S.40(ba) does not permit deduction in the hands of AOP of any interest, salary, bonus, commission or remuneration paid to member of AOP.

In many cases, a consortium may be formed by two or more members to jointly bid for big projects wherein each of the members brings in his own expertise and resources. If the consortium is assessed as AOP, the AOP’s profits are assessed at higher amount by disregarding the commercial understanding between the parties for sharing of profits after factoring in specialised services or expert knowledge made available by some of its members.

This results in disproportionate sharing of tax burden between the members.

Unlike s.40(ba), s.40(b) permits deduction for interest and remuneration paid to partners of firm/LLP as per partnership agreement upto specified limits. This enables the partners to share the tax burden proportionate to their contribution to the firm.


To provide level playing field between firms and AOPs, an amendment may be made to provide for non-application of section 40(ba) for payments towards specialized services [i.e. expert knowledge] rendered by consortium members subject to the condition that deduction of payments made by consortium to its members will be allowed only if the same has been considered as income by the members in their respective return.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax)

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