Once Income From AOP/BOI Is Included In Assessee's Taxable Income, Any Post-Tax Share Received Cannot Be Taxed Again: Madhya Pradesh High Court

The Division Bench of Justices Sushrut Arvind Dharmadhikari and Anuradha Shukla observed that “……the assessee was a member of an association of persons or body individuals, share of members of such association of persons or body individuals were determinate and known. Such association of persons or body individuals were chargeable to tax on their total at the maximum marginal rate or any higher rate……”

Section 86 of the Income Tax Act, 1961 provides that if an assessee is a member of an association of persons (AOP) or a body of individuals (BOI) excluding companies, co-operative societies, or registered societies, income tax is not payable by the assessee on their share of the income from the AOP or BOI, as calculated under Section 67A.

Section 86(a) of the Income Tax Act, 1961 provides that if the AOP or BOI is taxed at the maximum marginal rate or a higher rate, the member's share will not be included in their total income.

In this case, the Assessing Officer made additions on account of share of assessee in undisclosed income of some syndicates, share in inadmissible expenses incurred by such syndicates and some undisclosed capital invested by the assessee in various syndicates.

Aggrieved, the assessee preferred appeal before CIT(A). The CIT(A), adjudicated the appeals of the assessee thereby giving substantial relief and also confirming certain additions for the assessment years under consideration.

Aggrieved by the relief granted by CIT(A) to the assessee, Revenue preferred Appeal before the ITAT for the assessment years under consideration and against the deletion of additions made by AO. The ITAT dismissed the appeal. The revenue has challenged the order passed by the Income Tax Appellate Tribunal, Indore before the Madhya Pradesh High Court.

The revenue argued that the order passed by the ITAT is perverse and not in accordance with law inasmuch as ITAT has committed an error in deleting the additions made by the Assessing Officer on the grounds of assessee share in profit derived by various syndicates maintaining that share of profit is taxable in the hands of syndicate and not in the hands of the assessee as per the existing provisions of the Income Tax Act, 1961.

The bench noted that, as per clause (a) of the proviso to Section 86 of the Act read with Section 67A of the Income Tax Act, 1961, if the assessee is a member of an AOP/BOI and the income earned by such AOP/BOI has been subjected to tax, then the share received by the assessee from the AOP/BOI after the payment of due taxes cannot be taxed again in the hands of the recipient assessee.

The bench agreed with the findings of the CIT and ITAT that the assessee was a member of an association of persons or a body of individuals, and the shares of the members in such an association or body were determinate and known. Such an association or body of individuals was chargeable to tax on its total income at the maximum marginal rate or a higher rate.

“In such a factual position and circumstances, the share of profit/income received by the assessee from association of persons or body individuals/syndicates fall under the clause (a) of the first proviso to section 86 r.w.s 67A of the Act and, thus, the AO was not justified in making the addition in the hands of the assessee on account of his share in profits of syndicates and on account of his share of inadmissible expenses incurred by the syndicates,” added the bench.

In view of the above, the bench dismissed the appeal.

Counsel for Appellant/ Department: Siddharth Sharma

Counsel for Respondent/ Assessee: Vashistha Narayan Dubey

Case Title: Principal Commissioner v. Ramesh Chandra Rai

Case Number: INCOME TAX APPEAL No. 272 of 2022

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