Income Tax

Ratnakar Sapkal (Querist) 10 March 2009 This query is : Resolved
what is difference between, Association of persons & body of individuals, under what sec income tax gives exemption to this two Persons. whether the BOI & AOP Enter into Partership.

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A V Vishal (Expert) 10 March 2009
Association of persons - Sub-clause (v)

n The word ‘associate’ means, according to the Oxford Dictionary, ‘to join in common purpose or to join in an action’. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the word occurs in section 3 of the 1922 Act, which imposes a tax on income, profits or gains, the association must be one the object of which is to produce income, profits or gains - CIT v. Indira Balkrishna [1960] 39 ITR 546 (SC).

n ‘Association of persons’ as used in section 2(31) means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one, the object of which is to produce income, profits or gains - N.V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 (SC).

n For forming an ‘association of persons’ the members of the association must join together for the purpose of producing an income. An ‘association of persons’ can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of the members of the association is an essential ingredient. Even a minor can join an ‘association of persons’ if his lawful guardian gives his consent. In the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an ‘association of persons’ from the mere fact that they jointly own one or more shares, and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an ‘association of persons’ - G. Murugesan & Bros. v. CIT [1973] 88 ITR 432 (SC).

n To ‘Associate’ is to join in a common purpose or action. ‘Association’ does necessitate the exercise of volition of those who form the association. The exercise of that volition can be by or on behalf of those who form the association - Estate of Khan Sahib Mohd. Oomer Sahib v. CIT [1958] 33 ITR 767 (Mad.).

n An association of persons does not mean any and every combination of persons. It is only when they associate themselves in an income-producing activity that they become an association of persons. They must combine to engage in such an activity; the engagement must be pursuant to the combined will of the persons constituting the association; there must be a meeting of the minds, so to speak. In a nutshell, there must be a common design to produce income. If there is no common design, there is no association. Common interest is not enough. Production of income is not enough. This interpretation of the expression ‘association of persons’ flows from the meaning of the word ‘association’ - Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 (AP).

n Joining together by the members of the association for the purpose of producing income is requisite for formation of an association of persons. Such coming together or combining is a consensual act and depends upon the volition of the parties. Merely because certain persons are constituted joint owners, such as by inheriting the property of a person on his death, they do not become an association of persons, for, in that event, the jointness is the result of operation of law and not of volition of parties - CIT v. T.V. Suresh Chandran [1980] 121 ITR 985 (Ker.).

Body of individuals - Sub-clause (v)

n The expression ‘body of individuals’ should receive a wide interpretation, perhaps not wide enough to include a combination of individuals who merely receive income jointly without anything further as in the case of co-heirs inheriting shares or securities, but certainly wide enough to include a combination of individuals who have a unity of interest but who are not actuated by a common design, and one or more of whose members produce or help to produce income for the benefit of all - Deccan Wine & General Stores v. C