Section 67A — Income of AOP - BOI Member

STATUTORY ARCHITECTURE — 18-ROW MAP

HISTORICAL CONTEXT

Section 67A provides the operational framework for taxation of AOP / BOI members where shares are DETERMINATE AND KNOWN. The architecture: (a) AOP / BOI income is first computed at entity level; (b) Remuneration / interest paid to any member is deducted from entity income; (c) The balance is apportioned per share; (d) Member's share = apportioned profit PLUS the remuneration / interest paid to him.

This pass-through architecture is conceptually parallel to firm taxation under section 184-189A — but for AOP / BOI, which have different legal status. The head-wise apportionment under section 67A(2) preserves the character of income (if AOP earns HP + PGBP, members get their share head-wise).

Where shares are NOT determinate and known, section 167B kicks in — entire AOP income taxed at MMR (30% + surcharge + cess). The 'determinate' requirement is operationally important — preserve explicit share documentation.

Section 86 — Chapter VII rebate — operates at member level. The member's share of AOP income (which has already been taxed at AOP level) is rebated to avoid double taxation. The rebate is the proportionate AOP-level tax attributable to the member's share.

The transition to the Income-tax Act, 2025 preserves section 67A architecture.

FINANCE ACT AMENDMENT TIMELINE

■ FA 1962 — Section 67A came into force.

■ FA 1989 — AOP / BOI framework refined.

■ FA 2002 — Section 167B MMR framework.

■ FA 2025 — No substantive change.

■ Income-tax Act, 2025 — Section 67A successor, operative 1-4-2026.

JUDICIAL EVOLUTION — VERIFIED LANDMARK AUTHORITIES

▸ Commissioner of Income-tax v. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 ; (2015) 1 SCC 1 (Supreme Court — 5-Judge Constitution Bench)

Facts. The Department sought to apply a surcharge provision retrospectively to block-period assessments. The assessee contended that the amendment was substantive and could not have retrospective operation absent express legislative direction.

Issue. Whether amendments to taxing statutes operate prospectively unless the legislature has expressly or by necessary implication conferred retrospective effect.

HELD. The Constitution Bench reaffirmed the general rule against retrospectivity of taxing statutes. A taxing provision must be construed prospectively unless the language compels otherwise; mere insertion or substitution by amendment is not sufficient to deny vested rights.

“Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation.”

Relevance. Anchor authority for any argument that an amendment to a charging or computational provision must apply only from the AY notified — useful in transitional disputes around FA 2025 and the 1961 → 2025 changeover.

▸ Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 ; (2000) 1 SCR 1 (Supreme Court)

Facts. A municipal levy was challenged on the ground that the charging provision did not clearly specify the rate, the persons charged, and the measure of tax.

Issue. Whether a tax can be imposed in the absence of a clear, unambiguous charging provision identifying the subject, measure, rate, and incidence.

HELD. Article 265 demands that tax be levied only by clear authority of law. The four components — taxable event, person, rate, and measure — must be clearly discernible from the charging provision; ambiguity is fatal to the levy.

“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions, particularly when the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose other than what is given expression to.”

Relevance. Foundational authority on the rigour required of charging sections — underpins arguments that ambiguous deeming fictions, surcharge formulas, and rate prescriptions must be strictly construed.

▸ K.P. Varghese v. Income-tax Officer, Ernakulam (1981) 131 ITR 597 ; (1981) 4 SCC 173 (Supreme Court — 3-Judge Bench)

Facts. Section 52(2) (since deleted) deemed sale consideration to be FMV where FMV exceeded the declared consideration by 15%. The Department applied it on a literal reading even when the assessee had not in fact received more than the declared price.

Issue. Whether a deeming provision in a charging schema can be construed literally where its plain reading produces a result manifestly contrary to legislative object.

HELD. The Court read down section 52(2) to apply only where the assessee had actually received consideration in excess of the declared sum. A literal construction yielding absurd or unjust results must yield to an object-based interpretation; the CBDT's contemporaneous Circular No. 96 was held binding on the Revenue.

“It is well settled that a literal construction of a statutory provision ought not to be adopted if it produces a manifestly unjust result… Where a literal construction creates an anomaly, the courts will adopt that construction which avoids the anomaly.”

Relevance. Anchor authority for purposive construction of deeming fictions across the 1961 Act — applies wherever a deeming clause (e.g., s. 50C, s. 56(2)(x), s. 2(22)(e)) yields a result contrary to legislative purpose.

▸ Commissioner of Income-tax v. B.C. Srinivasa Setty (1981) 128 ITR 294 ; (1981) 2 SCC 460 (Supreme Court)

Facts. The assessee transferred goodwill of a self-generated nature. The Department sought to tax the consideration as capital gains; the assessee contended that no cost of acquisition could be ascertained, hence the computation provisions failed.

Issue. Whether capital gains arises where the asset has no ascertainable cost of acquisition — i.e., whether the charging provision can be invoked independently of a workable computation provision.

HELD. The charging section and the computation provisions form an integrated code; if the computation provisions cannot apply (because the cost is incapable of ascertainment), the charge itself fails. Self-generated goodwill is not taxable as capital gains.

“The charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.”

Relevance. Anchor for the 'charge fails when computation fails' doctrine — useful in valuation impasses, self-generated assets, and computational ambiguity (though now largely overtaken by section 55(2)(a)(i) deeming cost as nil).

▸ Commissioner of Income-tax v. Excel Industries Ltd. (2013) 358 ITR 295 ; (2014) 2 SCC 1 (Supreme Court)

Facts. The assessee, an export-oriented unit, received DEPB licences and Advance Licences. The Department sought to tax the value of these incentives on accrual at the time of issue; the assessee contended that no income accrued until the licence was actually used or sold.

Issue. When does income accrue under the mercantile system — at the moment a right is created, or at the moment the right becomes enforceable as a debt?

HELD. Income accrues only when there is a corresponding liability of the other party. Mere creation of a contingent or unmatured right does not amount to accrual; the right must crystallise into a debt before tax incidence.

“Income accrues when there arises in favour of the assessee a debt — when there is a corresponding liability of the other party to pay the amount. It is not enough that the right has come into being; the right must ripen into a debt.”

Relevance. Anchor for accrual-vs-receipt timing disputes under section 5 / section 145 — relevant for retention monies, export incentives, contingent claim settlements, milestone-based contracts.

CBDT CIRCULARS — ECOSYSTEM

▸ CBDT Circular No. 14(XL-35) of 1955 dated 11 April 1955

Subject. Duty of officers to assist assessees in claiming and securing relief

Substance. Foundational circular directing that the AO should not exploit assessee ignorance to deny legitimate reliefs; officer is required to draw attention to refunds or reliefs to which the assessee is entitled. The circular has been judicially noted in several appellate decisions and remains operative for first-appellate practice.

▸ CBDT Circular No. 549 dated 31 October 1989

Subject. Explanatory notes — Finance Act 1989 amendments (incl. PY unification)

Substance. Explained the FA 1987 / FA 1989 amendments unifying the previous year with the financial year preceding the AY, including transitional provisions for assessees with different accounting years. Useful in any controversy on the timing of accrual / chargeability for early post-1989 AYs.

▸ CBDT Circular No. 5 of 2014 dated 11 February 2014

Subject. Section 14A — dis-allowance even where no exempt income earned (since modulated)

Substance. Initially directed AOs to apply Rule 8D disallowance under section 14A even where no exempt income was earned in the year; subsequently modulated by Cheminvest (Del HC) and Maxopp (SC). FA 2022 amendment to section 14A re-asserted the position but remains under litigation.

WORKED EXAMPLES

PRACTITIONER PLANNING NOTES

■ Books of accounts maintenance discipline — comprehensive ledger / cash book / bank book.

■ Identity-genuineness-creditworthiness of source — three-prong burden under s. 68-69D.

■ PAN + bank statements + ITR copies of creditors — preserve for source verification.

■ Section 115BBE — 60% flat rate + 25% surcharge + cess = effective ~77% (FA 2016 onwards).

■ Section 271AAC — penalty in s. 68-69D additions when not voluntarily disclosed.

■ Section 270A under-reporting / mis-reporting penalty.

■ Search assessment — section 132 read with s. 115BBE.

■ Demonetisation deposits — special scrutiny framework (Operation Clean Money + circulars).

■ Cash deposits > Rs 2.5 L per single deposit — AIS-flagged; preserve source evidence.

■ Share-capital / share-premium scrutiny — section 56(2)(viib) angel tax overlay.

■ Documentation discipline — 7-17 years for foreign-asset related; standard 7 years for domestic.

■ Bank statements + cash book + voucher reconciliation — quarterly review.

■ Section 273B reasonable-cause defence for procedural lapses.

■ Counter-party affidavits / confirmations — preserve.

■ Annual practitioner review of s. 68-69D exposure.

■ Determinate-and-known shares — explicit documentation; AOP deed / MOU.

■ Section 67A vs s. 167B — share-determination drives the outcome.

■ Member-level remuneration — preserve for s. 67A(1)(b) addition.

■ Section 86 rebate — preserve AOP-level tax allocation evidence.

■ Head-wise apportionment — important for HP / PGBP / OS character.

■ AOP ITR-5 + member's ITR — separate filings.

■ Loss apportionment — AOP / BOI losses pass through.

LITIGATION DEFENCE

■ Three-prong test — identity / genuineness / creditworthiness; burden on assessee initially, shifts to AO.

■ Strict construction — Mathuram Agrawal anchor.

■ Object-based interpretation — K.P. Varghese.

■ Prospective amendment — Vatika Township for FA 2016 / FA 2017 enhanced rates.

■ Reliance Petroproducts anchor — bona-fide claim not concealment.

■ Excel Industries accrual — for receipt-timing defences.

■ GKN Driveshafts — for s. 148 reassessment-procedure defence.

■ Calcutta Discount Article 226 — for jurisdictional challenges.

■ Documentary evidence defence — bank statements / PAN / ITR / affidavit.

■ Source-of-source — preserve creditor's source documentation.

■ Section 115BBE retrospectivity — defend pre-FA 2016 transactions.

■ Section 271AAC penalty defence — preserve voluntary disclosure evidence.

■ Section 273B reasonable-cause defence.

■ Section 270A bona-fide-claim defence.

■ Beneficial circulars — UCO Bank anchor.

■ Demonetisation context defence — preserve bank deposit reconciliation evidence.

■ Determinate-share defence — produce AOP / BOI deed.

■ Section 67A(1)(b) member remuneration — preserve evidence.

■ Section 86 rebate — preserve AOP tax payment evidence.

■ Head-wise apportionment defence.

■ Section 167B MMR challenge — argue shares are determinate.

■ Family settlement / partnership distinction — case-fact specific.

PROCEDURE

Step 1. Confirm AOP / BOI status

Per legal documentation.

Step 2. Verify shares determinate + known

Section 67A vs s. 167B.

Step 3. Compute AOP / BOI total income

Head-wise.

Step 4. Deduct member remuneration / interest

s. 67A(1)(a).

Step 5. Apportion balance per share

s. 67A(1)(a).

Step 6. Add back member-specific remuneration

s. 67A(1)(b).

Step 7. Head-wise apportionment

s. 67A(2).

Step 8. AOP / BOI files ITR-5

At entity level.

Step 9. Each member's ITR includes share

Head-wise.

Step 10. Section 86 rebate at member level

Avoid double taxation.

Step 11. TDS allocation per share

Form 26AS.

Step 12. Advance tax per member + AOP

Separate quarterly.

Step 13. Self-assessment u/s 140A

Per member.

Step 14. Documentation 7 years

AOP / BOI deed + share evidence.

Step 15. Annual review

FA changes.

CROSS-REFERENCES

▸ Section 2(31) — Person definition.

▸ Section 4 — Charge.

▸ Section 14 — Heads.

▸ Section 28(v) — Partner remuneration parallel.

▸ Section 40(b) — Firm-level limits parallel.

▸ Section 67A — THIS SECTION.

▸ Section 70-71 — Set-off (pass-through losses).

▸ Section 72 — Carry-forward (AOP level).

▸ Section 86 — Chapter VII rebate.

▸ Section 139 — Return.

▸ Section 167B — AOP MMR (indeterminate shares).

▸ Section 184-189A — Firm framework parallel.

▸ Section 199 — TDS credit.

▸ Section 270A — Penalty.

▸ Income-tax Rules — Rule 16 / ITR-5.

▸ ITR-5 — AOP / BOI return.

▸ Form 26AS — TDS reconciliation.

▸ Indian Contract Act, 1872 — AOP framework.

▸ Indian Trusts Act, 1882.

▸ Income-tax Act, 2025 — Section 67A (successor), operative 1-4-2026.

▸ Income-tax Act, 2025 — Section 536 (saving).