A body of individuals and an association of persons are commonly used words in the company law. The terms are often used in a way that they are used in each other’s places. But, there is a difference between the two.
The following is the difference between a body of individuals and an association of persons:
Association of person:
The Income tax does not define the meaning and definition of Association of person. In the absence of definition under the Income tax law, the words must be read in their ordinary meaning. “Association of person means two or more persons who join for a common purpose and with a view to earn an income.” Association of person may mean a group of companies or firms or any artificial person. It may also include a variety of persons i.e. an individual and all the other members of the association being companies. An Association of person can be formed without any contract. The main intention of such integration is for a common purpose to earn some income.
Body of Individuals:
Under Body of Individuals only individual may come and join hands together. Body of Individuals a combination of individuals who carry on some activity with an object to earn some income. If any income assessed in the hands of BOI that will not be taxable in hands of individual again.
Therefore, Association of person may consist of a variety of persons which may or may not be individuals i.e. they may be non-individuals also but in case of Body of Individuals, only individuals may consist the Body of Individuals.
In cases of Association of person there should exist a combined will amongst its members to engage in an income producing activity. But in case of Body of individuals (BOI) there may or may not exist the combined will. . In other words, people who do nothing by stand wait may be a body of individuals (BOI) but may not be an Association of person (AOP).
Taxation – Association of Persons(AOP) & Body of Individuals(BOI)
An Association of Person or Body Of Individuals can be assessed in the following manners:
- in case of AOP or BOI, the individual share of members are either unknown or intermediate.
- in case of AOP or BOI, the individual share of members are either known or determinate.
Individual Shares of Members – Unknown
When the individual share of the members of Association Of Person (AOP)/ Body Of Individuals (BOI) in the whole or part of its income are intermediate or unknown, tax shall be charged on the Total Income (exclusive of income taxable at special rate) of the Association Of Person / Body Of Individuals at the maximum marginal rate. If the income of any member of Association Of Person is chargeable at a rate which is higher than the marginal rate, the former will apply i.e. higher rate will be charged on the total income of the Association Of Person (AOP).
Individual Shares of Members – Known
Where the total income of any of the member of AOP/BOI exceeds the Maximum Exemption Limit, the particular member with such a higher income will be charged at the maximum marginal rate @ 30% plus surcharge @ 10.15% as the case may be, if applicable, along with the Cess at the rate of 3% on his/her total income, exclusive of income taxable at special rate.
When none of the members receive total income in excess of the maximum exception limit, either of the situations may emerge:
- None of the members have total income in excess of the maximum exemption limit, and none of the members are taxable at a rate more than the maximum marginal rate- The AOP in this case will pay income-tax on its total income at slab rates which are same as applicable to an individual. The AOP will be gaining benefits of basic exemption of Rs 2, 50,000.
- None of the members receiving an income exceeding the maximum exemption limit, but one or more members are liable to tax rate of more than maximum limit, which is possible only if foreign company is also a member- On the particular portion of income of AOP which is related to the member, the tax rate applicable must be rate of income-tax which is applicable to such member, and the balance total income of AOP must be charged at the marginal rate.