Assessment of Association of Person (AOP) or Body of Individual (BOI)

An A.O.P. or B.O.I is an association of person for profits or gains or for the promotion of  a joint enterprise. It is an A.O.P. provided it is not  a H.U.F., firm, company, or a local authority.

1.   Method of Computing a member’s share in the Income of A.O.P. or B.O.I. Sec. 67A.

      The share of a member of A.O.P. (other than a company or Co-operative or society registered under the Societies Registration Act, 1860 or any law corresponding to that Act in force in any part of India) shall be computed in the following manner: (when the shares are determinate and known).

a)      Compute total income of the A.O.P. while computing the total income, the appropriation items like interest, salary, bonus, commission or remuneration by whatever name called paid to the members is to be disallowed. [sec. 40(ba)]

b)      Now the allocation is to be done. Initially allocate the appropriation items like interest salary, bonus etc., and balance is to be allocated to the members in their profit sharing ratio.

c)      Where the individual who is a member in a representative capacity is paid interest otherwise than as member in a representative capacity, such interest shall not be disallowed.

      If the AOP or BOI pays interest on capital a/c but charges interest on debit balance in current a/c of members only net interest paid to members is disallowed u/s 40(ba).

      If an individual represents his HUF in a AOP or BOI interest paid by the AOP or BOI on loan, given by the individual out of his personal funds, is allowed u/s 40(ba).

            However, interest on loan paid by the AOP or BOI to the member is disallowed u/s 40(ba).

 

Sec. 267 – Where as a result of appeal any change is made in assessment of BOI or AOP, the Commissioner (A)/ITAT shall pass an order authorising AO to amend/make fresh assessment on any member.

ILLUSTRATION 1 :

X, Y and Z are the thee partners of a firm, sharing profit and losses as 2 : 3 : 5. It is constituted by a deed of partnership, but there has been a change in the profit sharing ratio in the Financial Year 2009-10 from the earlier year. The firm did not submit a certified copy of the new deed of partnership and it had been treated as an AOP.

The profit and loss account of the firm for the year ended on 31st March, 2010 shows the following :

 

Determine the tax of the partnership assessed as on AOP as also of X, Y and Z.

Solution :

Computation of Total Income & Tax Liability of the Firm

Assessed as AOP for the A.Y. 2010-11

 

At what rate AOP will pay tax depends upon the total income of individual members of AOP, which is computed as follows, for application of rate of tax by this computation we are showing total income and tax liability of individual members.

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