Pls guide me as I have not dealt with taxation of AOP. I have got an audit of a market association who receives subscription from shop owners and spends it for the market work and welfare i.e. to say maintenance, charity, cctv maint., meetings of members, salary of accountants etc. So basically, there is no business. The market association has a building in it's name and was reconstructed taking bank loan. The building was later given on rent on a bank. Now, this is taxable under House property. Also they gave space for billboard to a company and received a sum of 50k as rent, which to the extent of my knowledge is taxable under PGBP head.

My confusion is how to show this in ITR. Won't the surplus be taxable as per ITR5.Following the principle of mutuality the surplus is not to be taxable since it is not a business income excluding billboard rent. How to show the surplus correctly to avoid wrong taxation.

Also, is there any need to charge depreciation on building cost? It is not being used for commercial purpose but depreciation was charged last year in 2012-13 as well.

Thanks guys.

Posted 1 year, 10 months ago by Kamaldeep Singh

You need file ITR as a AOP. Here is treatment that as per should be:

The mutual income will not be taxed, since its not a business but services provided to members (Concept of mutuality).

However, you need to pay tax on House property and rent income under other sources.

Posted 1 year, 10 months ago by Rahul Rai

The receipts from members, which is spent for the welfare of members will not be taxed as per mutuality conept.

However, the profits or income derviced from other than specific activities will be taxable.

Following incomes has to be taxed,

  1. Income from FD or interest on the excess amounts deposited in banks,
  2. Rent income
  3. Letting for billboards

Rent income will be taxed under House property as confirmed by you. Income from advertisements need to be shown under PGBP/other sources.

You can deduct expenses incurred to provide these services. You can deduct proportional interest expenses from income derived by letting space for advertisements. You can also claim depreciation of building, but should be proportionate to letting space.

This is my opinion.

Posted 1 year, 10 months ago by CA Pulkit Sharma

Hey, sorry didnt see the reply. I was actually confused by a CA today. He said that since it is not a registered charitable trust but an AOP. The subscription charged would be income if not completely utilised. The subscription here is fixed and not claimed to be recd. for a specific purpose. The subscription is then used for say: sewerage maint, road maint., cctv maint., welfare,get togethers of shopkeepers etc. Would this be shown as Business income in case there is a surplus?

Posted 1 year, 10 months ago by Kamaldeep Singh

Also, The extra funds if any, recd. at year end are taken as surplus and added to reserve and surplus. There is no system of paying it back to members.

Posted 1 year, 10 months ago by Kamaldeep Singh

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