Case Law Details
Air Force Navy Farm Owners Welfare Association Vs ITO (ITAT Delhi)
The issue under consideration is whether AOP is liable to tax at MMR if income of its members during relevant year exceeded basic exemption limit?
ITAT states that the provision of section 167B of the Act and, thereafter, proceeded to hold that, in the case of the assessee provision of section 167B (2) are applicable. The section 167B(2) prescribe that in case of any Association of Person (not being a case falling under subsection 1 of 167B ), if total income of the any member of the Association of Person (excluding the share from such Association) exceeds the maximum amount, which is not chargeable to tax under the Finance Act of the relevant year, the tax shall be charged on the total income of the Association at maximum marginal rate. In view of the provision, the Learned CIT(A) held that income of the members being in the slab of maximum rate of tax, the society is not entitled to the benefit of exemption from the minimum amount and liable to the incidence of maximum marginal rate income of section 167B(ii) of the Act. In our opinion, the finding of the Learned CIT(A) on the issue in dispute is well reasoned. A society registered under the Societies Registration Act, 1860, has been excluded from the provision of section 167B9(1). Thus, in case of any society, which though has been held as Association of Person and income of such Association is indeterminate; such society will be excluded from invoking of maximum marginal rate. But, the provision of section 167B(2) are applicable in case of Association of persons not being a case falling under sub-section 1. In view of the clear and unambiguous provisions of 167B(2), if income of any member (other than the share of such Association) is higher than the basic exemption limit of the relevant year, the income of the Association is chargeable at the maximum marginal rate.
Accordingly, the appeal of the assessee is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the assessee is directed against order dated 29/10/2018 passed by the Ld. Commissioner of Income-tax (Appeals)-I, Noida [in short ‘the Ld. CIT(A)’] for assessment year 2013-14 in second round of the proceedings. The assessee has raised following grounds of the appeal:
1. That the Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order made by Ld. AO by not allowing the basic exemption provided to the assessee because:
a. The society is registered under Society Registration Act 1960 where members are fixed being owners of 99 farm units and so not indeterminate.
b. Society is registered as AJP accordingly PAN is allotted as AJP thereby status of the assessee is AJP and assessment made in the status of AOP is bad in law.
c. Both the lower authorities failed to appreciate that section 167B is not applicable to the societies registered under the society registration act and it is specifically excluding societies even under sub-section (2) with the opening words itself in brackets.
d. Both the lower authorities also failed to appreciate that rates of income tax applicable to co-operative societies cannot be applied on the societies registered under societies registration act 1860.
e. Both the lower authorities have not appreciated that section 167B is applicable to the AOPs and BOIs engaged in the business whose shares are indeterminate but societies registered under society registration act, company and co-operative societies have been specifically excluded
2. The Ld. CIT(A) has erred in law as well as on facts in confirming the income assessed by Ld. AO at Rs. 1,39,820/- as against income declared at Rs 37,080/- without allowing claim of expenditure incurred against the income for the genuine and actual expense not disputed by the AO which were required to be reduced for calculating the income of the assessee at Rs. 37,081/- as rightly calculated by the assessee after adjusting the expenses as per income and expenditure account.
The above grounds of appeals are independent of and without prejudice to each other.
That the appellant craves leave to add, alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary during the hearing of these grounds.
2. Briefly stated facts of the case are that the 99 (Ninty-nine) Air-Force and Navy Officers constituted an association for management of farmhouses allotted to them by the Air Force Naval Housing Board. This association was registered under the Society Registration Act, 1860. The association claimed its functioning on the concept of mutuality without indulging in any business activity. For the year under consideration, the assessee filed return of income on 20/07/2013 declaring total income of ₹ 37,080/-. The Assessing Officer in the assessment order dated 29/01/2016, however, assessed interest income of ₹ 1,39,820/- from nonmembers as taxable. The Assessing Officer held the status of the assessee as Association of Persons (AOP) as against claim of the assessee as Artificial Juridical Person (AJP) and applied maximum marginal rate of tax after invoking section 167B of the Income-tax Act, 1961 (in short ‘the Act’). On further appeal, the Ld. CIT(A) in his order dated 13/06/2016 upheld the status of the assessee as AOP. Against the said order of the Ld. CIT(A), the assessee before the Income Tax Appellate Tribunal (in short ‘the Tribunal’) raised the only issue that irrespective of the status of the assessee held by the Assessing Officer as AOP, the assessee being registered under Societies Registration Act, 1860 provision of section 167B were not applicable. The Tribunal in its order dated 12/04/2017 restored the matter back to the file of the Assessing Officer to examine the applicability of section 167B in the case of the assessee. In compliance to the order of the Tribunal, the Assessing Officer vide order dated 09/10/2017 applied the tax rate applicable in the case of cooperative society without providing any benefit of basic exemption limit. On further appeal, the learned CIT(A) referred to the provision of section 167B and held that provision of subsection (2) of section 167B is applicable over the facts of the case. He, accordingly, declined the benefit of exemption from the tax on the minimum amount and entire income of the assessee was subjected to maximum marginal rate of tax. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.
3. Before us, the learned Counsel of the assessee opted for hearing through videoconferencing and filed a paperbook containing pages 1-73. He referred to the copy of the order of the Tribunal placed on page 40-44 and submitted that provisions of section 167B(2) are not applicable on any society registered under the Societies Registration Act 1860. He also raised the issue that assessee has been allotted PAN under the status of Artificial Juridical Person (AJP) and, therefore, assessment of the same by the Assessing Officer as well as Ld. CIT(A) as AOP is not justified. According to him, the provisions of section 167B are applicable only in case of Association of Person or Body of Individuals and assessee being not either of them, the provision of section 167B are not applicable.
4. The learned DR, on the other hand, also appeared through videoconferencing and relied on the order of the Ld. CIT(A).
5. We have heard both the parties on the issue in dispute and perused the material available on record. We find that before the Tribunal in first round of the proceeding, the assessee did not dispute assessing of the assessee in the status of AOP and the only issue which was disputed was of applicability of section 167B and taxing at maximum marginal rate. The relevant part of the order of the Tribunal is reproduced as under:
“5. The Learned CIT(Appeals) held that the assessee is to be taxed as AOP because AJP is only to be deemed have an existence only where does not covered in any other clauses of section 2(31). Before us the only limited point made by the Id. counsel Ms. Sumangala Saxena is that the Id. Assessing Officer while applying the maximum marginal rate after invoking provision of section 167B has failed to consider the fact that under the said provision itself, exception has been carved out for Societies Registration Act 1860. Thus, even if the assessee is to be charged of tax as AOP then also it cannot be taxed at maximum marginal rate. In support of he drew our attention to the copy of registered certificate issued by the Registrar of Societies placed at page 1 of the paper book. Thus, she submitted that the assessee should not be taxed as maximum marginal rate.”
5.1 In view of the submission of the assessee in first round of the proceeding before the Tribunal, the Tribunal restored the issue of examining the applicability of section 167B in the case of the assessee. In view of the above, the limited issue before us is whether provisions of the section 167B are applicable in the case of the assessee.
5.2 We find that the Ld. CIT(A) in the impugned order has reproduced, the provision of section 167B of the Act and, thereafter, proceeded to hold that, in the case of the assessee provision of section 167B (2) are applicable. The section 167B(2) prescribe that in case of any Association of Person (not being a case falling under subsection 1 of 167B ), if total income of the any member of the Association of Person (excluding the share from such Association) exceeds the maximum amount, which is not chargeable to tax under the Finance Act of the relevant year, the tax shall be charged on the total income of the Association at maximum marginal rate. In view of the provision, the Learned CIT(A) held that income of the members being in the slab of maximum rate of tax, the society is not entitled to the benefit of exemption from the minimum amount and liable to the incidence of maximum marginal rate income of section 167B(ii) of the Act.
5.3 In our opinion, the finding of the Learned CIT(A) on the issue in dispute is well reasoned. A society registered under the Societies Registration Act, 1860, has been excluded from the provision of section 167B9(1). Thus, in case of any society, which though has been held as Association of Person and income of such Association is indeterminate; such society will be excluded from invoking of maximum marginal rate. But, the provision of section 167B(2) are applicable in case of Association of persons not being a case falling under sub-section 1. The relevant provision is reproduced as under:
“Charge of tax where shares of members in association of persons or body of individuals unknown, etc.
167B. (1) ……………………………………….
(2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],—
(i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.”
5.4 In view of the clear and unambiguous provisions of 167B(2), if income of any member (other than the share of such Association) is higher than the basic exemption limit of the relevant year, the income of the Association is chargeable at the maximum marginal rate.
5.5. Before us, the assessee has not disputed the finding of the Learned CIT(A) that income of its member during the year under consideration exceeds the basic exemption limit.
5.6 In view of the above discussion, we do not find any error in the order of the Learned CIT(A) and accordingly, we uphold the same. The grounds raised by the assessee are accordingly dismissed.
6. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 16th July, 2020.
