1995 (12) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of share income from the association of persons (AOP) in the assessee's total income.
2. Determination of the share income from AOP after deducting income-tax paid by the AOP.

Issue-Wise Detailed Analysis:

1. Inclusion of Share Income from the Association of Persons (AOP) in the Assessee's Total Income:
The core issue was whether the share income from the AOP, on which income-tax has already been paid by the AOP, should be included in the assessee's total income for rate purposes. The Income-tax Officer included the entire share of income from the AOP in the assessee's total income. The Commissioner of Income-tax (Appeals) directed the exclusion of the share income from the assessee's total income. The Tribunal accepted that the share of the assessee in the income of the AOP should be included in the assessee's total income for rate purposes, as per section 66 read with section 86(v) and section 110 of the Income-tax Act, 1961.

2. Determination of the Share Income from AOP After Deducting Income-Tax Paid by the AOP:
The Tribunal held that the assessee's share in the income of the AOP should be determined after deducting the income-tax paid by the AOP. The Revenue contended that there was no provision in the Act for such a deduction. The High Court analyzed sections 66, 86(v), and 110 of the Act. It emphasized that the amount exempt from income-tax is the portion of the amount which the assessee is entitled to receive from the AOP, not reduced by the income-tax paid by the AOP. The Court noted the distinction in the language of section 86(v) and section 86(iii), highlighting that the exemption for AOP members is conditional on the actual payment of income-tax by the AOP, unlike the provision for partners of unregistered firms.

The Court concluded that the share of income or amount receivable by the assessee from the AOP should be determined without deducting the income-tax paid by the AOP. The legislative intent was clear that income-tax paid by the AOP should not reduce the income of the AOP or the amount receivable by its members. Therefore, the Tribunal's interpretation was incorrect.

Conclusion:
The High Court answered the referred question in the negative, holding that the Tribunal was not justified in determining the share income from the AOP after deducting the income-tax paid by the AOP. The share income from the AOP includible in the assessee's hands should be determined without such deduction, thus ruling in favor of the Revenue.