SECTION 167A – ASSESSMENT WHERE
SHARES OF MEMBERS UNKNOWN
911. Whether the section is applicable to income received by trustees on behalf of provident funds created exclusively for the benefit of employees
1. A reference is invited to paragraph 15.1 to 15.7 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1981 [Circular No. 308, dated 29-6-1981] which explain the scope and ambit of section 167A, as inserted by the Finance Act, 1981.
2. A question has been raise whether the provisions of section 167A of the Income-tax Act which provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown would also apply to income receivable by trustees on behalf of provident funds, superannuation funds, gratuity funds, pension funds, etc., created bona fide by persons carrying on business or profession exclusively for the benefit of the persons employed in such business. The Board have been advised that cases where income received by the trustees on behalf of a recognised provident fund, approved superannuation fund and approved gratuity fund is governed by section 10(25) of the Income-tax Act, the question of their being charged to tax does not arise. So far as cases where income is receivable by the trustees, on behalf of an unrecognized provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by section 164(1)(iv) of the Income-tax Act, as hitherto. Similarly, in the cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.
Circular : No. 320 [F. No. 131(31)/81-TP(Pt.)], dated 11-1-1982.
JUDICIAL ANALYSIS
EXPLAINED IN – In Asstt. CWT v. Club of Mahabaleshwar [1993] 44 ITD 520 (Pune – Trib.) it was observed that Circular No. 320, dated 11-1-1982, supports the view that assessee, a members’ club, is AOP and not an ‘individual’ and hence is not an assessable entity liable to wealth-tax.
EXPLAINED IN – In Lodge Hamilton 26 v. ITO [1998] 66 ITD 609 (Ahd.) it was observed that Circular No. 320, dated 11-1-1982, issued by the Board does not deviate from the provisions of law or in any manner override the provisions of section 167A.
Mind blowing analysis. All aspects have been covered. Thanks for such an anslysis. CA R S RAM FCA