Partnership Expense

Querist : Anonymous (Querist) 05 March 2010 This query is : Resolved
I am a working partner in a firm and receiving remuneration on proportionate basis.

The firm has no fixed assets as motor car. My Motor car is used for the firm's business.

The fuel expense is borne by the said firm and the depreciation and insurance on motor car is claimed as expenses against the partnership share in my return of income.

The AO is not satisfied and dissallowed the above expenses claimed in my return of income.

How to justify the same? Please guide me.

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Vineet (Expert) 05 March 2010
the partner's remuneration earned by you is taxable as business income in your hands and therefore you are entitled to claim genuine business expenses against the same.

However, if you are earning only partner's share which is exempt in your hands, then it is not possible to claim expenses against the same. It is better that either you earn remuneration from the firm or introduce your personal car in partnership and claim deduction for expenses in firm's hand. It will be merely an accounting entry as the firm can hold assets in the name of its partners.

Querist : Anonymous (Querist) 05 March 2010
Is is advisable to go for an Appeal. Are there any citations judgements in this regard?

Vineet (Expert) 05 March 2010
It is not clear from your query whether expenses were claimed against taxable remuneration or exempt partner's share. Suggestion to go for appeal depends upon facts of the case and reasoning given by AO.

Querist : Anonymous (Querist) 05 March 2010
Yes, It is claimed against taxable remuneration.

Vineet (Expert) 05 March 2010
You should appeal against the order as the expenses incurred for earning business income in your hand are allowable as deduction.

Please refer to following case laws:
Mathubhai vs CIT 66ITR 408
Jabarmal 84 ITR 158
Phiroz 113 ITR 873
CIT vs Ghosh 124 ITR 674

These decisions are relevant to allowability of motor car expenses against partners share from firm's profit as it stood taxable in his hand prior to AY 1993-94. From AY 93-94 the law has changed and partners share has been exempt in his hand. But the principal and ratio remains same for business income in the nature of remuneration and interest from firm.

You have a very strong case to succeed.

Raj Kumar Makkad (Expert) 05 March 2010
I do agree with vineet

Kumar Thadhani (Expert) 06 March 2010
Expert Vineet has given some citations in your case follow him.

Querist : Anonymous (Querist) 08 March 2010
Thanks all experts!

G. ARAVINTHAN (Expert) 08 March 2010
My friends are right

Querist : Anonymous (Querist) 09 March 2010
Thanks

soumitra basu (Expert) 09 March 2010
Expenses should be bifurcated between the Share of Profit and Partner's Remuneration as held by Hon'ble High Court.

Querist : Anonymous (Querist) 11 March 2010
Thanks

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