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Source: Supreme Court

Why in News?

A Division Bench of the Supreme Court of India, comprising Justice JB Pardiwala and Justice KV Viswanathan, in Commissioner of Income Tax III v. M/s. Sanand Properties Pvt. Ltd. (2026), held that a member of an Association of Persons (AOP) receiving a fixed percentage of gross receipts — without bearing any share of business expenses or losses — cannot treat such receipts as an exempt "share of profit" under Section 86 read with Section 167B(2) of the Income Tax Act, 1961 (ITA). 

• The Court held that for a receipt to qualify as a "share of profit," it must be contingent upon the AOP's actual profit after deduction of expenses. A fixed entitlement embedded in gross receipts, insulated from the AOP's expenses, constitutes a business receipt and is taxable as income in the hands of the member.

What was the Background of Commissioner of Income Tax III v. M/s. Sanand Properties Pvt. Ltd. (2026) Case? 

• The dispute arose from an AOP agreement dated April 29, 2003, between Sanand Properties Private Limited (SPPL) and Raviraj Kothari & Co. for the joint development of a housing project. 
• Clause 7 of the agreement provided that all sale proceeds received from flat purchasers would first be collected in the name of the AOP. Out of those receipts, SPPL would immediately become entitled to 35% of the gross collections, while the remaining 65% would be retained by the AOP to meet all project-related expenses.  
• Only the balance remaining after such expenses would ultimately accrue to the other member. 
• The Income Tax Department contended that SPPL's entitlement was not linked to the actual profits of the AOP but was instead a fixed share of gross revenue, making it taxable in SPPL's hands.  
• However, the Income Tax Appellate Tribunal (ITAT) and the Bombay High Court had earlier accepted SPPL's argument that the amount represented an exempt "share of profit" from the AOP, prompting the Department to appeal to the Supreme Court.

What were the Court's Observations? 

• On the Nature of SPPL's Entitlement: The Court held that SPPL's 35% share was not contingent upon the AOP's profit. The entitlement was embedded in the very framework of Clause 7 of the AOP Agreement and attached directly to gross receipts at the point of their accrual. The AOP neither acquired nor retained any control over this portion of the receipts but merely held and disbursed the same on behalf of SPPL. 
• On the Doctrine of Diversion of Income by Overriding Title: The Court relied on CIT v. Sitaldas Tirathdas, (1961), and applied the doctrine of diversion of income by overriding title. It held that where income is diverted at source before it becomes part of the taxable income of an entity, such amount cannot be treated as the entity's own profit. Since SPPL's 35% share was intercepted and diverted before it could assume the character of income in the hands of the AOP, the AOP never truly acquired control over it. 
• On the Essential Characteristics of "Profit": The Court held that for a receipt to qualify as a "share of profit" under Section 86 read with Section 167B(2) of the ITA, expenses must necessarily be deducted from the member's share. Since SPPL's share was calculated before any deduction of expenses and remained entirely insulated from the AOP's losses or liabilities, it lacked the essential characteristics of profit and constituted a taxable business receipt. 
• On Taxability of SPPL's Share: The Court held that the 35% share received by SPPL from the AOP for Assessment Years 2008–09 and 2009–10 is taxable in the hands of the assessee as a business receipt. The receipt, in pith and substance, arose from the surrender of development rights or a share of gross revenue, and not from participation in the profits of the AOP.

What is Section 167B(2) of the Income Tax Act, 1961? 

Section 167B — Charge of Tax Where Shares of Members in AOP/BOI are Unknown: 

Applicability: 

• Applies to an Association of Persons (AOP) or Body of Individuals (BOI). 
• Does not apply to a company, co-operative society, or society registered under the Societies Registration Act, 1860.

Section 167B(1) — Indeterminate or Unknown Shares: 

• Where the individual shares of members in the whole or any part of the income of the AOP/BOI are indeterminate or unknown, the entire income of the AOP/BOI is taxed at the maximum marginal rate (MMR). 
• Proviso: If any member's total income is chargeable at a rate higher than MMR, the AOP/BOI's total income shall be taxed at such higher rate.

Section 167B(2) — Determinate Shares but High-Income Members: 

• Applies where shares of members are known/determinate (i.e., Section 167B(1) does not apply), but either of the following conditions is met: 
• Sub-section 2(i): If any member's total income (excluding their share from the AOP/BOI) exceeds the basic exemption limit under the Finance Act of the relevant year — the entire income of the AOP/BOI is taxed at MMR. 
• Sub-section 2(ii): If any member is individually chargeable to tax at a rate higher than MMR — that portion of the AOP/BOI's income relatable to such member's share is taxed at that higher rate, and the remaining income of the AOP/BOI is taxed at MMR.

Explanation — When Shares are Deemed Indeterminate: 

• Shares of members shall be deemed indeterminate or unknown if they are indeterminate either on the date of formation of the AOP/BOI or at any time thereafter. 

The Income Tax Act 1961 

• The Income Tax Act 1961 is a comprehensive legislation in India that governs the taxation of income for individuals and businesses.  
• It came into effect on April 1, 1962, and provides the framework for calculating, levying, and collecting income tax and super-tax in the country.  
• The Act defines important concepts like the previous year (when income is earned) and assessment year (when income is taxed) and establishes the structure for tax authorities, assessments, and appeals to higher courts. 

Source: Allahabad High Court

Why in News? 

The Allahabad High Court, in Shajiya Parveen and Another v. State of U.P. and 3 Others (2026), held that a live-in relationship cannot be protected by the High Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India, 1950 (COI), where the male partner is below the statutorily prescribed marriageable age of 21 years. 

• Justice Garima Prashad clarified that while the Court cannot extend protection to such a relationship, both parties remain entitled to protection of life and personal liberty under Article 21 of the COI. The Court further held that parents, guardians, and statutory authorities cannot be restrained from taking lawful steps under the Prohibition of Child Marriage Act, 2006 and other applicable laws.

What was the Background of Shajiya Parveen and Another v. State of U.P. and 3 Others (2026) Case? 

• The petitioners were a Muslim woman aged approximately 20 years and a Scheduled Caste Hindu male aged approximately 19 years, who were in a live-in relationship. The father of the woman was allegedly threatening the couple, while the family of the male had no objection to the relationship. 
• The petitioners approached the High Court seeking protection of their life and liberty.  
• The central question before the Court was whether protection could be granted to a live-in couple when the male partner is below 21 years of age and is statutorily a 'child' for the purposes of marriage law.

What were the Court's Observations? 

• On the Uniform Statutory Framework on Marriageable Age: The Court observed that the Hindu Marriage Act, 1955, the Special Marriage Act, 1954, and the Prohibition of Child Marriage Act, 2006 uniformly prescribe the minimum age of marriage as 21 years for males and 18 years for females. Under the Prohibition of Child Marriage Act, 2006, any male below 21 years and any female below 18 years is referred to as a 'child'. A conjoint reading of these enactments establishes a uniform legislative policy that a male who has not completed 21 years of age lacks the requisite legal capacity to enter into a marital relationship, and any such union falls within the zone of statutory restriction. 
• On the Purpose of Child Marriage Legislation: The Court held that the Prohibition of Child Marriage Act, 2006 is a complete code against child marriages and is not an obsolete formality. It is a modern welfare enactment responding to conditions that Parliament considered serious enough to warrant prevention, punishment, and institutional oversight, recognising that premature unions often involve lack of maturity, financial and emotional unreadiness, interruption of education, and serious long-term social consequences. 
• On Live-In Relationships as Substitutes for Marriage: The Court noted that the petitioners had themselves stated they were living together only because marriage was not yet permissible under law, thereby using the live-in relationship as an alternative to marriage. Observing that such relationships are in the nature of marriage, the Court held that a court order protecting the continuance of such an arrangement would not remain a bare protection order — it would begin to operate as an indirect sanction for a presently impermissible marriage-like arrangement. 
• On Applicability of Muslim Personal Law: The Court held that since the parties did not assert marriage, Muslim Personal Law — which in some cases permits marriage below the prescribed statutory ages — would not be applicable to the facts of the present case. 
• On Parental and Institutional Intervention: The Court held that while parents and family members cannot resort to threats, violence, coercion, or illegal confinement, they cannot be restrained by judicial order from taking lawful steps such as approaching the police, informing the Child Marriage Prohibition Officer, or initiating proceedings before the competent Magistrate under the statute.

What is the Concept of Live-In Relationship in India? 

Definition & Background: 

• A live-in relationship is cohabitation without formal marriage registration. 
• India lacks longstanding legal provisions for such partnerships, unlike Western countries. 
• Indian judiciary has adapted the legal framework to accommodate shifting societal norms. 

Legal Recognition: 

• No explicit statutory definition or regulation exists in Indian law. 
• S. Khushboo v. Kanniammal (2010) — Supreme Court ruled live-in relationships are part of the right to life under Article 21 and cannot be considered illegal. 
• D. Velusamy v. D. Patchaiammal (2010) — SC introduced the concept of "relationship akin to marriage," with four conditions: cohabitation for a significant period, monogamy, both partners of legal marriageable age, and consensual conduct resembling marriage. 

Maintenance Rights: 

• Women in live-in relationships can claim maintenance under the Domestic Violence Act, 2005 and Section 125 CrPC (144 of BNSS).  
• Entitlement depends on whether the relationship satisfies marriage-like criteria. 

Property Rights: 

• No automatic inheritance rights for live-in partners. 
• A partner may acquire rights to property accumulated during the relationship if they demonstrably contributed to its acquisition.  

Rights of Children: 

• Children born of live-in relationships are entitled to legitimacy and inheritance rights. 
• Tulsa v. Durghatiya (2008) — children cannot be deemed illegitimate if parents cohabited under the same roof for a considerable period. 

Protection Against Domestic Violence: 

• The Domestic Violence Act, 2005 extends protection to women in live-in relationships 
• Entitled rights include: right to reside in the shared household, right to seek protection orders, and right to claim compensation for damages suffered.