Can Partners Claim Expenses from Their Remuneration? ITAT Delhi Clarifies with Landmark Ruling

Facts and Issue of the Case

In the case of Atul Kumar Gupta versus the Income‑tax Appellate Tribunal Delhi Bench (hereafter “ITAT Delhi”), the partner was a Chartered Accountant working in the partnership firm M/s A.P.R.A. & Associates LLP. For the assessment year 2018-19, he received remuneration of Rs. 24,00,000 from the firm. From this sum he claimed business expenses of Rs. 6,76,456 for travel, telephone, depreciation, repair and maintenance, fuel, driver salary, etc., thereby offering only the balance of Rs. 11,62,424 as taxable income. The Assessing Officer (AO) disallowed the claimed expenses on the ground that remuneration received by a partner was not business income in respect of which such business-expenses deductions could be made. The Commissioner of Income Tax (Appeals) upheld the AO’s disallowance. The sole issue before ITAT Delhi became: whether a partner can claim deduction of business-related expenses from the salary/remuneration received from the partnership firm, given that the remuneration arises from the partnership for services of the partner.

Observation by the Court and Tribunal

ITAT Delhi carefully examined the facts and applicable law. It noted firstly that under Section 28(v) of the Income‑tax Act, 1961 (the “Act”), any salary, bonus, commission, remuneration by whatever name received by a partner from a firm is treated as “profits and gains of business or profession”. Based on that, the tribunal held that such remuneration is business income and not merely salary in the nature of employment income. Once that classification is accepted, the next question is whether the partner may deduct expenditures “wholly and exclusively” incurred for the purpose of earning that business income under Sections 32 (relating to depreciation) and 37 (general deduction) of the Act. The tribunal observed that the partner had incurred travelling expenses, telephone bills, fuel, driver salary, repairs, depreciation, etc., all of which were directly linked to earning the remuneration from the firm. The tribunal further invoked the “rule of consistency” — noting that similar expenses had been allowed in earlier years for the very same assessee and also for another partner of the same firm in the same assessment year. In light of these observations, the tribunal held in favour of the assessee and directed that the disallowed expenditure be allowed as deduction. The order was pronounced on 24 October 2025.

Law Applicable

The key legal provisions and precedents in play are:

The tribunal emphasised that the nature of the relationship (partner–firm) and the fact that the activities of the partner incurred expenses wholly and exclusively for earning the remuneration, justify the deduction. Thus, the law applicable supports the logic of the decision.

• Section 28(v) of the Income-tax Act, 1961: This states that any salary, bonus, commission or remuneration by whatever name derived by a partner from a firm shall be deemed to be income from business or profession. This classification is critical because it allows the remuneration to be treated as business income rather than simply employment income.
• Sections 32 and 37 of the Act: Section 32 allows deduction for depreciation on assets used for business; Section 37 allows deduction of any expenditure (not being capital expenditure or personal expenditure) incurred wholly and exclusively for the purpose of business or profession. Once remuneration is business income, expenditures incurred to earn it may be deductible under these sections. The tribunal held that the partner’s claimed expenses satisfy the “wholly and exclusively” test.
• Rule of Consistency and Past Practice: The tribunal pointed to the fact that the same partner had been allowed similar deductions in earlier years and another partner of the same firm was allowed them in the same year. Consistency in treatment strengthens the claim for deduction.
• Precedent of the Supreme Court and other ITAT decisions: The assessee relied on the Supreme Court decision in CIT vs Ramnik Lal Kothari (74 ITR 57) and prior ITAT decisions such as Anil Gupta vs ITO and Aman Tandon vs ACIT to support the position that remuneration from a firm is business income and that related deductions are allowable. In essence: if the remuneration is business income, then business-expense deductions follow.

Conclusion by the Tribunal

In conclusion, ITAT Delhi allowed the appeal of the partner. It directed that the disallowed expenditure of Rs. 6,76,456 be allowed as deductible from the remuneration received by the partner. The tribunal held that since the remuneration from the partnership firm qualifies as business income under Section 28(v), and since the expenditures were incurred wholly and exclusively to earn that business income, they are deductible under Sections 32/37. The tribunal further stressed the value of past consistency in allowing similar claims in earlier years and for other partners. The result is favorable for the assessee: expenses incurred for earning remuneration from a partnership firm are allowable deductions. The order was pronounced in open court on 24 October 2025.

For lay-persons and practitioners this case provides an important clarifying point: if you are a partner in a firm and you receive remuneration from the firm, you should evaluate whether that remuneration is business income (as per Section 28(v)). If yes, then check whether the expenses you incur are wholly and exclusively for earning that income. If they are, you have a strong basis to claim deduction of those expenses. This case thus sets a precedent (in the Delhi bench) favorable to partners who incur business-related expenses in earning their remuneration.