Section 309 — Method of computing a member's share in income of association of persons or body of individuals. Successor to s.67A, s.86, s.167B of the 1961 Act.
Section 309 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
Sub-section (1) narrows the term for this section and sections 310 and 311 — an association of persons or body of individuals does not include a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 or a corresponding State law. Sub-section (2) gives the method for computing a member's share where the members' shares are determinate and known: interest, salary, bonus, commission or remuneration paid to any member for the tax year is first deducted from the total income of the association or body, the balance is apportioned among the members in their profit-sharing proportions, and the amounts so deducted are then added back to a member's apportioned profit or adjusted against his apportioned loss, the result being his share. Sub-section (3) requires that share to be apportioned under the various heads of income in the same way as the association's own income or loss was determined head-wise. Sub-section (4) allows a member to deduct, from his share chargeable under 'Profits and gains of business or profession', interest he paid on capital borrowed to invest in the association or body. Sub-section (5) defines 'paid' as actually paid or incurred according to the method of accounting used for computing business profits.
Amounts paid to a member are part of the association's income in his hands, not a charge on it, so the section strips them out before apportionment and puts them back on the individual member who received them. This keeps the total taxed once while allocating it to the member who actually earned each element.
Work the computation in the statutory order: deduct member remuneration and interest first, apportion the balance in profit-sharing ratio, then add each member's own remuneration back to his profit or set it against his loss. The character of the income follows through under sub-section (3), so a member's share is taxed head by head in the same proportions as the association's income was computed — it does not all become business income. If you borrowed to fund your capital in the association, sub-section (4) lets the interest come off your share under 'Profits and gains of business or profession'.
An association of persons with three equal members has a total income of Rs. 30 lakh and has paid one member Rs. 6 lakh as remuneration and Rs. 1.5 lakh as interest on his capital. Sub-section (2)(a) first deducts that Rs. 7.5 lakh from the Rs. 30 lakh, leaving Rs. 22.5 lakh to be apportioned in the profit-sharing proportions — Rs. 7.5 lakh each — and clause (b)(i) then adds the Rs. 7.5 lakh back to that one member, so his share is Rs. 15 lakh and the others take Rs. 7.5 lakh each. Had the balance after the deduction been a loss of Rs. 3 lakh, his Rs. 7.5 lakh would be adjusted against his Rs. 1 lakh apportioned loss under clause (b)(ii), not added to it. His share is then broken up under the same heads under which the association’s income was determined, and interest he paid on money borrowed to invest in the association comes off his business-head share under sub-section (4).
In the member’s own return and assessment, where his share of the association’s income has to be computed and placed under heads; the association’s assessment supplies the total income and the head-wise determination that sub-section (3) works from. The section names no form and no authority — it is a method of computation applied in the member’s hands, and it does not reach a company, a co-operative society or a registered society at all.
any interest, salary, bonus, commission or remuneration, by whatever name called, paid to any member in respect of the tax year shall be deducted from the total income of the association or body and the balance ascertained and apportioned among the members in the proportions in which they are entitled to share in the income of the association or body
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