Literal interpretation of section 86 lets a company member of an AOP claim exemption on its share of income.

Section 86 of the Income-tax Act was construed to mean that a member of an association of persons is not liable to tax on its share of income computed under section 67A, and the exclusion of a company or co-operative society was read as qualifying the association or body, not the member. Reading section 86 with section 40(ba), the Madras HC found no statutory bar preventing a private company from claiming the exemption. Applying the settled rule of literal interpretation of taxing statutes, the court held that the company was entitled to the benefit of section 86, in favour of the assessee and against the revenue.

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Issues: Whether a company that is a member of an association of persons is entitled to exemption in respect of its share of income under section 86 of the Income-tax Act, 1961.

Analysis: Section 86 was read to provide that income-tax is not payable by a member of an association of persons on its share of the income computed under section 67A, and the exclusion of a company or co-operative society was understood as qualifying the association or body rather than the member. A combined reading of section 86 with section 40(ba) showed that there was no statutory bar preventing a private company from claiming the benefit. The provision was construed by applying the settled rule that a taxing statute must receive a literal interpretation unless such reading leads to absurdity or manifest injustice.

Conclusion: The company was entitled to the benefit of section 86, and the question was answered in favour of the assessee and against the revenue.

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