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Facts
The assessee, a charitable trust (AOP), was assessed for AY 2021-22 under Section 143(1) where the AO levied tax at a flat rate of 30% and surcharge at 37%, instead of slab rates and 10% respectively. The CIT(A) upheld this. The assessee contended that as a charitable trust, normal slab rates should apply and Section 167B was wrongly invoked.
Held
The Tribunal held that Section 167B, which prescribes the maximum marginal rate for AOPs with indeterminate shares, is not applicable to a public charitable trust where the shares of beneficiaries are not required to be defined. It followed previous decisions and circulars, allowing the appeal.
Key Issues
Whether Section 167B of the Income Tax Act, prescribing the maximum marginal rate, is applicable to a public charitable trust with indeterminate shares of beneficiaries.
Sections Cited
143(1), 167B, 234C
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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
order No. ITBA/APL/S/250/2024-25/1064478744(1), dated 30.04.2024, passed by the learned CIT(A)-4, Kolkata, in proceedings u/s 143(1) of the Income-tax Act, 1961, hereinafter referred to as the “Act”.
This assessee’s appeal raises the following substantive grounds:
“1. The learned Commissioner of Income-Tax (Appeals) [CIT(A)] erred in confirming the levy of tax and surcharge at a higher rate while processing the Return under Section 143(1) of the Act by the learned Assistant Director of Income Tax (CPC) (The Assessing Officer), (hereinafter referred to as "the AO"). It is submitted that the adjustment has been made to tax liability of the Appellant without affording to the Appellant any opportunity of being heard and the same is in gross violation of principles of natural justice and also not in accordance with the provisions of Section 143(1)(a) of the Act. Hence, the said adjustments may kindly be struck down/set aside.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming the levy of Tax at flat rate 30%, instead of normal slab rates applicable in the case of the appellant. The learned CIT (Appeals) and the learned Assessing Officer failed to appreciate that the appellant is a charitable trust Association of Persons (AOP) not enjoying benefits of Section 11 of the Act and is liable to pay tax at the slab rates applicable in the case of an Individual, etc.
3. The learned CIT (Appeals) erred in confirming levy of surcharge at the Rate of 37% (i.е., Rs.6,10,659/-) instead of applicable Rate of 10% in the case of the Appellant. The learned CIT(Appeals) and the learned Assessing Officer failed to appreciate that the Total Income of the appellant is within the range of Rs. 50 Lakhs to Rs. 1 Crores (i.e. Rs. 55,01,430/-) and therefore the appellant is liable to pay surcharge at the Rate of 10% only.
4. The learned CIT (Appeals) crred in confirming levy of interest under the provisions of Section 234C of the Act. The learned CIT(Appeals) failed to appreciate the fact that the appellant has paid the advance taxes as required by law on or before the due dates and therefore the provisions of Section 234C of the Act are not attracted in the case of the Appellant. it has admittedly not claimed any exemption relief, both the learned lower authorities could not have assessed it under the maximum rate with surcharge at higher rate, as the case may be. We note in this factual backdrop, as per the tribunal’s recent coordinate bench’s order in dated 23.07.2025 has decided this very issue in assessee’s favour and against the department reading as under:
“2. At the time of hearing, ld. AR of the assessee submitted that the assessee is an AOP, filed its return of income for the AY 2021-22 on 11.10.2021 declaring total income of Rs.1,18,24,410/-. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’) wherein CPC has accepted the return of income, however the AO levied tax at a flat rate of 30% as against the assessee’s applicable tax slab rates in the case of an individual and also levied surcharge @ 37% instead of 15% applicable to the assessee.
Aggrieved, assessee preferred an appeal before the ld. CIT (A). Ld. CIT(A) considered the submissions of the assessee and by reference to the return of income filed by the assessee, he observed that the shares of the members of the assessee AOP are not undetermined, therefore, tax shall be charged at the total income of the assessee at the maximum marginal rate as per section 167B of the Act. Similarly, after considering the submissions of the assessee, ld. CIT (A) sustained the surcharge levied by the AO and held that there is no mistake in calculating the tax liability of the assessee.
4. Aggrieved with the above order, assessee is in appeal before us.
At the time of hearing, ld. AR of the assessee brought to our notice that in subsequent assessment year i.e. AY 2022-23, ld. JCIT (A)-3 considered the detailed submissions of the assessee and allowed the appeal of the assessee on both counts i.e. income chargeable and tax at MMR as A.Y. 2021-22 Rose Trust v. DCIT well as levy of surcharge. He filed a copy of the same and further he submitted that in the following cases, the respective ITAT Benches allowed the similar issue contested before it :- (i) ITAT, Mumbai Bench in the case of Dr. Shalmali Khasbardar Foundation v. ITO (Exemption) – (ii) ITAT, Pune Bench in the case of National Association of Interlocking Surgeons vs. ITO – (2025) 172 taxmann.com 9 (Pune); (iii) ITAT, Cochin Bench in the case of Mahakavi Edasseri Smarka Trust vs. ITO (E) – (2024) taxmann.com 44 (Cochin); (iv) ITAT, SMC, Ahmedabad Bench in the case of Jain Sangh Parabdi Khayu Trustee vs. DCIT, Bangalore – ITA No.353-354/AHD/2021.
On the other hand, ld. DR of the Revenue relied on the orders of the authorities below.
Considered the rival submissions and material placed on record. We observe that in the current assessment year, lower authorities have applied the rate of MMR and also applied surcharge applicable to AOP as applicable to section 167B (1) of the Act. However, it is 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. For the sake of brevity, the same is reproduced below :- “7.2.5. Section 167(1) of the Act, makes it very clear that this section would not apply to the company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1960), or under any law corresponding to that Act in force in any part of India. The appellant is a charitable trust registered under Charitable and Religious Trust Act, 1920 and therefore, appellant can't be subjected to tax @ MMR at any cost. 7.2.6. The 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. Further, this organization was not formed A.Y. 2021-22 Rose Trust v. DCIT 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. 7.2.7. It is pertinent to refer to the Circular of the C8DT in No. 320, dated 11.01.1982. The said circular is reproduced as under: "Circular: No. 320 [F. No. 131(31)/81-TP (Pt.)], dated 11-1- 1982- 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 5 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 167 A, as inserted by the Finance Act, 1981.
2. A question has been raise whether the provisions of section 167 A 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 recognized provident fund, approved superannuation fund and A.Y. 2021-22 Rose Trust v. DCIT 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 167 A 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". 7.2.8. In view of the above, the appeal of the appellant is allowed and AO is directed to tax the appellant's income at the normal tax rates applicable to AOP or Body of Individuals for the AY 2022-23.”
Similarly, we observe that ITAT, Cochin Bench in the case of Mahakavi Edasseri Smarka Trust (supra) considered the similar issue and held as under:- “4.6 We again 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. The tax rate accordingly is to be computed as per the normal rates as applicable to Association of Persons. The same, in our view, is again A.Y. 2021-22 Rose Trust v. DCIT an apparent mistake and, where contested, outside the ambit of s. 143(1)((a) in the first instance, so that it could not have been effected there-under. 4.7 We decide accordingly.”
Respectfully following the above decision and also the decision of the ld. CIT (A) in subsequent assessment year i.e. 2022-23, we allow the grounds raised by the assessee.”
We, accordingly, adopt the learned coordinate bench’s detailed discussion mutatis mutandis and reject the Revenue’s vehement contentions to allow the assessee’s above sole substantive ground in very terms. Learned assessing authority is directed to finalise it’s consequential computation as per law.
5. This assessee’s appeal is allowed.
Order pronounced in open court on 05.08.2025.