to any partners who is a working partner, if not authorized by the terms of the partnership deed shall not be entitled for deduction in computing the income chargeable under the head "Profits and gains of business or profession". This section also contains sub-clause (v) which prescribes that any payment of remuneration to any partner who is a working partner who is authorized by and is in accordance with the terms of the partnership deed, then the amount of such payment of partnership should not exceed the aggregate amount as prescribed in this sub-clause. Meaning thereby that section 40, clause (b), sub-clause (ii) and another sub-clause (v) prescribes that a deduction in the case of a firm can be allowed in respect of salary or remuneration to working partners if it is duly authorized by the terms of a partnership deed, however, to the extent of prescribed limit as has also been prescribed in the statute. Therefore, on plain reading of this section, it is understood that the section does not make it mandatory to quantify the amount of salary in one of the clauses of the partnership deed because of the main reason that the monetary limit or ceiling is otherwise prescribed in the statute itself.

The statute has used the term "authorize" and not used the term "quantify". On the other hand, the AO had made the disallowance mainly because of the reason that the amount of salary was not quantified in the clause of the partnership deed and in support he had relied upon CBDT Circular No. 739, dated 25-3-1996. Since the statute has used the term "authorize", therefore, the CBDT had no jurisdiction to substitute the term "authorize" by the term "quantify". While interpreting the clause of a statute there is no scope for importing into the statute some other words which are not there. Such an interpretation, if any, made by any of the authority would amount to an amendment in the statute which is a prerogative of the legislative body, i.e., Hon'ble Members of the Parliament. Even if there be a situation of casus omissus even then the defect can be cured only by a proper legislation and not by any interpretation. There appears no justification to deviate from the general principles of interpretation according to which the intention of the legislature is to be interpreted from the terms used or the words contained in a statute. It is not permissible to add words into a taxing provisions which are not there or exclude words which are there. So, the words contained in a provision must be given a natural meaning as commonly understood in legal parlance.