10.—Association of persons or body of individuals or artificial juridical person formed for a particular event or purpose

Assessment of association of persons or body of individuals or artificial juridical person formed for a particular event or purpose.

318(1)

Irrespective of anything contained in the section 4, where it appears to the Assessing Officer that any association of persons or a body of individuals or an artificial juridical person, formed or established or incorporated for a particular event or purpose in a tax year is likely to be dissolved in the same year or immediately after such year, the total income of such association or body or juridical person for the period beginning from the first day of that tax year up to the date of its dissolution shall be chargeable to tax in that tax year.

318(2)

For the purpose of sub-section (1), the provisions of section 317(2) to (6) shall, so far as may be, apply to any proceedings in the case of any such person as they apply in the case of persons leaving India.

Explanation

Section Summary:

This section deals with the taxation of associations of persons (AOPs), bodies of individuals (BOIs), or artificial juridical persons that are formed for a specific event or purpose and are likely to dissolve within the same tax year or shortly thereafter. The section ensures that the income of such entities is taxed in the year they are dissolved, even if they cease to exist after the tax year.

Key Changes:

1. Specific Focus on Temporary Entities: Unlike the general provisions under Section 4, this section specifically targets AOPs, BOIs, or artificial juridical persons formed for a particular event or purpose and likely to dissolve soon.
2. Taxation Timing: The income of such entities is taxed in the year of dissolution, even if the dissolution occurs after the tax year.

Practical Implications:

1. Taxpayers: Entities formed for short-term purposes (e.g., event management, temporary projects) must ensure their income is reported and taxed in the year of dissolution.
2. Assessing Officers: They have the authority to assess and tax the income of such entities in the year of dissolution, even if the entity no longer exists.
3. Compliance: Entities must maintain proper records of income and expenses up to the date of dissolution to facilitate accurate tax assessment.

Critical Concepts:

1. Association of Persons (AOP): A group of individuals or entities coming together for a common purpose.
2. Body of Individuals (BOI): Similar to AOP but typically refers to individuals only.
3. Artificial Juridical Person: Entities like trusts, societies, or corporations that are treated as separate legal entities.
4. Dissolution: The formal closure or termination of the entity.

Compliance Steps:

1. Record-Keeping: Maintain detailed records of income, expenses, and activities up to the date of dissolution.
2. Filing Returns: File income tax returns for the period up to the date of dissolution, even if the entity no longer exists.
3. Communication with Tax Authorities: Inform the Assessing Officer about the dissolution and provide necessary documentation.

Examples:

• Scenario 1: A group of individuals forms an AOP to organize a music festival. The festival is held in March, and the AOP dissolves in April. The income earned from the festival must be reported and taxed in the same tax year, even though the AOP dissolves after the tax year.
• Scenario 2: A trust is created to manage a one-time charity event. The trust dissolves after the event. The income generated from the event must be taxed in the year of dissolution.

This section ensures that temporary entities do not escape taxation by dissolving shortly after their formation.