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Unit 1: Income Tax: Basic Framework

However, for income-tax purposes a minor admitted to the benefits of an existing Notes
partnership would also be treated as partner. This is specified under section 2(23) of
the Act. A partnership is the relation between persons who have agreed to share the
profits of business carried on by all or any of them acting for all. The persons who
have entered into partnership with one another are called individually ‘partners’
and collectively a ‘firm’.

Notes
1. Consequent to the Limited Liability Partnership Act, 2008 coming into effect in 2009
and notification of the Limited Liability Partnership Rules w.e.f. 1st April, 2009, the
Finance (No.2) Act, 2009 has incorporated the taxation scheme of LLPs in the Income-
tax Act on the same lines as applicable for general partnerships, i.e. tax liability
would be attracted in the hands of the LLP and tax exemption would be available to
the partners. Therefore, the same tax treatment would be applicable for both general
partnerships and LLPs.
2. Consequently, the following definitions in section 2(23) have been amended –

(a) The definition of ‘partner’ to include within its meaning, a partner of a limited
liability partnership;
(b) The definition of ‘firm’ to include within its meaning, a limited liability
partnership; and
(c) The definition of ‘partnership’ to include within its meaning, a limited liability
partnership.

(v) Association of Persons (AOP): When persons combine together for promotion of joint
enterprise they are assessable as an AOP when they do not in law constitute a
partnership. In order to constitute an association, persons must join in a common
purpose, common action and their object must be to produce income; it is not enough
that the persons receive the income jointly. Co-heirs, co-legatees or co-donees joining
together for a common purpose or action would be chargeable as an AOP.
(vi) Body of Individuals (BOI): It denotes the status of persons like executors or trustees
who merely receive the income jointly and who may be assessable in like manner
and to the same extent as the beneficiaries individually. Thus co-executors
or co-trustees are assessable as a BOI as their title and interest are indivisible.
Income-tax shall not be payable by an assessee in respect of the receipt of share of
income by him from BOI and on which the tax has already been paid by such BOI.

(vii) Local Authority: The term ‘local authority’ means a municipal committee, district
board, and body of port commissioners or other authority legally entitled to or
entrusted by the Government with the control or management of a municipal or
local fund.

Notes A local authority is taxable in respect of that part of its income which arises from
any business carried on by it in so far as that income does not arise from the supply of a
commodity or service within its own jurisdictional area. However, income arising from
the supply of water and electricity even outside the local authority’s own jurisdictional
areas is exempt from tax.

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