TDS Not Applicable To Salary/Commission Paid To Partners: ITAT

The Gauhati Bench of the Income Tax Appellate Tribunal (ITAT) has held that the TDS is not applicable to salary or commission paid to partners.

The two-member bench of Sanjay Garg (Judicial Member) and Manish Board (Accountant Member) observed that salary, bonus, remuneration, or commission are collectively referred to as "remuneration," and the remuneration paid during the year is within the permissible limit set forth in section 40(b)(v) of the Income Tax Act.

The respondent/assessee is a partnership firm engaged in the construction business. In the e-return filed on October 16, 2017, for the fiscal year 2017-18, an income of Rs. 1,21,98,600/- was declared. The case was selected for scrutiny through CASS because of its high ratio of refund to TDS, large refund claim value, and the large increase in capital in a year. The necessary notices were issued.

The issue raised was with respect to the non-deduction of TDS on commission paid to partners. The AO has alleged that the assessee failed to deduct tax at source on the commission paid to its partners.

Explanation 2 to Section 15 includes salary, bonus, commission, or remuneration received by a partner under the heading “salary” and taking into account the provisions of Section 192, which discusses the salary given under Section 15.

The ITAT held that there is no requirement under the provisions of the 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.

Case Title: ACIT Versus Dhar Construction Company

Citation: ITA No.181/GAU/2020

Date: 02/01/2023

Counsel For Appellant: Gaurav Chandak

Counsel For Respondent: I. Gyaneshori Devi

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