Interest on FDR if considered as business income shall be included for computing remuneration

 

A partnership firm earning additional income from surplus deposited in FDRs as interest income shall be included while calculating the remuneration payable to partner u/s. 40(b) (v) of the Act. Interest on FDR if considered as business income shall be included for computing remuneration.

Case: Almac Corporation vs. Deputy Commissioner of Income Tax

 

Facts:

Assessee being a partnership firm was engaged in the business of Commission Agent. In addition to the commission, assessee also earned interest income from surplus money deposited in FDRs.

 

During the assessment proceedings, the AO excluded the interest on FDRs for calculating the remuneration payable of partners. As per the AO, interest on FDRs was in the nature of non-business income and shall be taxable under the head Income from Other Sources.

 

Therefore, AO computed remuneration payable to the partners as per the provisions of section 40(b) (v) and disallowed the excess remuneration paid.

 

CIT (A) dismissed the appeal therefore, assessee appealed to the Tribunal.

 

Held:

For calculating book profit, income and expenditure mentioned in section 28 to 44DB will only be considered for arriving at the profits and gains of business or profession. As the assessee was not engaged in the business of money lending therefore, interest on FD shall not be considered as business income of the assessee.

 

On pursuing the assessment order, Tribunal found that though the AO has stated that the interest was in the nature of non-business income and shall be taxable under the head Income from Other Sources but no such adjustment had been made by him while computing the income from business. Thus, it implied that AO has accepted interest income as business income.

 

It was also noticed that in earlier years, interest was considered as non- business income and thereafter remuneration was calculate but the addition made by the Assessing Officer was deleted by CIT(A). The same was accepted by the Department in earlier years.

 

Therefore, AO was not correct in excluding interest income for calculating the remuneration payable to partners. Hence, Interest on FDR if considered as business income shall be included for computing remuneration.

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