2010 (8) TMI 589 - HC - Income Tax

Exemption u/s 86 - Member of an association of persons - Received interest from the association of persons - If the association of persons or a body of individuals happened to be a company or a co-operative society or a society registered under the Societies Registration Act then in such an eventuality the member who is also an assessee is not entitled to get the benefits provided under Section 86 of the Act - Further Section 40(ba) of the Act would also make it clear that the share of the assessee under the income of association of persons shall not be taxable - Hence a combined reading of the provisions would make it clear that there is no bar for a private company like the assessee from getting the benefits of Section 86 of the Act - Thus, the appeal is dismissed in favour of the assessee and against the revenue. No costs.

Summary

Issues:
1. Interpretation of Section 86 of the Income Tax Act regarding deduction towards interest income from an association of persons for a private company.

Analysis:
The case involved a dispute where the revenue challenged a Tribunal order confirming the Commissioner of Income Tax (Appeals)-VI's decision regarding the entitlement of an Assessee Company to deduction towards interest income from an association of persons under Section 86 of the Income Tax Act. The Assessee, a member of an association of persons named Kailas Project, received interest from the association and claimed exemption under Section 86. The Assessing Officer disallowed the claim, stating that Section 86 applies only to individuals and not to companies or cooperative societies. However, the Commissioner of Income Tax (Appeals) allowed the claim, leading to the revenue's appeal before the Tribunal. The Tribunal, after analyzing Section 86 and comparing it with Section 40(ba) of the Act, upheld the Commissioner's decision, emphasizing that there is no bar for a private company like the Assessee to benefit from Section 86.

The key contention revolved around the interpretation of Section 86, which exempts income tax for an assessee who is a member of an association of persons, excluding companies, cooperative societies, or registered societies. The provision clarifies that if the association of persons is a company or cooperative society, the member, who is also an assessee, cannot claim benefits under Section 86. Additionally, a combined reading of Section 40(ba) reinforces that the share of the assessee from the income of an association of persons shall not be taxable. The judgment emphasized that a literal interpretation of taxing statutes is essential unless it leads to manifest injustice or absurdity. Therefore, the Tribunal's decision to uphold the Commissioner's order was deemed appropriate, as it aligned with the principles of interpretation. Consequently, the appeal was dismissed, ruling in favor of the Assessee and against the revenue, with no costs imposed.