AJMERA GREEN ACRES APARTMENT OWNERS WELFARE ASSOCIATION,BANGALORE vs. INCOME TAX OFFICER, WARD 4(3)(1), BANGALORE

The sole issue for consideration is whether the assessee’s income is chargeable to tax at the maximum marginal rate or at the slab rates prescribed under the relevant Finance Act. While processing the return of income, the Central Processing Centre computed the tax liability by applying the maximum marginal rate, whereas the assessee had offered the income to tax at the normal slab rates. The learned CIT(A) confirmed the action of the Central Processing Centre; therefore, the assessee is in appeal.

For Assessment Year 2024-25, the assessee, a body duly formed and registered under the Karnataka Societies Registration Act, 1960 (“KSRA”), filed its original return of income on 27 June 2024 declaring total income of Rs.12,48,700/-. Section 2 of the Finance Act prescribes the rates of income tax and surcharge applicable for Assessment Year 2024-25 and provides as follows:

On this basis, the assessee paid tax on the Association’s income at the rates applicable to an Association of Persons, i.e., by applying the slab rates. Accordingly, income tax of Rs.1,03,730/- was computed and paid for Assessment Year 2024-25.

The Central Processing Centre issued an intimation under section 143(1) dated 28 December 2024, taxing the Association’s income at the maximum marginal rate (“MMR”).

Aggrieved by the adjustment made by the Central Processing Centre, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) – NFAC. In the appellate proceedings, the appellant filed detailed written submissions contending that the Association’s income was taxable at the applicable slab rates and not at the maximum marginal rate. The appellant also submitted that an identical issue had arisen in its own case for Assessment Years 2010-11, 2011-12, and 2012-13. In those years, the learned CIT(A), after considering the merits, remanded the matters to the Assessing Officer to verify the appellant’s contentions and pass appropriate orders. Thereafter, the jurisdictional Assessing Officer examined the issue, rectified the assessment orders, accepted the appellant’s position, and levied tax at the applicable slab rates instead of the maximum marginal rate.

However, for Assessment Year 2024-25, the year under consideration, the learned CIT(A) dismissed the appellant’s appeal and upheld the action of the Central Processing Centre. The learned CIT(A) held that the computation of tax, surcharge, and cess in the intimation issued under section 143(1) dated 28 December 2024 by CPC, Bangalore, was in accordance with law. The learned CIT(A) further concluded that the appellant’s income was taxable at the maximum marginal rate under section 167B of the Income-tax Act, 1961, observing, inter alia, that the return of income disclosed the members’ shares as “indeterminate” and therefore section 167B was applicable.

The assessee is therefore in appeal before us. The appellant submits that the above conclusion is based on an incorrect appreciation of the facts and the disclosures made in the return of income. According to the appellant, the members’ shares were shown as “zero” because the Association does not distribute income to its members, there is no profit-sharing arrangement, and its income is applied solely towards the objects of the Society. Such disclosure, therefore, cannot be treated as “indeterminate shares” within the meaning of section 167B. The appellant contends that the learned CIT(A) failed to appreciate these facts and mechanically applied section 167B without examining the appellant’s true nature.

The authorized representative further submitted that the issue is squarely covered in favour of the assessee by the decision of the coordinate bench in the case of AME Harmony Apartment Owners Welfare Association in ITA No. 993/Bang/2018 for Assessment Year 2013-14, dated 30 June 2022. In that decision, the Tribunal held that section 167B of the Act does not apply in such cases where the assessee is a registered society assessed as an Association of Persons.

The learned Departmental Representative strongly supported the orders of the lower authorities.

We have carefully considered the rival submissions and perused the orders of the lower authorities. Under section 167B of the Act, where the individual shares of the members of an association of persons or body of individuals are indeterminate or unknown, tax is chargeable on the total income of such association or body at the maximum marginal rate. However, the provision expressly excludes, among others, a society registered under the Societies Registration Act, 1860, or under any corresponding law in force in any part of India. In the present case, the assessee is a society registered under the Karnataka Societies Registration Act, 1960. Therefore, section 167B cannot be applied to tax its income at the maximum marginal rate. The coordinate bench decision relied upon by the learned authorized representative also supports the assessee’s case. Further, in earlier assessment years, after remand by the learned CIT(A), the Assessing Officer accepted this position and taxed the assessee’s income at the normal applicable rates instead of the maximum marginal rate. Since that view has been accepted by the Revenue and has not been disturbed by any higher authority, we find no reason to take a different view for the year under consideration.

In view of the above, the appeal of the assessee is allowed.