ITAT Rules Partner Remuneration Must Be Calculated on Book Profit After Adding Back Survey Income and Disallowances

The Income Tax Appellate Tribunal (ITAT) ruled that partner remuneration under Section 40(b) of the Income Tax Act must be calculated on the “book profit” after adding back incomes disclosed through surveys and prior disallowances in the profit and loss account. The Tribunal emphasized that “book profit” does not merely mean net profit shown in accounts but is a computed figure incorporating the reversal of disallowances and inclusion of such survey incomes. The case clarified ambiguities relating to the taxable quantum of remuneration payable to working partners and limits to deductions claimable by firms for remuneration purposes. The ruling provides greater clarity and ensures uniform application of Section 40(b) restrictions, helping firms accurately compute deductible remuneration cost while complying with tax laws. This also helps prevent tax evasion claims through underreported incomes.