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Deduction of Deficiency – Sec 44A

U.C Date : 25 Feb 2015

As per the principle of mutuality, any income arising to a trade, professional or similar association does not partake character of income and thereby not taxable. However if deficiency arises, then it is allowed in accordance with provision of this section.

Meaning of Deficiency – Amount received during a previous year by an trade, professional or similar association from its member, whether by way of subscription or otherwise excluding remuneration received for rendering any specific services to such member, falls shorts of the expenditure incurred for the purpose of protection or advancement of the common interest of its members excluding capital expenditure or expenditure allowed under any provision of this Act, incurred by such association during that previous year.

The deficiency so incurred shall be allowed in computing the income for the relevant assessment year under the head “Profits and gains of business or profession” and if there is no income assessable under this head or its exceeds such income then the whole or the balance of deficiency shall be allowed as a deduction in computing the income of association for the relevant assessment year under any other head.

Additional Points:-

  1. The effect of this section shall be allowed after giving effect of all the other provision of the Act under which any allowance or loss in respect of earlier assessment year is carried forward and set off against the income of the relevant assessment year.
  2. The deficiency allowed as a deduction under this section shall in no case exceed one half of the total income of the association as computed before making any allowance under this section.
  3. If any deficiency remains unabsorbed after giving effect to the above provision, the same shall not be allowed to be carried forward.
  4. This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its member except as grants to any association or institutions affiliated to it.

Bare Act for Sec 44A

Bare Act for Sec 44A

(1) Notwithstanding anything to the contrary contained in this Act, where the amount received during a previous year by any trade, professional or7similar association [(other than an association or institution referred to in clause (23A) of section 10)] from its members, whether by way of subscription or otherwise (not being remuneration received for rendering any specific services to such members) falls short of the expenditure incurred by such association during that previous year (not being expenditure deductible in computing the income under any other provision of this Act and not being in the nature of capital expenditure) solely for the purposes of protection or advancement of the common interests of its members, the amount so fallen short (hereinafter referred to as deficiency) shall, subject to the provisions of this section, be allowed as a deduction in computing the income of the association assessable for the relevant assessment year under the head “Profits and gains of business or profession” and if there is no income assessable under that head or the deficiency allowable exceeds such income, the whole or the balance of the deficiency, as the case may be, shall be allowed as a deduction in computing the income of the association assessable for the relevant assessment year under any other head.

(2) In computing the income of the association for the relevant assessment year under sub-section (1), effect shall first be given to any other provision of this Act under which any allowance or loss in respect of any earlier assessment year is carried forward and set off against the income for the relevant assessment year.

(3) The amount of deficiency to be allowed as a deduction under this section shall in no case exceed one-half of the total income of the association as computed before making any allowance under this section.

(4) This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its members except as grants to any association or institution affiliated to it.

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