Results 1 to 6 of 6

Thread: clause 17 (g) - nterest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof

  1. #1

    Default clause 17 (g) - nterest, salary, bonus, commission or remuneration inadmissible under section 40(b)/40(ba) and computation thereof

    As per earlier Form No.3CD, only particulars of interest and remuneration paid to a partner were required to be furnished.
    The scope of information has been enlarged and now the tax auditor is required to state the inadmissible amount and such information is also required to be given in respect of interest/remuneration paid to a member of an Association of persons (AOP)/Body of individuals (BOI).

    The word "inadmissible" implies that the tax auditor will have to examine the facts, apply the conditions for allowance or disallowance and accordingly determine the prima facie inadmissibility of the deduction and also quantify the same.

  2. #2

    Default Salary, bonus, commission or remuneration or interest are not admissible, unless

    Salary, bonus, commission or remuneration or interest are not admissible,
    unless the following conditions are satisfied:
    (a) Remuneration is paid to working partner(s).

    (b) Remuneration or interest is authorised by the partnership deed and is in accordance with the partnership deed

    (c) Remuneration or interest does not pertain to a period prior to the date of partnership deed

  3. #3

    Default

    The inadmissible remuneration, salary, bonus or commission under section 40(b) has to be determined on the basis of the provisions of sub-clause (v) thereof read with the limits laid down therein.
    Such limits are laid down as a percentage of book profits. Explanation 3 to section 40(b) provides that “book profits” means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit.
    The inadmissible amount of salary, bonus, commission or remuneration is to be worked out after deducting interest allowable to partners as per the provisions of section 40(b).
    According to Explanation 4, “working partner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner.
    It is advisable for the auditor to obtain from the assessee a detailed working of the inadmissible remuneration, salary, bonus or commission under section 40(b).
    He has to verify the computation from the instrument or agreement or any other document evidencing partnership including any supplementary documents or other documents effecting changes which would affect the computation of the inadmissible amounts under section 40(b).

  4. #4

    Default section 40(b)(iv)

    Under section 40(b)(iv), any payment of interest to any partner which is authorised by, and is in accordance with, the terms of the partnership deed and relates to any period falling after the date of such partnership deed in so far as such amount exceeds the amount calculated at the rate of eighteen per cent simple interest per annum will not be admissible as a deduction.

  5. #5

    Default Section 40(ba)

    Section 40(ba) lays down that any interest or remuneration paid by an AOP to its member shall not be allowed as a deduction to the AOP. It may also be noted that in computing such disallowance:

    (a) where interest is paid by AOP / BOI to a member who has also paid interest to AOP/ BOI, only net amount of interest, if any, shall be disallowed

    (b) where a member is in a representative capacity, the disallowance of net interest paid by AOP/BOI shall be the amount of net interest received by the member in a representative capacity or by the person who is so represented by the member

    (c) where a person who is a member in his individual capacity receives the interest for the benefit of or on behalf of any other person, then, interest so paid by AOP/ BOI shall not be disallowed

  6. #6

    Default To compute amounts inadmissible under section 40(b)

    In order to determine the amounts inadmissible under section 40(b), the tax auditor should obtain the computation of total income from the assessee.

    In working out the inadmissible amount the tax auditor must have due regard to the Circular No.739 dated 25.3.1996 issued by the Board reproduced in Appendix XIV.

Tags for this Thread

Bookmarks

Posting Permissions

  • Register / Login to post new threads
  • Register / Login to post replies
  • Register / Login to post attachments
  • You may not edit your posts
  •