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

Section 309 — METHOD OF COMPUTING A MEMBER'S SHARE IN INCOME OF ASSOCIATION OF PERSONS OR BODY OF INDIVIDUALS

Section 309 of the Income-tax Act, 2025 corresponds to s. 67A of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 309 lays down how a member's share in the income or loss of an association of persons or body of individuals is computed, in computing the member's total income, where the shares of the members are determinate and known. Payments to members are deducted at the level of the association or body, the balance is apportioned, and each member's payments are then added to (or adjusted against) his portion.

KEY ELEMENTS

• Sub-section (1): for s. 309, s. 310 and s. 311, an association of persons or body of individuals does not include a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 or any corresponding law in force in any part of India.
• Sub-section (2)(a): interest, salary, bonus, commission or remuneration, by whatever name called, paid to any member in respect of the tax year is deducted from the total income of the association or body, and the balance is apportioned in the members' income-sharing proportions.
• Sub-section (2)(b): those payments are added to the apportioned amount if it is a profit, or adjusted against it if it is a loss; the result is the member's share.
• Sub-section (3): the share is apportioned under the heads of income in the same manner as the income or loss of the association or body was determined under each head.
• Sub-section (4): interest paid by a member on capital borrowed to invest in the association or body is deducted from his share chargeable under "Profits and gains of business or profession".
• Sub-section (5): "paid" means actually paid or incurred according to the method of accounting on which profits or gains are computed under that head.

CHANGES FROM THE 1961 ACT

The section corresponds to s. 67A of the 1961 Act and is substantively the same. Visible differences: the exclusion of companies, co-operative societies and registered societies, bracketed in s. 67A(1), is now a separate sub-section that applies expressly to s. 309, s. 310 and s. 311; "previous year" becomes "tax year"; clauses (b) and (c) of s. 67A(1) are merged into s. 309(2)(b); the opening words of s. 67A(1) on the net result being a profit or a loss are not repeated; and "paid" is defined in the section, in the same words as s. 43(2) of the 1961 Act, instead of by cross-reference to it.

PRACTITIONER NOTES

• The section applies only where the members' shares are determinate and known.
• Where the apportioned amount is a loss, the member's remuneration is set against that loss, not added to it.
• The interest deduction in sub-section (4) operates only against the share chargeable under "Profits and gains of business or profession".

CROSS-REFERENCES

• s. 310 and s. 311 — the exclusion in sub-section (1) also applies for these sections.
• s. 67A of the 1961 Act — corresponding provision.
• s. 43(2) of the 1961 Act — source of the meaning of "paid" under the 1961 Act.