Is deduction allowed on share in goodwill paid to legal heirs of deceased partner?
Case: WADIA GHANDY AND CO vs ACIT CIR. 16(3), ITAT MUMBAI
During the assessment proceedings, the Assessing Officer disallowed assesse’s claim of deduction towards payments made to legal heirs of deceased partners. Assessee’s appeal against the said order was allowed by the first appellate authority as the Commissioner found that in assessee’s own case, the first appellate authority has decided the issue in its favour while disposing of the appeal for the assessment year 2011-12.
He submitted that for use of goodwill, the firm was required to pay 5% of the net profit to the concerned partners or their legal heirs, as provided in the partnership deed and such payment made by the firm for use of goodwill is an allowable expenditure. He further submitted that the issue has been decided in favour of the assessee in the preceding assessment years and there being no change in facts, the decisions of the Tribunal in the preceding assessment years would squarely apply.
The Assessing Officer in the preceding assessment years has made similar disallowance, however, when the issue came up for consideration before the Tribunal, it was held that the payment made to the legal heirs of the deceased partners is allowable as deduction. Since, facts are identical therefore, deduction towards payments made to legal heirs of deceased partners were allowed.