Method of computing a member‘s share in income of association of persons or body of individuals.

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Section 67A falls under Chapter VI, which relates to ‘Aggregation of income and set off or carry forward of loss’ As the heading of section 67A itself suggests, it provides the method of computing a member’s share in the income of an AOP or BOI.

In the present context, it has to be noted that sections 66 and 67A fall under Chapter VI, the title of which is, ‘Aggregation of income and set off or carry forward of loss. It is, thus, clear that Chapter VI of the Act, relates to the computation of total income. It would, therefore, imply that section 67A also relates to the inclusion of the share of a member in the AOP, for computation of his / its total income.

The expression ‘other than a company, or a co-operative society, or a society registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India’ is used in sections 67A, 86, and 167B, qualify the words AOP or BOI and not the member of such AOP or BOI. Besides, given the aforesaid reasons, the share of loss of a company in an AOP cannot be set off against the other income of the company.

On examination of the provisions of section 67A, it may be seen that it provides for the method of computing a member’s share in the income of an AOP or BOI, wherein the shares of the members are determinate and known. Besides, section 67A was held applicable in a case where the assessee had suffered loss as a member of an AOP and its share of loss was determined and known.

This was the view expressed by the Mumbai Bench of the Tribunal in the case of Mahindra Holdings & Finance Ltd. Vs Dy.CIT [2009] 311 ITR (AT) 1 (Mum) : [2008] 11 DTR (Trib) 481 (Mum)(TM). The same was the view of the Bombay High Court in the case of CIT Vs Smt. Lalita M. Bhat [1998] 234 ITR 319 (Bom). It was held in this case that the loss of an AOP can be set off only against its profits and not against the profits of its members and a member of an AOP cannot claim in his assessment the set off of the loss of the AOP.

Section 67A provides how the share of income/loss of a member of such AOP / BOI is to be determined. Section 86 provides that such share of income/loss members of a member of such AOP / BOI shall be included in the total income but no tax shall be payable in respect of such income. If all the provisions are read together, the entities specified in the parenthesis in section 67A would qualify the AOP / BOI and not the member of such AOP / BOI. The context in which all the sections are placed in the statute book does not suggest that different meanings can be given to the words in the parenthesis in different sections even though identically worded.

In the case of CIT Vs Indian Products Ltd. [1994], 207 ITR 647 (Cal) It was held in this case that the heading of a section is relevant to ascertain the legislative intent of any provision of law. In addition to the aforesaid discussion, a reference may again be made to the provisions of section 86 of the Act. As per section 86 of the Act, where the assessee is a member of an AOP or BOI, income tax shall not be payable by the assessee in respect of his share in the income of the AOP or BOI computed in the manner provided in section 67A of the Act. In this regard, it may also be pointed out that section 67A falls under Chapter VI which relates to ‘Aggregation of income and set off or carry forward of loss. Besides, section 66 which lays down that all the income on which no income tax is payable under Chapter VII shall be included in the total income of the assessee; also falls under Chapter VI of the Act.