Common Rules Chapter- 16
Solution:
Mr. A Mr. B
Income from property: Rs. Rs.
Share of Mr. A (300,000 x 60%) 180,000
Share of Mr. B (300,000 x 40%) 120,000
180,000 120,000
Computation of Tax liability:
Income of Mr. A and B are below taxable limit hence not tax is
Payable by both the co-owners
Important notes:
It is important to mention here that if the share of each co-owner shall not be determinable then the
same shall be taxable in the ratio of capital invested in property.
Example
Mr. A and Mr. B carry on a business as partners. There share in the profit is 60% and 40%
respectively. Taxable income of business is Rs. 300,000.
Required: Calculate the tax liability of both Mr. A and Mr. B
Solution: As they are members of an AOP hence tax shall be paid by AOP.
Rs.
Taxable income of AOP under NTR 300,000
Tax liability of AOP
As income of AOP is below taxable limit, hence no tax is payable.
Note: This tax shall be paid by the AOP and members shall receive share of the divisible income i.e.
Rs. 300,000. This share received by the members shall be exempt from tax however the same shall
be included in other income of the members for rate purposes.- Apportionment of deductions (u/s 67): If an expenditures, deductions and allowances relates
to
(a) derivation of incomes chargeable to tax under more than one head of income; or
(b) derivation of incomes chargeable to tax under Normal Tax Regime and Final Tax Regime or
Separate Block of Income; or
(c) derivation of income chargeable to tax and some other purpose,
then such an expenditures, deductions and allowances shall be apportioned on any reasonable basis
taking account of the relevant nature and size of the activities to which it relates. The board may
make rules u/s 237 for the purposes of apportioning expenditures, deductions and allowances.
Apportionment of expenditures [Rule 13]
(a) Any expenditure, deductions and allowances that is incurred for a particular class or classes of
income shall be allocated to that class or classes.
(b) Any common expenditure excluding financial expenses relatable or attributable to non-business
advances or loans and the amount as stated above relatable to business including FTR and
exempt income, shall be allocated to each class of income according to the following formula,
namely:-
Amount of common expenditure
X Gross receipts for the class of income
Gross receipts from all classes of income
(c) Where brokerage, commission and other income is to be taken into account on turnover of
such transactions, such income shall be compared with gross profit from business for
apportionment of aforesaid common expenditure.
(d) The basis used must be certified by the CA’s or CMA that shall be accepted unless significant
variations are found and where books of accounts are not required to be audited, the
reasonable basis based would be accepted by the Commissioner Inland Revenue, unless
variation is found. Significant variations would be beyond the limits of ±10% under any head of
account.