A limited liability partnership (LLP) is a partnership in which some or all partners

(depending on the jurisdiction) have limited liability. It therefore exhibits elements of

partnerships and corporations.[1] In an LLP one partner is not responsible or liable for
another partner's misconduct or negligence. This is an important difference from that of a
limited partnership. In an LLP, some partners have a form of limited liability similar to
that of the shareholders of a corporation.[2] In some countries, an LLP must also have at
least one "general partner" with unlimited liability. Unlike corporate shareholders, the
partners have the right to manage the business directly. As opposed to that, corporate
shareholders have to elect a board of directors under the laws of various state charters.
The board organizes itself (also under the laws of the various state charters) and hires
corporate officers who then have as "corporate" individuals the legal responsibility to
manage the corporation in the corporation's best interest. An LLP also contains a
different level of tax liability from that of a corporation.

Limited liability partnerships are distinct from limited partnerships in some countries,
which may allow all LLP partners to have limited liability, while a limited partnership
may require at least one unlimited partner and allow others to assume the role of a
passive and limited liability investor. As a result, in these countries the LLP is more
suited for businesses where all investors wish to take an active role in management.

There is considerable confusion between LLPs as constituted in the U.S. and that
introduced in the UK in 2001 and adopted elsewhere - see below - since the UK LLP is,
despite the name, specifically legislated as a Corporate body rather than a Partnership.

: Section 4 is the charging section under the Income Tax Act, 1961, and it imposes a tax
on the income earned by a “person” in the previous year. “Person” has been defined in
section 2(31) of the Act to include an association of persons or a body of individuals,
whether incorporated or not.

For the purpose of this clause, an association of persons, or a body of individuals or a

local authority, or an artificial juridical person, shall be deemed to be a person whether or
not such person or body or authority or juridical person was formed or established or
incorporated with the object of deriving income, or profits, or gains.

As legislative history bears, there has been an amendment in section 2(31); inasmuch as
prior to 1939, the phrase used in the 1922 Act was “association of individuals”. The
amendment seems to have been made to remove any doubt as to the assessibility as a
taxable unit of an association of which the members might not, strictly speaking, be
called “individuals”. The phrase “association of persons” is of very comprehensive
import. Under section 3(42) of the General Clauses Act, “person” includes any company
or association or body of individuals, whether incorporated or not.

Therefore, an “association of persons” (AOP) may have as its members, companies,

firms, joint families and associations (MMIpoh vCIT (67 ITR 106)). Evidently, the
companies entering into a joint venture can also be an assessable unit as an AOP, as held
in Ganga Metal Refining CoPte Ltd vCIT (67 ITR 771). In various judicial
pronouncements, the courts have enunciated the essential ingredients, which constitute an
AOP. In fact, the words “association of persons” have not been used in any technical
sense but have to be construed in their plain ordinary meaning.

Analysing its plain ordinary meaning, the Supreme Court observed in the case of CIT
vIndiraBalkrishna (39 ITR 546) that the word 'associate' means according to the 'Oxford
Dictionary', to join in common purpose, or to join in an action'. Therefore, an 'association
of persons', must be one in which two or more persons join in a common purpose or
common action, and as the words occur in a section, which imposes a tax on income, the
association must be one the object of which is to produce income, profits or gains.

The Andhra Pradesh High Court, after considering previous decisions has, in the case...