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Salary given by working partner to his staff

Sudiesh (Audit Assistant) (527 Points)

22 November 2018

Mr. X who is a Working Partner in 4 partnership Firm and he gets Rs.15 Lakhs as remuneration. He given Rs.4.5 Lakh as salary to Y who is his wife for helping discharging his liabilty as Working partner

1. Can mr. x deduct rs. 4.5 from his income?

2. Will the provision of Section 192 applicable to X ?

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Nitesh bind (Student CA Final ) (12692 Points)
Replied 22 November 2018

See, any remuneration received by Partner from a firm in which he is a partner is treated as PGBP income u/s 28.

Now coming to your question:

1. Now salary paid by Mr X to His wife is not something which is connected from Mr X remuneration in any way. It is completely different transaction. And As per business provision this might have been allowed but you also have to consider the Clubbing Provision which tells u/s 64(1)(ii) which clearly tells that if spouse is getting salary/remuneration etc from any Business in which the other spouse has substantial interest would be added back to the Income of such person (Mr. X)

Therefore it would be not allowed as business Expenditure.

2. No, when there is no such expense allowed then no question of TDS.

Other Comments are highly appreciated.

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Sudiesh (Audit Assistant) (527 Points)
Replied 24 November 2018

Suppose if the wife have expert knowledge in Business management then clubbing will not attract, Right?

In this situation can husband cliam deduction for expense?

Nikhil Kaushik (Fellow CA) (85090 Points)
Replied 24 November 2018

Originally posted by : Nitesh bind
	See, any remuneration received by Partner from a firm in which he is a partner is treated as PGBP income u/s 28.Now coming to your question:1. Now salary paid by Mr X to His wife is not something which is connected from Mr X remuneration in any way. It is completely different transaction. And As per business provision this might have been allowed but you also have to consider the Clubbing Provision which tells u/s 64(1)(ii) which clearly tells that if spouse is getting salary/remuneration etc from any Business in which the other spouse has substantial interest would be added back to the Income of such person (Mr. X)Therefore it would be not allowed as business Expenditure. 2. No, when there is no such expense allowed then no question of TDS.Other Comments are highly appreciated.

you are confusing clubbing provisions with expenses. Clubbing is of inome. So if you are saying that income needs to be clubbed, that means expense has to be allowed. Now, to what degree that expense needs to be allowed, that will depend not on section 64 but on 40A(2)(a) where disallowance can be made for unreasonable or excessive expenditure. Here if you are able to prove that she was qualified to receive the amounts, then disallowance is not attracted. Also, the same will apply to section 64 as the clubbing works only if there is no adequate consideration.

Once you avoid 40(a)(2)(a), then comes 192b. Here the disallowance should come into play as this section applies to all without exceptions as is given under other tds sections for people with turnover below the tax audit limit

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