Definition of Person :
Person [Section 2(31)] : The definition of ‘assessee‘ leads us to the definition of ‗person‘ as the former is closely connected with the latter. The term ‗person‘ is important from another point of view also viz., the charge of income-tax is on every ‗person‘. The definition is inclusive i.e. a person includes,
(i) an individual,
(ii) a Hindu Undivided Family (HUF),
(iii) a company,
(iv) a firm,
(v) an AOP or a BOI, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person e.g., an idol or deity.
We may briefly consider some of the above seven categories of assessees each of which constitutes a separate unit of assessment.
(i) Individual – The term ‗individual‘ means only a natural person, i.e., a human being. It includes both males and females. It also includes a minor or a person of unsound mind. But the assessment in such a case may be made under section 161(1) on the guardian or manager of the minor or lunatic. In the case of deceased person, assessment would be made on the legal representative.
(ii) HUF – Under the Income-tax Act, 1961, a Hindu undivided family (HUF) is treated as a separate entity for the purpose of assessment. It is included in the definition of the term ―”person”under section 2(31). The levy of income-tax is on ―every person‖. Therefore, income-tax is payable by a HUF. “Hindu undivided family” has not been defined under the Income-tax Act. The expression is, however, defined under the Hindu Law as a family, which consists of all males lineally descended from a common ancestor and includes their wives and daughters. The relation of a HUF does not arise from a contract but arises from status. There need not be more than one male member to form a HUF. The Income-tax Act, 1961 also does not indicate that a HUF as an assessable entity must consist of atleast two male members. Some members of the HUF are called co-parceners. They are related to each other and to the head of the family. HUF may contain many members, but members within four degrees including the head of the family (kartha) are called co-parceners. A Hindu Coparcenary includes those persons who acquire an interest in joint family property by birth. Earlier, only male descendents were considered as coparceners. With effect from 6th September, 2005, daughters have also been accorded coparcenary status. It may be noted that only the coparceners have a right to partition. A daughter of coparcener by birth shall become a coparcener in her own right in the same manner as the son. Being a coparcener, she can claim partition of assets of the family. The rights of a daughter in coparcenary property are equal to that of a son. However, other female members of the family, for example, wife or daughter -in-law of a coparcener are not eligible for such coparcenary rights.
Under the Income-tax Act, 1961, Jain undivided families and Sikh undivided families would also be assessed as a HUF.
Schools of Hindu Law There are two schools of hindu law. They are –
(1) Mithakshara school of hindu law
(2) Dayabhaga school of hindu law Mithakshara law is followed by entire India except West Bengal and Assam. There is a basic
difference between the two schools of thought with regard to succession. Under the Mithakshara law, the inheritance is by birth. One acquires the right to the family prope rty by his birth and not by succession irrespective of the fact that his elders are living. Thus every child born in the family acquires a right/share in the family property. Dayabagha law prevails in West Bengal and Assam. In Dayabagha law, nobody acquires the right, share in the property by birth as long as the head of family is living, that is, the children do not acquire any right, share in the family property, as long as his father is alive and only on death of the father, the children will acquire right/share in the property. Thus, the father and his brothers would be the coparceners of the HUF
(iii) Company [Section 2(17)] – For all purposes of the Act the term ‗Company‘, has a much wider connotation than that under the Companies Act. Under the Act, the expression ‘Company‘ means:
(1) any Indian company as defined in section 2(26); or(2) anybody corporate incorporated by or under the laws of a country outside India, i.e., any foreign company; or
(3) any institution, association or body which is assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 or for any assessment year commencing on or before 1.4.1970 under the present Act; or
(4) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by a general or special order of the CBDT to be a company for such assessment years as may be specified in the CBDT‘s order.
Classes of Companies
(1) Domestic company [Section 2(22A)] – means an Indian company or any other company which, in respect of its income liable to income-tax, has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, payable out of such income. Indian company [Section 2(26)] – Two conditions should be satisfied so that a company can be regarded as an Indian company –
(a) the company should have been formed and registered under any law relating to companies which was or is in force in any part of India, and
(b) the registered office or the principal office of the company should be in India. The expression ‘Indian Company‘ also includes:
(i) A corporation established by or under a Central, State or Provincial Act (like Financial Corporation or a State Road Transport Corporation),
(ii) An institution or association or body which is declared by the Board to be a company under section 2(17)(iv) provided its registered or principal office is in India.
(iii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State.
(iv) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman and Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory. Company in which public are substantially interested [Section 2(18)] – The following companies are said to be companies in which the public are substantially interested:
(i) A company owned by the Government (either Central or State but not Foreign) or the Reserve Bank of India (RBI) or in which not less than 40% of the shares are held by the Goverment or the RBI or corporation owned by that bank.
(ii) A company which is registered under section 25 of the Companies Act, 1956 (formed for promoting commerce, arts, science, religion, charity or any other useful object).
(iii) A company having no share capital which is declared by the Board for the specified assessment years to be a company in which the public are substantially interested.
(iv) A company which is not a private company as defined in the Companies Act, 1956 andwhich fulfills any of the following conditions:
– its equity shares should have, as on the last day of the relevant previous year, been listed in a recognised stock exchange in India; or
– its equity shares carrying at least 50% (40% in case of industrial companies) voting power should have been unconditionally allotted to or acquired by and should have been beneficially held throughout the relevant previous year by (a) Government or (b) a Statutory Corporation or (c) a company in which public are substantially
interested or (d) any wholly owned subsidiary of company mentioned in (c).
(v) A company which carries on its principal business of accept ing deposits from its members and which is declared by the Central Government under section 620A of the Companies Act to be Nidhi or a Mutual Benefit Society.
(vi) A company whose equity shares carrying at least 50% of the voting power have been allotted unconditionally to or acquired unconditionally by and were beneficially held throughout the relevant previous year by one or more co-operative societies. Person having substantial interest in the company [Section 2(32)] – is a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend), whether with or without a right to participate in profits, carrying at least 20% of the total voting power.
(2) Foreign company [Section 2(23A)] – Foreign company means a company which is not a domestic company.
(iv) Firm – The terms ‗firm‘, ‗partner‘ and ‗partnership‘ have the same meanings as assigned to them in the Indian Partnership Act. In addition, the definitions also include the terms as they have been defined in the Limited Liability Partnership Act, 2008. However, for income-tax purposes a minor admitted to the benefits of an existing partnership would also be treated as partner. This is specified under section 2(23) of the Act. A partnership is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all. The persons who have entered into partnership with one another are called individually ‘partners‘ and collectively a ‘firm‘.
Note:
(i) Consequent to the Limited Liability Partnership Act, 2008 coming into effect in 2009 and notification of the Limited Liability Partnership Rules w.e.f. 1st April, 2009, the Finance (No.2) Act, 2009 has incorporated the taxation scheme of LLPs in the Income-tax Act, 1961 on the same lines as applicable for general partnerships, i.e. tax liability would be attracted in the hands of the LLP and tax exemption would be available to the partners. Therefore, the same tax treatment would be applicable for both general partnerships and LLPs.
(ii) Consequently, the following definitions in section 2(23) have been amended –
(1) The definition of ‗partner‘ to include within its meaning, a partner of a limited liability partnership;
(2) The definition of ‗firm‘ to include within its meaning, a limited liability partnership; and
(3) The definition of ‗partnership‘ to include within its meaning, a limited liability partnership.
The definition of these terms under the Income-tax Act would, in effect, also include the terms as they have been defined in the Limited Liability Partnership Act, 2008. Section
2(q) of the LLP Act, 2008 defines a ‗partner‘ as any person who becomes a partner in the LLP in accordance with the LLP agreement. An LLP agreement has been defined under section 2(o) to mean any written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to the LLP.
(v) Association of Persons (AOP) – When persons combine together for promotion of joint enterprise they are assessable as an AOP when they do not in law constitute a partnership. In order to constitute an association, persons must join in a common purpose, common action and their object must be to produce income; it is not enough that the persons receive the income jointly. Co-heirs, co-legatees or co-donees joining together for a common purpose or action would be chargeable as an AOP. Body of Individuals (BOI) – It denotes the status of persons like executors or trustees who merely receive the income jointly and who may be assessable in like manner and to the same extent as the beneficiaries individually. Thus co-executors or co-trustees are assessable as a BOI as their title and interest are indivisible. Income-tax shall not be payable by an assessee in respect of the receipt of share of income by him from BOI and on which the tax has already been paid by such BOI.
(vi) Local Authority – The term means a municipal committee, district board, body of port commissioners or other authority legally entitled to or entrusted by the Government with the control or management of a municipal or local fund.
Note: A local authority is taxable in respect of that part of its income which arises from any business carried on by it in so far as that income does not arise from the supply of a commodity or service within its own jurisdictional area. However, income arising from the supply of water and electricity even outside the local authority‘s own jurisdic tional areas is exempt from tax.
(vii) Artificial Persons – This category could cover every artificial juridical person not falling under other heads. An idol, or deity would be assessable in the status of an artificial juridical person.