1984 (6) TMI 62 - AT - Income Tax

Summary

Issues Involved:
1. Implication of the provisions of section 167A of the Income-tax Act, 1961.
2. Inclusion of the assessee's share of income from AOPs in its total income.
3. Set off of the loss claimed by the assessee from an AOP.

Detailed Analysis:

1. Implication of the Provisions of Section 167A of the Income-tax Act, 1961:
The major issue in this appeal pertains to the implication of section 167A of the Income-tax Act, 1961, which was inserted by the Finance Act, 1981, effective from 1-4-1981. The assessee argued that under section 167A, the revenue is obliged to assess the income in the hands of the AOP only, even on that part of the profits in which the individual shares of the members are specified. The assessee contended that section 167A mandates that the income of AOPs should be assessed in the hands of the AOP and not in the hands of its members. The Tribunal agreed with the assessee, stating that the ITO is bound to assess the AOPs in the manner laid down in section 167A and has no choice to assess the share of income of each of the members of such AOPs by including the same in their respective total incomes.

2. Inclusion of the Assessee's Share of Income from AOPs in Its Total Income:
The assessee claimed that Rs. 3,71,552 (Rs. 4,12,744 - Rs. 41,192) should not be included in its total income, arguing that each AOP should be assessed separately. The ITO rejected this claim, stating that there was no evidence that the concerned AOPs had already paid income tax on the portion of the amount received by the assessee as income. The Commissioner (Appeals) upheld the ITO's decision, but the Tribunal found that the ITO is required to assess the AOPs in the manner laid down in section 167A, and the assessee's share in the profits/losses of various AOPs should be considered for rate purposes only as contemplated under section 86(v) read with the Explanation thereto. Since the assessee is a company and companies are taxed at a flat rate, it would have no effect if such share of profit/loss is considered for rate purposes. Therefore, the Tribunal directed the ITO not to include Rs. 3,71,552 in the total income of the assessee.

3. Set Off of the Loss Claimed by the Assessee from an AOP:
The Commissioner (Appeals) directed the ITO to examine the material and papers submitted by the assessee to support the claim of a share of loss amounting to Rs. 41,192 from an AOP, viz., Aradhna Corpn. The ITO was instructed to determine whether there would be any such loss to be considered in the assessee's case before the completion of the regular assessment of that AOP, subject to rectification under section 155. The Tribunal did not specifically address this issue in detail but focused on the broader implications of section 167A and the inclusion of the assessee's share of income from AOPs in its total income.

Conclusion:
The Tribunal concluded that the ITO must assess the AOPs in the manner laid down in section 167A and should not include the assessee's share of income from AOPs in its total income. The assessee's share in the profits/losses of various AOPs should be considered for rate purposes only, which has no effect on the tax collection since the assessee is a company taxed at a flat rate. The appeal was partly allowed.