2014 (3) TMI 395 - HC - Income Tax

Set off of depreciation loss Share of member from Association of persons (AOP) - Return of loss u/s 80 - Held that - Section 67A of the Income Tax Act no doubt uses the phrase computation of total income of the association having relevance to the computation of a particular share of income of persons in body of individuals the apportioning of the share of a member in the income or loss of the association or body under the various heads of income has to be in the same manner in which the income or loss of the association or body has been determined under each head of income - determination of loss or income at the hands of association or body of individuals leads to the determination of the same at the hands of the member in his assessment and such determination of the share of the income of a member in the association is not left to the computation by the individual member in his return showing his share of income. The AOP in which the assessee was a member had not chosen to declare the loss within the time prescribed under the provisions of the Act by filing a return - The assessee was entrusted with the task of availing the loan and organising the affairs of the AOP - When the AOP was under the legal obligation to file its return declaring loss or income and had defaulted in filing the return within the time prescribed, the assessee cannot take advantage of the absence of reference of Section 67A in Section 80 of the Income Tax Act - The relief that has to be considered for the purpose of Section 67A is not dependent on Section 80 - Section 80 has nothing to do with the computation to be done under Section 67A by the assessee - the computation on Section 67A has to be done in the manner prescribed and the provisions of Section 67A is not dependent on what has been given under Section 80 of the Income Tax Act Decided against Assessee.

Summary

Issues:
1. Interpretation of Section 67A(2) of the Income Tax Act regarding the allowance of depreciation loss from a joint venture.
2. Determination of whether the share of depreciation loss or its set off against individual income is permissible under the Income Tax Act.

Analysis:

Issue 1:
The case involved the interpretation of Section 67A(2) of the Income Tax Act concerning the allowance of depreciation loss from a joint venture. The assessee, a member of an association of persons (AOP), entered into a joint venture to establish a wind energy generator. The parties agreed to share income/loss in specified ratios. The assessee claimed depreciation loss from the windmill project in his returns. However, the Assessing Officer rejected the claim, stating that as the AOP had not filed a return within the prescribed time, the assessee could not benefit from Section 67A(2) of the Income Tax Act. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld this decision, leading to the current appeal.

Issue 2:
The second issue revolved around whether the share of depreciation loss could be set off against the individual income of the assessee. The assessee argued that Section 67A of the Income Tax Act did not require the loss to be determined at the AOP level for individual members to claim the benefit. However, the Tribunal held that as the AOP had not filed the return to determine the loss, the assessee's claim was rightly rejected. The Court emphasized that the relief under Section 67A is contingent upon the determination of income at the AOP level, and the individual member cannot claim the benefit if the AOP fails to comply with filing requirements.

In conclusion, the Court dismissed the appeal, stating that the relief under Section 67A of the Income Tax Act is dependent on the determination of income at the AOP level. As the AOP did not file the return within the prescribed time, the assessee could not avail of the benefits claimed. The Court rejected the argument that Section 80 of the Income Tax Act was relevant to the computation under Section 67A, emphasizing that the provisions of Section 67A must be followed independently.