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TMI Blog2009 (4) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... 998-99, the AoP had suffered losses and the assessee s share in the losses of AoP as determined under section 67A of the Act was claimed by the assessee in the original return of income filed on 27-11-1998, copy of which is placed on record vide Pages 6 to 10 of the paper book. 3. The Assessing Officer allowed share of losses in the AoP to the assessee in the order dated 27-3-2001, passed under section 143(3) of the Act. 4. The CIT issued show-cause notice dated 13-3-2003 under section 263 proposing to revise the assessment order passed under section 143(3) of the Act. In the said show-cause notice, it was observed that the assessment order was erroneous and prejudicial to the interests of the Revenue since losses of AoP, viz., Birla Textile Mills, had been allowed in the hands of the assessee since such losses could not be allowed in the hands of the members and were only allowable for set off in the hands of the AoP, which is a separate assessable entity. 5. It was further observed that provisions of section 67A appeared to be not applicable in the present case on account of varying profit sharing ratio, which appeared to a deliberate and wilful attempt to reduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a rate higher than the "maximum marginal rate", tax is charged on that portion of the AoP at such higher rate and the balance income is taxed at the "maximum marginal rate" [refer section 167B(2)( ii ) of the Act]. ( c )If the total income of all the members of the AoP does not exceed the maximum amount which is not chargeable to tax, AoP is charged to tax at the normal rates prescribed in the applicable Finance Act. ( iii )If, however, the individual share of members of an AoP is indeterminate or unknown, i.e., in the case of an Indeterminate AoP, AoP is chargeable to tax at the maximum marginal rate. Further, if any member of such AoP is chargeable to tax at a rate higher than the marginal rate, then the entire income of the AoP is taxable at such higher rate. The method of computation of member s shares in the income/loss of AoP is prescribed in section 67A of the Act, which reads as under : "67A. Method of computing a member s share in income of association of persons or body of individuals. (1) In computing the total income of an assessee who is a member of an association of persons or a body of individuals wherein the shares of the members are determinate and kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment, apportioned under the various heads in the same manner in which income or loss of AoP has been determined under each head of income. Section 86 of the Act further provides as under: "86. Share of member of an association of persons or body of individuals in the income of the association or body. Where the assessee is a member of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India), income-tax shall not be payable by the assessee in respect of his share in the income of the association or body computed in the manner provided in section 67A: Provided that, ( a )where the association or body is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act, the share of a member computed as aforesaid shall not be included in his total income; ( b )in any other case, the share of a member computed as aforesaid shall form part of his total income : Provided further that where no income-tax is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessee-member for rate purposes only and no tax is payable in respect of such share of income of the AoP. Further, second proviso to section 86 carves out an exception to this rule and provides that where any income-tax is not chargeable in the hands of the AoP, the share of each assessee-member shall be chargeable to tax in the hands of the member. No income-tax is chargeable in the hands of the AoP in the following two situations when second proviso to section 86 shall become applicable : ( a )Where income of the AoP is below the maximum amount, which is not chargeable to tax; ( b )In case of loss in the hands of the AoP; ( viii )In both the aforesaid situations, the share of income/loss of AoP shall form part of the total income of the member of the AoP and shall be chargeable to tax in the hands of the member in accordance with the provisions of the Act. ( ix )The provisions of section 86 of the Act specifically provides/mandates the circumstances in which such income is excluded from the total income of the assessee-member, viz., if the income is already taxed in the hands of the AoP at the maximum marginal rate or any other rate. In all other sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evise an order of assessment only if it is erroneous and prejudicial to the interests of revenue. The twin conditions, i.e., ( a ) the order is erroneous; and ( b ) the order is prejudicial to the interests of revenue; must be cumulatively satisfied before the Commissioner can seek to exercise the revisional jurisdiction under section 263 of the Act. It has been further held that powers under section 263 of the Act cannot be invoked to correct each and every type of error or mistake committed by Assessing Officer. Only if order is erroneous, section 263 can be invoked. It has been further held that if Assessing Officer has adopted one of courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order. He relied on the decision in the case of ( i ) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 1 (SC), and ( ii ) CIT v. Max India Ltd. [2004] 268 ITR 128 (Punj. Har.) [affirmed in CIT v. Max India Ltd. [2007] 295 ITR 282 (SC)]. ( ii )In view of the aforesaid the Ld. counsel for the assessee further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1), the powers of CIT under section 263 of the Act shall extend to such matters, as has not been considered and decided in such appeal. Since the Assessing Officer failed to apply correct law namely provisions of section 86 read with section 167B, the CIT was justified in assuming jurisdiction and revising the erroneous order. The Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. ( supra ), held that "in correct assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous". Therefore, the CIT was justified in revising the erroneous order by withdrawing the set-off of share of loss in AoP against other income. 12. In the rebuttal of the aforesaid contention, it is submitted as under : ( i )The aforesaid contention of the ld. DR is not legally correct since once there are losses in the AoP, such losses are not subject to tax in the hands of the AoP. Therefore, share of the losses, as determined in sub-section (1) of section 67A, have to be included in the total income of the members in terms of the second proviso to section 86 of the Act; ( ii )Apart from the aforesaid, it is further submitted that the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onjoint reading of section 67A and section 86 provides that though the share of a member in the income or loss is to be apportioned in the hands of the individual member of the AoP but no income-tax shall be payable on such income but is includible only for rate purpose. As per clause ( a ) of the proviso to section 86, where the AoP is chargeable to tax on its total income at a maximum marginal rate or any higher rate under any provision of the Act including section 167B of the Act, the share of a member computed in the manner provided in section 67A of the Act shall not be included in his total income. Therefore, the provision of section 86 of the Act is clear in this regard. In such situation, since the association is chargeable to tax on its total income at any higher rate in view of the provision of section 167B, the share of member though computed under section 67A is not to be included in his total income. Section 167B(1) provides for charge on the total income of association in case the share of member in the income of association is indeterminate or unknown. Section 167B(2) provides for charge of tax in the case of AoP other than those referred to sub-section (1). Thus, su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The AoP being a separate taxable entity, is chargeable to tax on its own income as a unit of assessment and subject to the provision of sections 70, 71, 72, etc., can set-off its own loss against other income. However, the assessee being only a member of AoP, cannot claim set-off of such loss either under section 70 or 71 in the absence of any clear provision of the Act as held by the Hon ble Bombay High Court in the case of Lalita M. Bhat ( supra ). Though this decision was rendered prior to insertion of section 67A, yet in the absence of any enabling provision, either section 70 or section 71 of the Act, in view of the clear provision of section 86 read with section 167B of the Act, the assessee is not entitled to claim set-off of share of loss in the income of AoP against its own other income. We, therefore, uphold the order of the ld. CIT. 18. As regards decision of the Tribunal, relied upon by the counsel, we find that in none of the decisions, the provision of section 86 read with section 167B has been considered and, therefore, the same cannot be held to be applicable to the facts of the present case. Consequently, the order of the ld. CIT is upheld. 19. One ..... X X X X Extracts X X X X X X X X Extracts X X X X
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