1. (a) Any interest, salary, commission or other remuneration paid to any member in respect of the previous year, shall be deducted from the total income of the P.F.A.O.P. and the balance ascertained is apportioned amongst the members in the profit sharing ratio. It has been observed by the Supreme Court in case [CIT v. Chindambram Pilai (1977) 106 ITR 292] that the salary received by a member from the P.F.A.O.P. in which he is a member cannot be regarded in any way as having a source different from that of his share in the profits of the P.F.A.O.P. he receives.
(b) In case any interest on capital is paid to partners and interest on drawings is received from partners, only difference of these two is to be allocated.
(c) Where the amount apportioned to the member is a profit, any salary, interest, commission or other remuneration paid to the member by the P.F.A.O.P. shall be added to that amount (profit apportioned) and the total of all these amounts shall be treated as that member’s share in the Income of the P.F.A.O.P.
(d) Where the amount apportioned comes to be a loss, any salary, interest, commission or other remuneration paid to the partners of the P.F.A.O.P. shall be adjusted against the amount of loss so apportioned. If after the adjustment the result is positive, it shall be treated as the members share in the income of the P.F.A.O.P.
(e) P.F.A.O.P’s tax is not to be deducted out of total income for allocation purposes.
2. The share of a member whether income or loss as computed under sub-section (1) shall, for the purposes of assessment, be apportioned under the various heads of income in the same manner in which the income or loss of the P.F.A.O.P. has been determined under each head of income.
3. Any interest paid by a partner on capital borrowed by him for the purpose of investment in the P.F.A.O.P., shall be deducted from the share of his income computed under the head ‘Profits and Gains’ of business or profession. –