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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI MANISH AGARWAL
Per Bench : This is an appeal filed by the assessee against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 11.08.2023, in DIN & Order No.ITBA/NFAC/S/250/2023- 24/1055057282(1) for the assessment year 2017-2018. 2. Brief facts of the case are that the assessee is an educational society and the return of income for the year under appeal was filed declaring total income at Rs.76,26,863/- and claimed exemption u/s.12A of the Act. The same was processed vide order u/s.143(1) of the Act dated 26.03.2019 by the CPC Bangalore, wherein a demand is created by not allowing the exemption available to it. Thereafter an application u/s.154 of the Act was filed for rectification of the said order, wherein it was stated by the assessee that its gross receipts were of Rs.3,69,28,893/- and exempt of income over expenditure is of 2 Rs.76,26,864/-, which is more than 17% of the gross receipts. While processing the return CPC Bangalore has taxed the entire excess income over expenditure of Rs.76,26,863/- instead of taxing the excess amount of 15% of the gross receipts as 15% is statutorily available to the assessee. The said application was rejected by the ld. AO stating that there was no mistake apparent from the record vide order dated 30.05.2022, against which an appeal was preferred before the ld. CIT(A) and the ld. CIT(A), NFAC has dismissed the appeal of the assessee, therefore, the present appeal is filed before us.
During the course of hearing ld. AR of the assessee taken five grounds of appeal which are related to the single issue of taxing the entire excess of income over expenditure claimed exempt by it, therefore, the same should be clubbed together for the sake of convenience.
During the course of hearing, ld. AR of the assessee contended that the assessee has applied almost 85% of the receipts and there was a shortfall which is around 17% of the gross receipts against which it is submitted that in preceding assessment years the assessee has applied more than 85%, therefore, the excess income be set off against the excess application in the preceding years. Alternatively, it is submitted that the CBDT in its Circular No.387, dated 6.7.1984 has clarified that the maximum marginal rate of income tax will only be applied on the income in excess of 15% i.e. part of exempt income under the provisions of Section 11 & 13 of the Act. For this, a chart is submitted during the course of hearing according to which the amount of shortfall in application
3 of 85% of the gross receipts is of Rs.9,43,500/- on which tax could be levied. Thus, the prayer of the assessee that set off of application excess made in preceding years is to be allowed to the assessee or alternatively taxable income be restricted to Rs.9,43,500/-.
On the other hand, ld. Sr. DR vehemently supported the orders of the lower authorities and submitted that when the assessee has failed to apply 85% of the gross receipts, remaining amount should be taxed at the maximum marginal rate and the CPC has made no error, therefore, this case is not under the purview of mistake apparent on record. He, therefore, prayed for confirmation of the orders of the lower authorities.
We have considered the rival submissions. It is seen that the assessee has made two claims. First, it had applied more than 85% of the gross receipts of the preceding years, therefore, it is requested that the set off of excess application be allowed. Secondly, only the shortfall in application of 85% be taxed. From the perusal of the order passed u/s.154 of the Act i.e. the impugned order, we find that there was no claim with respect of the set off of excess claim made during the preceding years nor is borne out from the records. No such claim was made in the return of income filed by the assessee. Therefore, this claim being out of the purview of mistake apparent from record, should not be accepted. However, we find that CPC has made an error while taxing the residuary figure i.e. Rs.76,26,863/- being the excess of income over expenditure without allowing deduction of 15% as statutorily available with the 4 assessee. The CBDT vide its Circular No.387 dated 6.7.1984 vide para 28.6 has provided as under :-
6 It may be noted that new sub-section (1A) inserted in section 161 of the Income-tax Act, which provides for taxation of the entire income received by trusts at the maximum marginal rate is applicable only in the case of private trusts having profits and gains of business. So far as the public charitable and religious trusts are concerned, their business profits are not exempt from tax, except in the cases falling under clause (a) or clause (b) of section 11(4A) of the Income-tax Act. As the maximum marginal rate of tax under the new proviso to section 164(2) applies to the whole or a part of the relevant income of a charitable or religious trust which forfeits exemption by virtue of the provisions of the Income-tax Act in regard to investment pattern or use of the trust property for the benefit of the settlor, etc., contained in section 13(1)(c) and (d) of that Act, the said rate will not apply to the business profits of such trusts which are otherwise chargeable to tax. In other words, where such a trust contravenes the provisions of section 13(1)(c) or (d) of the Act, the maximum marginal rate of income-tax will apply only to that part of the income which has forfeited exemption under the said provisions.
Further, by Finance Act, 2023, Section 115BBI has been inserted to the statute which provides a special rate of tax at the rate of thirty percent on the aggregate of such specified income accumulated or set apart in excess of fifteen per cent of the income where such accumulation is not allowed under any specific provision of this Act.
From this, it is clear that the legislature is of the opinion that only the amount in excess of 15% which is not applied and otherwise not allowed to be exempted is only taxed. In view of this discussions, the application of the assessee for rectification for allowing deduction of the amount of 15% of the gross receipts out of total amount of income i.e. Rs.76,26,863/- is a mistake apparent from record and, therefore, we direct the AO to allow that deduction of 15% of the gross receipts and charge the tax on the shortfall of Rs.9,43,500/- only. We order accordingly.
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In the result, appeal of the assessee is partly allowed. Order dictated and pronounced in the open court on 03/06/2024. (GEORGE MATHAN) (MANISH AGARWAL) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य/ ACCOUNTANT MEMBER कटक Cuttack; ददनाांक Dated 03/06/2024 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीऱाथी / The Appellant-
Gyanodaya Educational Trust, At: Naigaon, Keonjhar-758014 2. प्रत्यथी / The Respondent- ITO, Exemption, Cuttack आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, कटक / DR,
ITAT, Cuttack गार्ड पाईऱ / Guard file. 6. सत्यावऩत प्रतत ////
आदेशानुसार/ BY ORDER, (