PLS IGNORE POINTS 1 to 4
Dear Mohammed, I don’t think that an AOP needs to be constituted in your case
1. ‘Association of persons’ means an association in which two or more persons join in a common purpose or common action, and as the words occur in a section, which imposes a tax on income, the association must be one, the object of which is to produce income, profits or gains. Liability to tax depends upon the earning of profits by a unit and not upon the ultimate division of profits - N.V. Shanmugham & Co. v. CIT [1971] 81 ITR 310 (SC).
There is the need of a meeting of minds and common will and intention to join in an activity to produce some gain, profit or income to constitute an AOP or BOI..
3. To constitute an association of individuals two or more individuals should have joined in the promotion of a joint enterprise with the object of producing income, profits or gains. Thus, an element of joint venture for profit is necessary to constitute an AOP -CAIT v. Raja Ratan Gopal [1966] 59 ITR 728 (SC).
4. CIT V/s. A. P. Parukutty Mooppilamma, [38 CTR 354, 18 TAXMAN 275]
“….the words, body of individuals occurring in the definition section should be understood in the context and collection of the words and not in isolation. In construing the words body of individuals occurring in section 2(31) of the I.T. Act, 1961, alongside the words association of persons, the aforesaid well-settled principle of interpretation laid down by courts should be borne in mind. It is now well-settled by decisions of the Supreme Court that in order to constitute an association of persons, persons must join in a common purpose or action and the object of the association must be to produce income. It is not enough that the persons receive the income jointly. The word body of individuals occurring in section 2(31) of the Act alongside association of persons should be understood in the said background and context.”
5. See the definition of business
2(13) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
In this case u have mentioned, there is no intention to carry on commercial activities, so the question of business does not arise….. 45(3) Applies where capital contribution to a business is made by contributing an asset to the business. This contribution is for becoming a member of AOP or firm. In such a case, the value taken as gross consideration wil be the value entered in books crediting capital…. Here there is no business at all…. You are also not a business man or professional from whom AO can demand books.
6. Section 26
“Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.”
You can make the shares of each person definite and ascertainable for the new building, and in such a case, you cannot be treated as an AOP.
You can tell a lawyer to draft the agreement properly to just change the shares for some suitable consideration (Black or white, its your callJ) and build a new house on the plot with proper definite and ascertainable shares
Would welcome suggestions and other views to the situation.
Sources for this post
https://law.incometaxindia.gov.in/DitTaxmann/IncomeTaxActs/2008ITAct/casesec2(31).htm
/forum/files/38_legal_glossary.pdf
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