A PARTNERSHIP FIRM IS FOLLOWING CASH SYSTEM OF ACCOUNTING.
THE QUESTION HERE IS WHETHER THE METHOD OF ACCOUNTING WILL BE APPLIED TO REMUNERATION AND INTEREST TO PARTNERS OR NOT.
CAN WE CREDIT THE INTEREST AND REMUNERATION TO PARTNERS AT THE END OF THE YEAR WITH OUT PAYING TO THEM IN THE CASH SYSTEM OF ACCOUNTING.
PLEASE ADVICE ME AND QUOTE IF ANY CASE LAW IS THERE
The method of accounting has to be consistently followed for all periods. Also income & expeneses are to be recoginsed on cash basis if cash basis is followed. Hybrid accounting i.e. cash basis for income & mercantile basis for expenses is not acceptable for Income Tax. Hence partner's remuneration is to be recognised on cash basis if cash basis of accounting is followed.
AJAY SINGH AND CO LLP
Thane
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Chirag P Shah & Co. Chartered Accountant
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