Aop taxation matter (Income Tax)

This query is : Resolved

Prachi

( Author )
19 February 2012

If Total income of AOP is less than Rs.180,000 and one of its member is Company(Indian or foreign) or Partnership firm then AOP is liable to pay tax?

If yes then at what rate?

CA Sumat Singhal

( Expert )
19 February 2012

Where shares of members are indeterminate or unknown

The tax is charged on the total income of the AOP/BOI at the maximum marginal rate i.e. 30% plus surcharge @ 10% plus education cess @2% SHEC @1%, which is the rate of tax applicable in relation to the highest slab of income in the case where the individual share of the members of AOP in the whole or part of its income are indeterminate or unknown. However when any member is charged at a higher rate than maximum marginal rate, the income shall be taxed at a higher rate.

In case where a foreign company is a member of AOP, the tax rate of the AOP would be 42.23% (40% plus surcharge 2.5% plus education cess 2% plus SHEC @ 1%).

Long-term capital[22] gain of AOP must be taxed at a special rate of 20% or 10% depending upon the case. Similarly, short-term capital[23] gain is taxable at 10%.

Where shares of the members are determinate or known

The total income of an AOP wherein the shares of the members are determinate and known shall be computed as follows:

Any interest, salary, bonus or remuneration paid to any member of AOP shall be deducted from their total income. The balance income (either profit or loss) shall be apportioned to the members, to which salary, interest, etc. shall be added. This income shall be treated as member’s share in income of AOP.

The member’s share so ascertained shall be apportioned under various heads of income in the same manner as it is done for AOP.

Prachi

( Author )
19 February 2012

Thank u for solution.

Prachi

( Author )
19 February 2012

Sir,

I have one more que to ask.
Whether member of AOP can claim deduction (for eg.u/s 80c) from share from AOP?

CA Sumat Singhal

( Expert )
19 February 2012

THEY CAN CLAIM DEDUCTION
ALONG WITH READ THIS FOR COMPLETE UNDERSTANDING
Section 86 provides that even if the income is included in the total income of the member, such income is includible only for rate purpose and therefore, in effect, the assessee do not pay tax on his share in the income of AoP but the same is includible only for rate purpose. Conversely if there loss in the hands of the AoP and such loss cannot be out rightly included as to be set-off against other income. The AoP being a separate taxable entity, is chargeable to tax on its own income as a unit of assessment and subject to the provision of section 70, 71, 72, etc., can set-off its own loss against other income. However, the assessee being only a member of AoP, cannot claim set-off of such loss either u/s 70 or 71 in the absence of any clear provision of the Act as held by the Hon'ble Bombay High Court in the case of Lalita M. Bhat Though this decision was rendered prior to insertion of section 67A, yet in the absence of any enabling provision, either section 70 or section 71 of the Act, in view of the clear provision of section 86 r/w section 167B of the Act, the assessee is not entitled to claim set-off of share of loss in the income of AoP against its own other income. We, therefore, uphold the order of the Ld. CIT.

Prachi

( Author )
19 February 2012

Thanks a lot sir for giving clear understanding about whole sections.