Commercial profit' is relevant to determine sec. 40(b) remuneration limit; every credit to P&L A/c counts

In this case, the Calcutta High Court held that all credits to P & L A/c have to be considered while computing the deductible amount of partner's remuneration under section 40(b)(v). For concluding this, the High Court held as follows:

1) Explanation 3 to section 40(b) defines 'book profit';

2) Accordingly, "book-profit" means the net profit, as shown in the P/L A/c for the relevant previous year, computed in the manner laid down in Chapter IV-D; and

3) Chapter IV-D nowhere provides that method of accounting for the purpose of ascertaining net profit should be the only income from business alone and not from other sources.

Therefore, even the income from other sources, if credited to P/L A/c, shall form part of book profit for computation of the remuneration of the partners - MD. SERAJUDDIN & BROS. v. CIT [2012] 24 taxmann.com 46 (Calcutta).