Jain Sangh Parabdi Khayu Trustee Vs DCIT (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, disposed of two appeals filed by the assessee for AYs 2016-17 and 2017-18 against separate orders of the Commissioner of Income Tax (Appeals), both dated 25.08.2020, arising from intimations issued under Section 143(1) of the Income-tax Act, 1961.
The common issue in both appeals was whether the assessee, a public charitable trust registered under the Bombay Public Trust Act, 1950 but not registered under Section 12A of the Act, was liable to tax at the maximum marginal rate or at the normal rates after allowing the basic exemption limit.
Material Facts
For AY 2016-17, the assessee filed its return declaring income of ₹12,710 under the head “Income from Other Sources.” According to the assessee, the income was below the taxable limit if taxed at the rates ordinarily applicable. However, while processing the return under Section 143(1), the Centralized Processing Centre (CPC) treated the assessee as an Association of Persons (AOP), applied the maximum marginal rate, denied the benefit of the basic exemption limit, and raised a tax demand of ₹4,629, including interest.
The assessee challenged the intimation before the Commissioner (Appeals).
Proceedings Before the Commissioner (Appeals)
The assessee submitted that it was a registered public charitable trust which did not confer any share of its income on any specific person. It contended that its status should be regarded as that of an artificial juridical person taxable at normal slab rates and entitled to the basic exemption limit. It also relied upon CBDT Circular No. 320 of 1982, which clarified that where members or trustees are not entitled to any share of the income, tax is payable at the normal rate rather than the maximum marginal rate.
The assessee further contended that Section 143(1) permitted only prima facie adjustments and that the CPC had exceeded its jurisdiction by determining the applicable rate of tax through summary processing.
The Commissioner (Appeals) rejected these submissions. He observed that the assessee was not registered under Section 12A of the Act and held that the case was governed by Section 164(1), under which tax was chargeable at the maximum marginal rate.
Submissions Before the Tribunal
Before the Tribunal, the assessee reiterated that the income should be taxed at the rates applicable to an individual and that the slab rates, including the basic exemption limit, should be applied.
The Departmental Representative supported the orders of the lower authorities.
Tribunal’s Observations and Findings
The Tribunal noted that the assessee was registered under the Bombay Public Trust Act, 1950 but did not possess registration under Section 12A. It observed that, consequently, the exemption under Section 11 was admittedly unavailable.
The Tribunal identified the controversy as being confined to the applicable rate of tax—whether the maximum marginal rate under Section 164 or the normal rate should apply.
It observed that the return had been filed by the assessee in a representative capacity under Section 160(1)(iv), a position that was not disputed. The Tribunal further noted that it was also undisputed that the trust was a public charitable trust formed to carry out charitable activities and that the beneficiaries were not individually identified. The Commissioner (Appeals) had himself recorded that the assessee was a public charitable trust registered under the Bombay Charitable Trust Act.
The Tribunal referred to CBDT Circular No. 320 dated 11.01.1982, which states that in the case of charitable or religious trusts, registered societies, trade and professional associations, and social and sports clubs, where members or trustees are not entitled to any share in the income of the Association of Persons, the provisions relating to the maximum marginal rate are not attracted, and tax is payable at the rate ordinarily applicable to the total income of an Association of Persons.
The Tribunal observed that it was an admitted position that neither the members nor the trustees were entitled to any share in the income of the trust. It held that the CBDT Circular squarely applied to the facts of the case.
Accordingly, the Tribunal held that the assessee was liable to tax at the rate applicable after allowing the basic exemption limit rather than at the maximum marginal rate. The ground of appeal for AY 2016-17 was allowed.
AY 2017-18
For AY 2017-18, the Tribunal noted that the issue raised was identical to that decided for AY 2016-17. Both the assessee’s representative and the Departmental Representative agreed that the findings for the earlier year would govern the later year.
Following its decision for AY 2016-17, the Tribunal allowed the appeal for AY 2017-18 as well.
Final Decision
The Tribunal allowed both appeals and held that the assessee, being a public charitable trust whose members or trustees were not entitled to any share in its income, was liable to tax at the normal rate after allowing the basic exemption limit, and not at the maximum marginal rate.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned two appeals have been filed at the instance of the Assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals)-9, Ahmedabad, of even dated 25/08/2020 arising in the matter of assessment order passed under s. 143(1) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Years 2016-17 & 2017-18.
2. The assessee has raised the following ground of appeal:
The Commissioner of Income Tax(Appeal) erred in directing to tax income at maximum marginal rate through the trust is registered under public charitable trust Act therefore tax should be charged at normal rate of tax.
3. The only issue raised by the assessee is that the learned CIT (A) erred in confirming the intimation of the CPC by applying the maximum marginal rate of tax on the income which was below the taxable limit.
4. The facts as emerging from the records available before us are that the assessee in the year under consideration has filed return of income declaring an income of Rs. 12710/- under the head income from other sources. As per the assessee, the income was below the taxable limit as it was subject to charge of tax at the rate as applicable to an individual. However, the assessee was treated as Association of persons in the intimation generated under section 143(1) of the Act dated 13th March 2019 whereby the tax at the maximum marginal rate was applied without giving any benefit of the exemption as applicable in the case of an individual. As such, a demand of tax for Rs. 4629/- including interest was raised in the name of the assessee in the intimation under section 143(1) of the Act.
5. Aggrieved assessee preferred an appeal to the learned CIT-A.
5.1 The assessee before the learned CIT (A) contended that it is a registered public charitable trust and it does not extend benefit to any specific person. Therefore, its status should be considered as artificial judicial person which is chargeable to tax at normal slab rate of tax. Therefore, the assessee is entitled for the basic exemption limit as available to an individual and therefore slab rate of tax should be applied. The assessee also referred the CBDT circular 320 of 1982 where it was clarified that in case of a trust where the members and trustee are not entitled to any share of income then rate tax will charged at normal rate instead of MMR.
5.2 It was also contended that CPC under section 143(1) allowed to make certain adjustment based on prima facie material in computation of income. But the CPC acted beyond jurisdiction to decide the applicability of rate of tax.
5.3 However, the learned CIT-A disregarded the contention of the assessee by observing that the assessee is not registered under section 12A of the Act. Therefore the case of the assessee is covered by the provisions of section 164(1) of the Act which provides to charge the tax at the rate of maximum marginal rate.
6. Being aggrieved by the order of the learned CIT-A the assessee is in appeal before us.
7. The learned AR also contended that rate of tax as provided under section 164 of the Act as applicable to an individual should be considered. As such, it was the contention of the learned AR that the slab rate of tax should be applied on the income of the trust.
8. On the contrary, the learned DR vehemently supported the order of the authorities below.
9. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee being a trust was registered under Bombay Public Trust Act 1950. However the registration under section 12A of the Act was not available. Thus, there is no ambiguity to the fact that the benefit of the exemption as provided under section 11 of the Act shall not be available to the assessee.
9.1 The controversy arises for our adjudication whether the rate of an individual should be applied or the maximum marginal rate of tax in the manner as provided under the provisions of section 164 of the Act. Admittedly, the person has filed the return of income in the representative capacity in the manner as provided under clause (iv) of section 160 of the Act. To this proposition, there is no dispute. It is also not under challenge that the trust on hand is a non-discretionary trust meaning thereby the beneficiaries of the trust are not known. In other words the trust being public trust was formed to carry out the charitable activities. This fact was not controverted by the learned CIT-A. Indeed learned CIT-A accepted that the assessee as public charitable trust, the relevant observation of the learned CIT-A reads as under:
I have carefully considered the facts of the case as well as the submission filed by the appellant. It is observed that the appellant is a Public Charitable Trust registered under the Bombay Charitable Trust Act.
9.2 At this juncture, it is noteworthy to make a reference to the CBDT circular bearing No. 320 issued on 11th of January 1982 which reads as under:
“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.”
9.3 It is the admitted position that the members of the trustees are not entitled to any share in the income of the Association of persons. Accordingly, we are of the view that the circular issued by the CBDT as discussed above is squarely applicable in the given facts and circumstances. Thus we hold that the rate applicable as to an individual for charging the income tax after allowing the basic exemption limit, shall be applicable to the assessee on hand. Hence the ground of appeal of the assessee is allowed.
9.4 In the result appeal of the assessee is allowed.
Coming to ITA No. 354/Ahd/2021 an appeal by the assessee for A.Y. 2017-18
10. The assessee has raised the following ground of appeal:
The Commissioner of Income Tax(Appeal) erred in directing to tax income at maximum marginal rate through the trust is registered under public charitable trust Act therefore tax should be charged at normal rate of tax.
11. The only issue raised by the assessee is that the learned CIT (A) erred in confirming the intimation of the CPC by applying the maximum marginal rate of tax on the income which was below the taxable limit.
12. At the outset we note that the issues raised by the Assessee in its grounds of appeal for the AY 2017-18 are identical to the issues raised by the assessee in ITA No. 353/AHD/2021 for the assessment year 2016-17. Therefore, the findings given in 353/AHD/2021 shall also be applicable for the year under consideration i.e. AY 2017-18. The ground appeal of the assessee for the assessment 2016-17 has been decided by us vide paragraph No.9 to 9.4 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2016-17 shall also be applied for the year under consideration i.e. AY 2017-18. Hence, the grounds of appeal filed by the assessee is hereby allowed.
12.1 In the result appeal of the assessee is allowed.
13. In the combined result both the appeal of the assessee are
Order pronounced in the Court on 20/05/2022 at Ahmedabad.
