The ITAT Delhi in the case of Mridu Hari Dalmia Parivar Trust vs. Assessing Officer, Circle 31 (1) , New Delhi. – 2016 (4) TMI 127 has held that an AOP cannot be considered as an individual or HUF for the purpose of section 56(2) (vi) of Income Tax Act, 1961.
The tribunal considered the status of AOP for the purpose of addition under section 56(2) (vi) of the Income Tax Act, 1961.
Definition of the term “person”:
Section 2(31) of Income Tax Act, 1961 defines the term “person”. According to the provisions of the section a “person” includes:
(a) An individual – It refers to a natural human being, whether male or female, whether minor or major.
(b) A Hindu Undivided Family (HUF) – It refers to a relation created by the Hindu Law where the head of the family is known as the karta and its members are called coparceners.
(c) A company – It refers to an artificial person under the Companies Act or any other statute.
(d) A firm – It refers to an entity that comes into existence by virtue of a partnership agreement to carry on a business.
(e) An association of persons or a body of individuals, whether incorporated or not (AOP) – Co-operative societies, etc. are examples of such body of persons. They have a common object to earn money.
(f) A local authority – It refers to Panchayets, Municipalities, etc.
(g) Every artificial juridical person, not belonging to any of the above categories – A Public body made under a special Act is called artificial juridical persons. Example: University, etc.
Thus, from the definition of the term ‘person’ it can be said that, any sort of artificial entity other than a natural person, will also be liable to pay income tax.
Provisions of section 4 of the Act:
Section 4 of the Income Tax Act, 1961, is the charging section under the Act and it imposes income tax on the income of a “person” in the previous year.
“Person” as been defined in section 2(31) of the Act, includes an association of persons whether or not such person or body or authority or juridical person was formed with the object of gaining income or profits.
Therefore, an “association of persons” may have as its members, companies and associations. In Ganga Metal Refining Co. Pvt. Ltd vs. CIT (67 ITR 771) it has been held that the companies entering into a joint venture may also be referred to as an AOP.
In many judicial pronouncements, the courts have stated the essential ingredients to constitute an AOP. It has been expressed that the words “association of persons” has to be construed in their ordinary meaning.
In the case of Deccan Wine and General Stores vs. CIT (106 ITR 111) the Andhra Pradesh High Court brought the distinction between an AOP and a body of individuals by stating that an AOP does not denote every combination of persons, only when they associate themselves in an act to earn money, they become an association of persons.