• Notification Date: 13-01-2023
• Notification No: N/A

ITAT withdraws TDS on Remunerations, Salaries or Commission paid to Partners

The Guwahati Bench of the Income Tax Appellate Tribunal (ITAT) has recently ruled that the Tax Deducted at Source (TDS) will not be applicable to salary or commission paid to partners. 

A bench of ITAT comprising of a couple of members, namely, Sanjay Garg (Judicial Member) and Manish Board (Accountant Member), ruled that salary, bonus, remuneration, or commission are collectively referred to as "remuneration,". According to the report, the remuneration paid during the year falls within the permissible limit set forth in section 40(b)(v) of the Income Tax Act. 

The ITAT passed the judgement sighting the 'Explanation 2' in Section 40(b)(v), which stated that "Where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person.” 

The respondent in the plea is a partnership firm that deals in the construction business. The case came under scrutiny through CASS due to a high ratio of refund to TDS, large refund claims value and a sizable increase in its capital in a year. 

According to the e-return filed on October 16, 2017, for the fiscal year 2017-18, an income of Rs 1.21 crore was declared. The issue of non-deduction of TDS on commission paid to partners was thus raised. 

The ITAT ruled that there is no requirement under the IT Act for the deduction of tax at source by the partnership firm on salary, bonus, commission, remuneration, etc., or whatever name is given or credited to a partner of a firm.