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CS Professional · Advanced Direct Tax Laws and Practice · Computation of Total Income, Tax Liability and Filing of Returns of various Entities excluding Companies

Under the Income-tax Act, 2025 (June 2027 session), an AOP has two members, Mr. A and Mr. B, sharing profits equally. The AOP's income before any member payment is Rs 6,00,000 and the AOP paid Rs 1,00,000 as salary to Mr. A in respect of the tax year. Assume the amount is otherwise permissible and ignore other adjustments. Under section 309, what is Mr. A's share in the AOP's income?

Mr. A's share is Rs 3,50,000. Under section 309, the Rs 1,00,000 salary is deducted, the Rs 5,00,000 balance is split equally to give Rs 2,50,000 each, and the salary is added back to the recipient's apportioned share.

  1. ARs 3,00,000
  2. BRs 2,50,000
  3. CRs 3,50,000Correct
  4. DRs 4,00,000

Explanation

Under section 309(2)(a), the member's salary is deducted from the AOP's income: 6,00,000 - 1,00,000 = 5,00,000 balance, apportioned equally = 2,50,000 each. Under (b)(i) the salary is then added to the apportioned profit for the recipient: A = 2,50,000 + 1,00,000 = 3,50,000 and B = 2,50,000. Check: 3,50,000 + 2,50,000 = 6,00,000. Rs 3,00,000 ignores the add-back; Rs 2,50,000 omits the salary.

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