2025 (7) TMI 1589 - AT - Income Tax

Applicability of provisions of section 167A - Income chargeable and tax at MMR as well as levy of surcharge - tax the appellant s income at the normal tax rates applicable to AOP or Body of Individuals - lower authorities have applied the rate of MMR and also applied surcharge applicable to AOP as applicable to section 167B (1) - appellant being a public charitable trust HELD THAT - As brought to our notice that the constitution and functions of the assessee are exactly similar and consistently followed by the assessee. In subsequent assessment year i.e. 2022-23 ld. CIT (A) has considered the similar facts on record and allowed the same by relying on the CBDT circular. as appellant being a public charitable trust there profit ratio/ shares can t be allocated among the members and once right is not allocated the question whether the shares are determinate or indeterminate doesn t arise. This organization was not formed for a benefit of few individuals like in private trusts and therefore sharing of income and determination of income of each individual does not arise. As per sub-section (2) of section 1678 of the Act which deals with association of persons or body of individuals not being a case falling under subsection (1) where individual shares of members are not indeterminate or unknown in other words the shares of members is known and fixed is also not applicable to facts of the appellant for the reason mentioned supra. Hence the rate of MMR under both sub sections (1) and (2) of 1678 is not applicable to appellant case. See MAHAKAVI EDASSERI SMARAKA TRUST 2024 (6) TMI 1049 - ITAT COCHIN as find no reason for application of section 167B of the Act prescribing the maximum marginal rate in the instant case which is one of a charitable trust. Section 167B as a reading of the provision would show is only where the shares of the beneficiaries of the trust are not known. The assessee registered as a charitable trust is a public body and accordingly there is no question of it s beneficiaries being individual members whose shares have therefore to be defined. The application thereof in the instant case is wholly misconceived. The matter in fact stands clarified by the Board per it s Circular No. 320 dated 11/01/1982 also binding on the Revenue. Assessee appeal allowed.

Summary

ISSUES:

Whether an Association of Persons (AOP)/Charitable Trust not claiming benefits under Section 11 of the Income-tax Act is liable to pay tax at the maximum marginal rate (MMR) under Section 167B or at normal slab rates applicable to individuals.Whether surcharge was correctly levied at 37% instead of 15% on the total income of the AOP/Charitable Trust within the income range of Rs. 1 crore to Rs. 2 crores.Whether interest under Sections 234B and 234C of the Income-tax Act is payable when advance taxes have been paid on or before due dates.

RULINGS / HOLDINGS:

On the applicability of maximum marginal rate (MMR): The Court held that Section 167B does not apply to a charitable trust or society registered under the Charitable and Religious Trust Act, 1920, as such entities are excluded under Section 167(1). The "rate of MMR under both sub sections (1) and (2) of 167B is not applicable" where the shares of members are not indeterminate or unknown and the organization is not formed for the benefit of a few individuals. Therefore, tax shall be charged at the "normal tax rates applicable to AOP or Body of Individuals" rather than at the MMR.On levy of surcharge: The surcharge levied at 37% was erroneous; the correct surcharge rate applicable to the total income falling between Rs. 1 crore and Rs. 2 crores is 15%, and the surcharge must be recomputed accordingly.On interest under Sections 234B and 234C: Since the advance tax was paid as required by law on or before the due dates, the provisions of Sections 234B and 234C are "not attracted" and the interest charged under these sections is "contrary to the law and unwarranted" and must be deleted.

RATIONALE:

The Court relied on the statutory framework of Sections 167, 167A, and 167B of the Income-tax Act, 1961, which govern the taxation of Associations of Persons (AOPs) and the applicability of maximum marginal rates.The Court referred to CBDT Circular No. 320 dated 11-01-1982, which clarifies that Section 167A (and by extension Section 167B) does not apply to charitable trusts, registered societies, or associations where members or trustees are not entitled to any share in the income, and tax is payable at the rate ordinarily applicable to the AOP.The Court noted that the charitable trust in question is a public charitable trust whose beneficiaries' shares are neither indeterminate nor unknown, and the trust is not for the benefit of a few individuals, thus excluding it from the ambit of Section 167B.The Court followed consistent precedents from various ITAT Benches (Mumbai, Pune, Cochin, Ahmedabad) which held similarly that the MMR under Section 167B is not applicable to charitable trusts and similar entities.The Court emphasized that the provisions of Sections 234B and 234C for interest on shortfall of advance tax are not applicable where advance tax payments are made timely, consistent with statutory requirements.