2014 (9) TMI 1190 - AT - Income Tax

Assessment of AOP - MAT computation u/s 115JB - Share of assessee's income in two AOPs while computing book profit u/s.115JB - Exemption u/s.10(2A) - entitled for exemption u/s.86 in respect of share income received from two AOPs - AO did not allow exemption u/s.86 on the plea that the profit of AOPs were eligible for deduction u/s.80IB(10) - HELD THAT - We are not in agreement with the finding of the lower authorities that since both the AOPs have claimed deduction u/s.80IB(10), the assessee's share of income in these AOPs will not be eligible for exemption. It may be noted that Section 67A provides method for computing a member's share in income of association of persons or body of individuals . The income of the member company of the AOP is to be computed as per Section 67A of the Income Tax Act and the Income tax authorities cannot go beyond the provisions of Section 67A of the Act. U/s.86, whatever the share of the member company is computed u/s.67A of the Act, is deductible/will not be chargeable to tax, subject to the proviso to Section 86. So the income of the AOP is to be computed as per the provisions of the Act and the member's share is to be computed as per the provisions of Section 67A of the Act and not otherwise. We accordingly set aside the order of the lower authorities and restore the matter to the file of the AO to work out the total income of the assessee as per the provisions of Section 67A read with provisions of Section 86. Here, it is pertinent to mention that computation of share of the assessee will be dependent upon the final determination/computation of total income of the AOP. If the AOP will not be allowed deduction u/s.80IB, there will be enhancement in the share of the assessee to be computed u/s.67A of the Act. Hence, it is directed that the AO will also take into consideration the total income computed of the concerned AOPs while computing share of the assessee company. AO has also brought to net of tax its book profit which included share of profit in two AOPs as per provisions of Section 115JB - No merit in the AR's contention insofar as Section 115JB has been brought in statute to tax the book profit shown in the books of account as Part II Part III of Schedule VI of the Companies Act. It is not the case of the assessee that share of income of AOP has not been credited in the P L account as per Part II Part III of the Schedule VI of the Companies Act. Since the profit and loss account so prepared has been approved by the Board of Director of assessee company, there is no reason to exclude the profit credited in the P L account in respect of share of assessee's income in two AOPs while computing book profit u/s.115JB. Accordingly, ground raised by assessee with regard to exclusion of such income while computing book profit u/s.115JB is not tenable.

Summary

Issues Involved:
1. Taxability of the assessee's share of income from two AOPs under Section 86.
2. Inclusion of the share of income from AOPs in the book profit for the purpose of Section 115JB.

Issue-wise Detailed Analysis:

1. Taxability of the Assessee's Share of Income from Two AOPs under Section 86:

The assessee, a member of two AOPs (Cosmos Estate and Cosmos Properties), claimed exemption on its share of income under Section 10(2A). However, during the assessment proceedings, the assessee clarified that the correct exemption should be under Section 86. The AO rejected this claim, arguing that since the AOPs claimed deductions under Section 80IB(10), the income was not exempt under Section 86. The AO taxed the assessee's share of income from the AOPs, except for a small amount of Rs. 24,066 from Cosmos Properties, which was considered exempt.

The CIT(A) upheld the AO's decision, leading the assessee to appeal. The assessee argued that the share of income should be computed as per Section 67A, which prescribes the method for computing a member's share in the income of an AOP. The assessee contended that the maximum taxable amount should be Rs. 24,066, as determined by the AO, and that including the entire share of profit would result in double taxation.

The tribunal found merit in the assessee's argument, noting that Section 67A should be applied to compute the share of income. It emphasized that the income of the AOPs, charged to tax in their own hands at the maximum marginal rate, should not be included in the assessee's total income. The tribunal set aside the lower authorities' orders and directed the AO to recompute the assessee's income as per Section 67A, considering the final determination of the AOPs' total income.

2. Inclusion of the Share of Income from AOPs in the Book Profit for the Purpose of Section 115JB:

The AO included the assessee's share of income from the AOPs in the book profit for calculating tax under Section 115JB. The assessee argued that this inclusion was incorrect, as the income had already been taxed in the hands of the AOPs. The tribunal, however, disagreed with the assessee, noting that the share of income was credited in the P&L account and formed part of the book profit.

The tribunal referred to the definition of book profit under Section 115JB, which is the net profit shown in the P&L account, subject to specific adjustments. It observed that the adjustments listed in Explanation 1 to Section 115JB did not provide for the exclusion of the share of profit from AOPs. Since the P&L account, including the share of income from AOPs, was approved by the Board of Directors, the tribunal found no reason to exclude this income while computing book profit under Section 115JB.

Conclusion:

The tribunal allowed the appeal in part for statistical purposes, directing the AO to recompute the assessee's income as per Section 67A and Section 86. However, it upheld the inclusion of the share of income from AOPs in the book profit for the purpose of Section 115JB.