Calculate the book profit of the partnership for the purpose of calculation of allowable deduction for salary paid to partners as per the Income Tax…

As per Explanation 3 to section 40(b), “book profit” shall mean the net profit as per the profit and loss account of the previous year computed as laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to the partners of the firm if the same has been already deducted while computing the net profit. In the present case, the net profit given is before deduction of depreciation on plant and machinery, interest on capital of partners and salary to the working partners. Therefore, the book profit will be computed as follows: Particulars ₹ Net Profit (before deduction of depreciation, interest and salary) 30,00,000 Less Depreciation on plant and machinery as per section 32 5,00,000 Interest @ 12% p.a. (maximum allowable as per section 40(b)) Ajay – 12% of 10,00,000 = 1,20,000 Biren - 12% of 10,00,000 = 1,20,000 Chan - 12% of 50,00,000 = 6,00,000 Total interest deductible 8,40,000 Total deductions 13,40,000 Book Profit 16,60,000