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give example of artificial juridical person

anand (ca) (107 Points)

01 July 2009

we hv different assesses like individual, huf, firm, co, aop, boi, and

artificial juridical person if not covered by any of the above

my qus. is can anyone give me an example of artificial juridical person?

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swati jain (PCC student) (78 Points)
Replied 02 July 2009

Originally posted by :pankaj
"	we hv different assesses like individual, huf, firm, co, aop, boi, and artificial juridical person if not covered by any of the above my qus. is can anyone give me an example of artificial juridical person?	"

Like University, Courts and God so many examples of artificial juridical person

1 Like

Vidhyashankar (CA) (1292 Points)
Replied 02 July 2009

Hi pankaj,

Entity other than a natural person (human being) created/recognized/accredited by law and also recognized as a legal entity having distinct identity, legal personality, and duties and rights.

Few Examples:

1. Society: Since a society is an artificial person and has an identity recognized by the court of law it is called an artificial juridical person.

2. Idol/Deity(Ex:Tirupathy Balaji): For the purposes of Indian Income Tax Act, this has been deemed to be artificial juridical person, thogh by definition it does not fall under it.

3. Municipal Committee(not local authority)

4. University approved by Law.

5. Ship/Vessel

6.Any other body which does not fall under the other 6 branches of the "Person" as defined by Income Tax Act.

(Guest)

Hello to all,

I am doubtful whether a co-operative society should be aseessed as an artficial juristic person because some text considers it as a BOI & some texts as AOP.Pls clear it.

Vidhyashankar (CA) (1292 Points)
Replied 03 July 2009

"Sir, in one of ur reply u had stated that municipal committee & co-operative society as artifiial juristical person. However,as per some textbooks including study material, municipal committee is regarded as a local authority & co-operative society as either AOP or BOI. So, would request u to please clarify this point. Thanks"

--- Reply:

1. I had written municipal committe and not municipal/local authority and even mentioned it in brackets lest some student like you might have a doubt here. Municipal committee is not a Municipal authority, there is a subtle difference, and consequently the former does not fall in any of the other 6 categories mentioned for "Person" definition of the Income-Tax Act and by default falls in the artificial juridical status allotted to such cases.

2. Section 133(6) of Income-tax Act, 1961 comprehends within its ambit power of survey, and arms the tax authorities with the right to collect information, subject to certain safeguards. The main object of this provision is to curb tax evasion and detect concealment of income even in respect of persons who have not been tax payers in the past.

The authorities can require any “person”, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by such officer. Section 2(31) of the Income-tax Act, defines “person”. The definition clause is inclusive and not exhaustive.

After arraying the categories of persons covered by the normal meaning of the term “person”, the residuary clause covers every “artificial juridical person” not falling within any of the preceding sub-clauses. This clearly shows that the Act does not propose to exclude anyone or any institution from the scope of the definition of the term “person”.

A society constituted under the Co-operative Societies Act is an artificial juridical person under the definition of “person”. Therefore, section 133(6) squarely applies to a co-operative society as well. Want of specific mention of the co-operative society or co-operative bank in section 133(6) does not make any difference.

Now, some books mention that Co-operative Society is an AOP.How can that be? \

Confusion arises because: Under the Income-Tax Act, 1961, status of a co-operative society is generally ascribed(not specifically provided for) to that of an association of persons (AOP).

It is, therefore, covered by the term ‘employer’.

However, a contrary view also exists.And due to court judgements lately this view is being now popularly held, though some Tax Text books still carry the old information.

Contrarion view: A co-operative society is not covered by AOP and it is an incorporated body with its own perpetual existence. Every year, separate rates of tax are prescribed for a co-operative society and the rate of tax for AOP is different. Hence, a co-operative society has a separate legal status and is not an AOP.

The issue that needs to be considered is whether the society can be classified as an artificial juridical person. Now, Society is not specifically included in the definition of employer under section 115W(a). The definition of employer is exhaustive and it will not be possible to levy say FBT(Fringe benefit Tax) on society unless a specific charge is created on it.(Also,Employee is not defined either in Chapter XII–H or any other place in the Act. In general term, employee is a person engaged by another in return for wages/salary.)

Additionally, though the Courts have held that the provisions of exemption applicable to the co-operative societies must be construed liberally; but, that does not mean that the interpretation could overstep the clear and specific meaning provided in the language of the statute; in respect of assessee falling under clause (b) of section 80P(2), the law has purposefully stated that the status of the co-operative soceity shall be a primary soceity.

Also, Paragraph A of Part III of the First Schedule specifies the rates of income-tax in the case of every individual, Hindu undivided family, association of persons, body of individuals or artificial juridical person (other than a co-operative society, firm, local authority and company).This also creates some confusion but the confusion is unravelled when one sees it within the context of the rates of income-tax and not as an universally binding provision for Co-operative soceities as a whole.But this should itself thrwo a clue that since Taxwallahs have clearly excluded it from the artificial juridical person definition for this rates alone, it means by way of deduction that co-operative soceity can also be(not should be, please see the usance of my words here) clubbed in the very same category.

Final verdict: Co-operative Soceity can also be construed as an artificial juridical person.Maybe you need to mention the fact in the exam that you are aware of the general interpretation of Co-operative society being taken as AOP but further need to mention that oflate due to FBT(Fringe benefit taxation) many exclusions and exceptions have been afforded.

This would form not only a wholesome answer but also favourably impress the examiner if you just write a line or two(atleast at the final level of the exams) about recent developments.

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The above answers are just guidelines and not set in stone,it is subject to changes in legislation,amendments and CBDT circulars;which I cannot keep pace staying here in USA.It is your duty as a student to take care of what is relevant for your exam and adopt a prudent stance on the issue.

Hope this helps...

1 Like

(Guest)

Hello Sir,

I am totally aware about the fact that u meant a municipal COMMITTEE.I too mean the same. I am repeatedly asking this because study material specifically includes municipal COMMITTEE as a local authority.

Regarding Co-operative society I agree to your views.Similarly, I am confused whether a trust &club should be assessed as AOP or BOI..due to different classification in different textbooks.As far as rates of tax are concerned it would not make any difference.But still I want to know the correct classification.

Vidhyashankar (CA) (1292 Points)
Replied 03 July 2009

Hmm, if study material says that then it would be good for the exam.However in practice things are different.Please refer some reference texts(good ones not "market guides").The confusion arises here because of this:

"A local authority-- means a municipal committee, district board, body of port commissioners, or other authority legally entitled to or entrusted by the government with the control and management of a municipal or local fund."

The expression "local authority" is not defined in the Income-tax Act. Section 3(31) of the General Clauses Act, however, defines "local authority" as above.

But the germane point of consideration here is the underlined words wrt Municipal/local fund and not all municipal committees.That is why one must make some research into the underlying issues a bit and not go primafacie,especially at the CA Final level, where they test your understanding and analysis more than just byhearting what is in the Study material or the bare Act.

This expression came up for consideration in the aforesaid cases of Valjibhai Muljibhai Soneji's case, AIR [1963] SC 1890, R.C. Jain's case, AIR [1981] SC 951 and Calcutta State Transport Corporation's case [1996] 219 ITR 515 (SC). In Valjibhai Muljibhai Soneji's case, AIR [1963] SC 1890, a contention had been urged that the state transport authority was a local authority, in the context of proceedings arising out of challenge to acquisition under the Land Acquisition Act. It had been contended that the State Transport Corporation was not a local authority but a company and that the provisions of Part VII of the Land Acquisition Act not having been complied with, the acquisition was bad. Dealing with this contention, it was observed by this court at page 696 of [1964] 3 SCR; page 1894 of AIR [1963] SC:

"The definitions given in the General Clauses Act, 1897, govern all Central Acts and Regulations made after the commencement of the Act".

While perusing the expression "local authority", as defined under section 3(31) of the General Clauses Act, it was observed at page 697 that the funds of the Corporation could not be regarded as a local fund. Dealing with the contentions that the Bombay State Transport Act, 1950, itself provided that the Corporation shall for all purposes be deemed to be local authority, it was observed that (page 1894 of AIR 1963 SC): "No doubt, that is so. But the definition contained in this Act cannot override the definition contained in the General Clauses Act of 1897 which alone must apply for construing the expression occurring in a Central Act like the Land Acquisition Act unless there is something repugnant in the subject or context".

Applying the above principle in the present case, even though section 3(3) of the U.P. Forest Corporation Act regards the Corporation as being a local authority but for the purposes of the Act, the meaning of expression "local authority" as contained in the General Clauses Act, which is the Central Act, has to be seen. Merely because the U.P. Forest Corporation Act regards the respondent as a local authority, that would not, in law, make the respondent a local authority for the purposes of section 10(20) of the Act. Whether the respondent is a local authority or not has to be examined without regard to the fact that section 3(3) of the U.P. Forest Corporation Act regards it as a local authority.

The test for determining whether a body is a local authority had been laid down by this court in R.C. Jain's case, AIR [1981] SC 951; [1981] 2 SCR 854. In the context of applicability of the Bonus Act, 1965, the question which arose there was whether the Delhi Development Authority was a local authority. In construing the meaning of the expression "local authority" as defined in section 3(31) of the General Clauses Act, it was observed by this court at pages 857-858 of [1981] 2 SCR as follows (page 952 of AIR 1981 SC; page 286 of 58 FJR):

"Let us, therefore, concentrate and confine our attention and enquiry to the definition of 'local authority' in section 3(31) of the General Clauses Act. A proper and careful scrutiny of the language of section 3(31) suggests that an authority in order to be a local authority, must be of like nature and character as a municipal committee, district board or body of port commissioners, possessing, therefore, many, if not all, of the distinctive attributes and characteristics of a municipal committee, district board, or body of port commissioners, but possessing one essential feature, namely, that it is legally entitled to or entrusted by the Government with, the control and management of a municipal or local fund. What then are the distinctive attributes and characteristics, all or many of which a municipal committee, district board or body of port commissioners shares with any other local authority? First, the authorities must have separate legal existence as corporate bodies. They must not be mere Governmental agencies but must be legally independent entities. Next, they must function in a defined area and must ordinarily, wholly or partly, directly or indirectly, be elected by the inhabitants of the area. Next they must enjoy a certain degree of autonomy, with freedom to decide for themselves questions of policy affecting the area administered by them. The autonomy may not be complete and the degree of dependence may vary considerably but an appreciable measure of the autonomy there must be. Next, they must be entrusted by statute with such Governmental functions and duties as are usually entrusted to municipal bodies, such as those connected with providing amenities to the inhabitants of the locality, like health and education services, water and sewerage, town planning and development, roads, markets, transportation, social welfare services, etc. Broadly we may say that they may be entrusted with the performance of civic duties and functions which would otherwise be Governmental duties and functions. Finally, they must have the power to raise funds for the furtherance of their activities and the fulfillment of their projects by levying taxes, rates, charges, or fees. This may be in addition to moneys provided by Government or obtained by borrowing or otherwise. What is essential is that control or management of the fund must vest in the authority". (emphasis added)

So, it is not as simple as you think.You would be right in both including and excluding it.However, proper explanation must be added in brackets in the exam.you need not quote such lengthy cases.I quoted it, lest you think, im talking through my hat or giving some stray comment.

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So, to make a long story short.Anything to be included in artificial juridical person definition must be viewed with regards to facts and circumstances of the relevant case and nothing can be said as a sweeping generalization that such and such belong to such and such category.Where there is a specific provision/Act, it over-rides a general provision/Act and where there is none, then one must make use of past legal decisions,commonly held legal mores/parlance,specific CBDT Circulars,etc.

The same ratio,logic and consideration enunciated by me above applies to your question of clubs,trusts being included in AOP or otherwise.

You have made me today as a Direct taxes teacher haha! Anyways good! Study well, need not be too research-oriented for small things like this and leave out bigger and more mark-getting issues in Direct Taxes.Save all this research after you qualify, for now just stick to what study material and commonly read reference texts(VKSinghania/TNManoharan/Padhukas,etc) say. Gotcha?

Vidhyashankar (CA) (1292 Points)
Replied 03 July 2009

Also, when I mentioned within brackets (not local authority), I meant a municipal committee in the nature of a non-local authority and did not want to elaborate too much on it as it would be understood by the examiner and also become like an over-kill.The above case stdy and judgment can be downloaded from Income Tax site(for which you need to be a paid member).I had access to it, so cut-paste-copied the judgment and later analyzed it for your(and students sake) here.

Hope this helps...

(Guest)

Vidya Sir,

Thank u so much for taking the trouble & pain for finding out the solution. Otherwise, I would not have been able to carry out such an extensive research due to time & resource constraint. Actually, I should not go in such an in-depth analysis but this is the only time I get for updating my knowledge as well as to learn something new. I always take care of all the minute things while reading any books (especially academic books) & equally take care of major important issues from the exam point of view as well.

Yes, I would go through other reference books as well but r8 now focused on study material only.

Anyways, Thanks a lot.....

Radhakrishnan K.V. (Joint Registrar of Co-operative Societies (Rtd.)) (1072 Points)
Replied 19 December 2012

Whether co-operative societies belong to "person" is under the consideration of Hon'ble Supreme court. An interim stay was also granted from the operation u/s 133(6) until the final outcome of the SLP.