Upto assessment year 1992-93 the Income-tax Act 1961 provided for treatment of two typed of firms— Registered under Income-tax Act as regd. Firm and not registered under income-tax Act as Unregd firm. But with effect from assessment year 1993-94 the Act provides only one type of firms—firms assessed as firm u/s 184. All other such entities are to be treated as A.O.P. Hence a firm which is not assessed as firms u/s 184 will be called as P.F.A.O.P. and treated alike for assessment purposes.
While calculating the business income of A.O.P., the provisions as given u/s 28 to 44 in chapter Profits & Gains of Business or Profession I and II (See. Part II of this book) are applicable.
Section 40 (ba) lays down following rules disallowing payment of interest, salary, bonus, commission or remuneration by what ever name called:
(a) In case an A.O.P. makes payment of any interest, salary, bonus, commission or remuneration by whatever name called, such payments are fully disallowed.
(b) In case any interest is paid to a member of firm assessed as AOP and some amount of interest is received from such member, only difference is disallowed.
(c) In case an individual is a member (member in representative Capacity) A.O.P. on behalf of or for the benefit of any other person (person so represented)
(i) Interest paid by firm assessed as AOP to such individual, or by such individual to firm assessed as AOP otherwise than in representative capacity, the above clauses (a) and (b) shall not be applicable.
(ii) Interest paid by a firm assessed as AOP to such individual or by such individual to or firm assessed as AOP in representative capacity classes (a) and (b) shall be applicable.
(d) In case an individual is member of firm assessed as AOP on behalf of another person but not in representative capacity, interest paid to him will not come under the classes (a) and (b) above.