TMI Blog2024 (4) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... AOP. The decision of the ld. CIT(A) to charge the assessee u/s. 164(1) is not correct it should be charged based on the specific provision of the Act u/s. 164(2) of the Act and the tax rate as applicable to that 164(2) will apply to the rate of the AOP/Individual and the initial exemption is also available to such assessee. Ground no. 2 raised by the assessee is allowed. Amount claimed to had been used for the purposes of the trust - CIT(A) has not granted the benefit of deduction of expenditure only on the reason that the assessee is not registered u/s. 12 A of the Act. Assessee placed on record the registration certificate issued to the trust on 22.03.2022 and therefore, considering that aspect of the matter we direct the ld. AO to grant the benefit of the deduction of the expenditure claimed by the as per object of the trust. Based on these observation ground no. 1 raised by the assessee is allowed. - Dr. S. Seethalakshmi, Jjudicial Member And Shri Rathod Kamlesh Jayantbhai, Accountant Member For the Appellant : Sh. Mukesh Khandelwal, CA For the Respondent : Sh. A. S. Nehra, Sr. DR And Ms Nidhi Nair, Sr. DR ORDER PER: RATHOD KAMLESH JAYANTBHAI, AM These five appeals filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal rate on the whole income assessed. 5. Succinctly, the fact as culled out from the records is that the assessee filed its return of income in form ITR-7 on 17.07.2014 by declaring total income of Rs. 2,45,050/- comprising of interest income of Rs. 2,03,533 and income from voluntary contributions for Rs. 85,650/-. The assessee maintains a Jain temple at Charanwas District Nagaur. The assessee derives income from charity received from devotees coming to the temple and interest on bank deposits. Out of such earnings some expenses relating to maintenance of temple have been charged and net income has been offered in ITR. The assessee trust is admittedly not registered u/s 12A of the Income Tax Act, 1961 during the concerned years. The CPC while processing the returns charged tax on net income offered by the assessee at Maximum Marginal Rate whereas the assessee had offered the income by calculating tax as applicable on individuals which resulted into creation of demand. 6. Aggrieved from the order of Assessing Officer, the assessee preferred an appeal before the ld. NFAC. Apropos to the grounds so raised the relevant finding of the ld. NFAC is reiterated here in below: 7. DECISION: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Maximum marginal rate. The appellant submits that the income of the trust is eligible for tax chargeable at the rate as per section 164(2) of the Act as that of AOP and not MMR. 7(iii) This is an undisputed fact that the trust is not registered u/s 12A of the Income Tax Act. Hence provisions of sections 11 12 are not applicable not in this case. The trust deed has been registered. On its own volition the appellant has submitted its status as AOP/BOI(other trust/institution as per the income tax return). Since the appellant is a Trust, and it has to be assessed as a Trust and not in any other status, therefore and provisions of Section 160 to 167 are applicable in its case. Before arriving at any decision, it is necessary to analyze the provisions of law that are applicable in the case of trusts as below: 7(Iv) The first relevant provision of the Act is section 2(24)(iia) which is as under: Definitions. 2. In this Act, unless the context otherwise requires,- ............. (24) income includes- (i) (ii).....: (iia) voluntary contributions received by a trust created wholly or partly for charitable or religious purposes or by an institution established wholly or partly for such pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in any other case, within three months from the date of declaration of the trust. Explanation 2.-For the purposes of clause (v), oral trust means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)], and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing. (2) Every representative assessee shall be deemed to be an assessee for the purposes of this Act. ME TAX DEPART In this case the beneficiaries are public at large. It has to be assessed in the hands of the trustee only. 7(vi) Liabilities of a trustee are defined in Section 161 of the Act as under: Liability of representative assessee. 161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fund. 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, tax shall be charged on the relevant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate: Provided that in a case where- (1) none of the beneficiaries in respect of the part of the relevant income which is not applicable to charitable or religious purposes has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust, to the extent it is not for charitable or religious purposes, was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eterminate and unknown. Section 164(1) begins with the phrase Subject to the provisions of sub-sections (2) and (3) . Thus it is the omnibus clause except for the cases referred to in section 164(2) 164(3). It will necessary to understand to what these two sub sections refer to as once that is known, it will be easier to discern what the remaining cases are chargeable to tax as per Section 164(1). This analyzed as under: 1. Applicability of Section 164(2): The appellant has claimed that it is governed by the provisions of 164(2) as it is wholly public charitable trust. This is not disputed that the Trust is not Registered. No claim of Corpus donation has been made and only interest income has been earned. This is clearly covered as income of the Trust u/s 2(24)(iia) of the Act. But the question arises whether this subsection purportedly applicable to Trusts that is wholly for public charitable purpose is actually also applicable in the case of Trusts that are not registered u/s 12A. To ascertain this I refer to the principle of Noscitur a Sociis, a rule of construction. It is one of the rules of language used by court to interpret legislation. This means that, the meaning of an unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged on the relevant income at the maximum marginal rate. Exception clauses as per the provisos wrt section 164(1) are not applicable in the case of appellant. 7(vill) It will also be pertinent to refer to Circular No. 320 [F. No. 131(31) / 81 - TP(Pt.)], dated 11-1-1982 which is enumerated as under 911. Whether the section is applicable to to Incom 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 pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th cases where income of any member is chargeable at higher rate of tax. As per section 167B(1) the income is chargeable at maximum marginal rate. However, if total income of any member is chargeable to tax at a higher rate than maximum marginal rate, then the total income of the AOP is to be charged at such higher rate(rate which is higher than maximum marginal rate.) Section 167B(2) deals with cases not falling under section 167B(1). In cases where income of any member of the AOP exceeds the maximum amount which is not chargeable to tax i.e. above basic exemption limit, the income of the AOP will be charged to tax at maximum marginal rate, if total income of any member exceeds the bank exemption limit. Further, if any member is chargeable to tax at a rate higher than maximum marginal rate, then such portion of the income of AOP which is relatable to the higher rate of tax will be charged to tax at higher rate and the balance portion is to be charged at maximum marginal rate. 7(x) In the instant case, the appellant has claimed that it is required to be taxed as AOP, as per the tax slab provided in the finance act, after providing benefit of basic exemption limit. However CPC compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7(xi) In view of above, section 167B(2) will come into pay and tax is to be charged at maximum marginal rate. Further, since the trust is not Registered u/s 12A/12AA, deduction for application of income utilized for charitable purposes u/s 11 are not available to Act. it. It will only be allowed deduction of expenses as per section 57 of the INCOME TAX DEPARTMEN Nes 7(xii) Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing about the treatment and hence there is no speaking order of the Ld. AO. First Appeal : Against all the intimations the appellant filed appeals before Ld. CIT (A) and same were disposed off by ld. CIT (A), NFAC concurring with the view of the CPC in charging t ax at MMR on the appellant. This action has been mainly challenged in these appeals. The ld. CIT (A) had sustained the action of the CPC by stating as under :- Provision of section 164(1) and 167B are the relevant provisions applicable in the instant case and hence MMR is clearly applicable. Regarding claim of certain expanse in AY 2013-14 and 2015-16 he states that since the assessee institution is not registered u/s 12A and hence expenses can not be allowed u/s 11 and hence the same can be allowed after examining compliance to section 57. Submissions of the appellant : Main ground of appeal is against charging of tax at MMR on the income of the appellant trust which has been charged on the premise that the appellant trust was not registered under the provisions of section 12A of the Income Tax Act, 1961. The CPC had applied MMR without specifying any reason but the ld. CIT (A) has stated that provisions of section 164(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision he has stated that since the assessee is not registered under provisions of Societies Registration Act, 1860 and hence 167B shall come into play. He forgot to take into consideration that section 167B excludes any AOP registered under any law corresponding to Societies registration Act, 1860 in force in any part of India and the assessee institution is duly registered with Deputy Registrar under Indian Stamp Act and since the assessee has been formed for charitable objects and hence same is also covered with said exclusion. AS we know that there are both ways of forming a charitable institution i.e. through mode of trust or through registration under Societies Registration Act and there can not be any discrimination in the institutions whether formed as a trust or as a sanstha. Further your reference is also drawn on Circular no. 320 of the CBDT dated 11.01.1982 (APB 36) which contains the following (in last seven lines) 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 associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as treated as defective by CPC and hence the appellant had submitted another ITR declaring the income from interest only amounting to Rs. 2,22,295 which was processed by CPC at declared income. The ld. CIT in his order has mentioned at para 7(xiv) that since in the first ITR the assessee had declared a sum of Rs. 60,400 as voluntary contribution and had not declared any such income in second ITR and has enhanced the income and instructed the AO to take appropriate action to tax such income at MMR. This action of the ld. CIT (A) is wrong as before enhancing the income he has not issued any notice to the appellant and further in a way he has disallowed the claim of the assessee for expenditure for Rs. 64,808 which had been spent only for the maintenance of temple which is prime object of the assessee and in view of spending the same for the basic object of the trust same deserves allowance. Your honour is sincerely requested to consider the above submissions favourably and allow the appeal in toto and oblige. 8. In this appeal the ld. AR of the assessee submitted a detailed paper book and the same is extracted here in below : SN Description Page No. 1 ITRV, Computation of Income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax should be charged based on that specific section applicable to the trust assessee. The ld. AR of the assessee also submitted that considering the facts of the case even the provision of section 167B will not applicable and the ld CIT(A) has not appreciated the facts of the case of the assessee. When there is specific provision for charging the tax the general provision cannot be made applicable. Thus, we hold that when the provision of section 164(2) specially deals to charge the tax of those trust where the whole or any part of the relevant income is not exempt under section 11 and 12, the relevant provision of the Act is reiterated herein below : Provision of section 164(2) of the Act (2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause ( iia ) of clause ( 24 ) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of persons : Provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, not being a case to which any other Paragraph of this Part applies. Even the revenue department website also advise that the tax rate of the trust is as applicable to the Individual and the screen shot of the same is reproduced herein below as to strengthen the discussion so record: Considering that aspect of the matter we are of the considered view that the decision of the ld. CIT(A) to charge the assessee u/s. 164(1) is not correct it should be charged based on the specific provision of the Act u/s. 164(2) of the Act and the tax rate as applicable to that 164(2) will apply to the rate of the AOP/Individual and the initial exemption is also available to such assessee. Based on these observations the ground no. 2 raised by the assessee is allowed. 12. As regards the ground no. 1 raised by the assessee the bench noted that the ld. CIT(A) has not granted the benefit of deduction of expenditure only on the reason that the assessee is not registered u/s. 12 A of the Act. The ld. AR of the assessee placed on record the registration certificate issued to the trust on 22.03.2022 and therefore, considering that aspect of the matter we direct the ld. AO to grant the benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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