Quantum of Remuneration in LLP Agmt.
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DILIP DARJI
May 15, 2012, 2:57:25 AM5/15/12
to CS GROUPS, chartered_accountant, CharteredS...@yahoogroups.co.in, CS_Mysore Group
Dear Members,
With reference to below mentioned article on the CACLub india, i have query with related to LLP.
Whether LLP is agmt should also specify the quantum of the remuneration in the LLP agmt. or general clause written as below will be ok. like
"The__________LLP shall pay such remuneration to the Partners as may be decided by the majority of the Partners, for rendering their services as such"
Kindly share your opinion on the same.
With warm regards,
Professionally Yours,
CS. Dilip Darji
M.Com, LL.B., ACS
Cell: +91 98215 50064
+91 92242 42919
Mumbai
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Sakshi Vaid
May 15, 2012, 3:09:27 AM5/15/12
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I think this general clause will be good and give more flexibility to the agreeemnet....
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DILIP DARJI
May 15, 2012, 3:17:58 AM5/15/12
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No my query is that there is circular in IT and case law in which it was clarified that partnership deed should specify the quantum of remuneration to be given kindly follow the link i shares in the earlier mail.
Nagendra
May 20, 2012, 2:51:28 PM5/20/12
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Hi,
CBDT Circular which specifies that for s. 40(b)(v), the partnership deed should specify the remuneration, is invalid
The assessee, a firm, provided by the partnership deed that its partners would be “working partners within the meaning of s. 40(b)” and “be paid a monthly salary as per the income-tax provisions”. The AO relied CBDT Circular No. 739 dated 25.3.1996 and held that because the deed did not specify the amount of remuneration payable to the partner or lay down the manner of quantifying such remuneration, the deduction was not admissible. This was reversed by the CIT (A). However, the Tribunal upheld the AO on the ground that the agreement did not meet with the requirements of the circular and so deduction of salary paid to the partners was not admissible. On appeal by the assessee, HELD allowing the appeal:
S. 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. S. 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnershipagreement deed should lay down the manner of quantifying such remuneration goes beyond s. 40(b)(v). The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remunerationprovided in the Act is valid and deduction is admissible.
Limits for partner salary for Assessment year 2010-11 onwards is given below
Read more: http://www.simpletaxindia.net/2011/04/remuneration-to-partner-allowed-even.html#ixzz1vRBEuHXf
The assessee, a firm, provided by the partnership deed that its partners would be “working partners within the meaning of s. 40(b)” and “be paid a monthly salary as per the income-tax provisions”. The AO relied CBDT Circular No. 739 dated 25.3.1996 and held that because the deed did not specify the amount of remuneration payable to the partner or lay down the manner of quantifying such remuneration, the deduction was not admissible. This was reversed by the CIT (A). However, the Tribunal upheld the AO on the ground that the agreement did not meet with the requirements of the circular and so deduction of salary paid to the partners was not admissible. On appeal by the assessee, HELD allowing the appeal:
S. 40(b)(v) allows a deduction of payment of remuneration to a working partner if it authorized by the partnership deed and not in excess of the limits. S. 40(b)(v) does not lay-down any condition that the partnership deed should fix the remuneration or the method of quantifying remuneration. Accordingly, CBDT circular No. 739 dated 25.3.1996 which requires that either the amount of remuneration payable to each individual should be fixed in the agreement or the partnershipagreement deed should lay down the manner of quantifying such remuneration goes beyond s. 40(b)(v). The CBDT cannot issue a circular which goes against the provisions of the Act. The CBDT can only clarify issues but cannot insert terms and conditions which are not part of the main statute. A partnership deed which provides that the remuneration would be as per the provisions of the Act meaning thereby that the remuneration would not exceed the maximum remunerationprovided in the Act is valid and deduction is admissible.
Limits for partner salary for Assessment year 2010-11 onwards is given below
- Common rate for both type of Firm whether covered under 44AA or not
- On the First three lakh of the Profit or In case of Loss: 150000 or 90 % of profit which ever is more.
- On balance profit:60% of the profit
Read more: http://www.simpletaxindia.net/2011/04/remuneration-to-partner-allowed-even.html#ixzz1vRBEuHXf
?
Regards,Nagendra Bhagwat
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