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Facts
The assessee, a society registered under the Societies Registration Act, 1860, challenged an order levying tax at the maximum marginal rate. The AO invoked Section 167B of the Income Tax Act, 1961, for this purpose. The assessee argued that Section 167B is not applicable to societies registered under the 1860 Act. Furthermore, it was submitted that the ITAT had already allowed exemption u/s 11 of the Act, making the tax liability NIL.
Held
The Tribunal held that Section 167B(1) of the Income Tax Act, 1961, specifically excludes societies registered under the Societies Registration Act, 1860. Therefore, the AO was not justified in invoking Section 167B. The Tribunal also noted that the tax liability had already been deleted by appellate authorities. Consequently, the order of the Ld.CIT(A) and the rectification order of the AO were set aside.
Key Issues
Whether Section 167B of the Income Tax Act, 1961, is applicable to a society registered under the Societies Registration Act, 1860? Whether the AO was justified in levying tax at the maximum marginal rate on the assessee?
Sections Cited
154, 167B, 11, 167B(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI “B” BENCH : MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP GOSAIN
Date of Hearing : 04-03-2025 Date of Pronouncement : 07-03-2025 O R D E R PER B.R. BASKARAN, A.M : The assessee has filed this appeal challenging the order dt.26-11-2024 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟] and it relates to AY. 2016-17. The assessee is aggrieved by the decision of the Ld.CIT(A) in confirming the order passed by the AO u/s. 154 of the Income Tax Act, 1961 („the Act‟); wherein the AO had levied tax at the rate of maximum marginal rate on the assessee u/s. 167B of the Act.
We heard the parties and perused the record. The Ld.AR submitted that the assessee is a Society registered under the Societies Registration Act, 1860 on 24-09-1969. This fact is very much known to the revenue since many years. The assessee is also granted registration u/s 12A of the Act as Society only. The Ld A.R also produced a copy of a Certificate of registration dt. 24-09-1969 issued by the Asst. Registrar of Societies, Greater Bombay region, bearing Regn. No. BOM.127/69G.B.B.S.D granted to the assessee. Referring to the provisions of section 167B of the Act, the Ld.AR submitted that the said provisions specifically exclude a society registered under the Societies Registration Act, 1860. Accordingly, the Ld.AR submitted that the provisions of sec.167B will not be applicable to the assessee and hence the AO was not justified in invoking the provisions of section 167B of the Act in the hands of the assessee.
2.1. The Ld.AR further submitted that the assessee has claimed its income is exempt u/s. 11 of the Act. However, the assessee was denied exemption u/s. 11 of the Act by the AO and he determined the total income of the assessee at Rs. 7.99 crores and levied tax thereon at normal rates. However, by the impugned rectification order passed u/s 154 of the Act, the AO has levied tax at maximum marginal rate. The Ld A.R submitted that, in the appellate proceedings, the ITAT has already allowed exemption u/s. 11 of the Act and as such the tax liability has become NIL in the hands of the assessee. Hence, the question of levying tax at the maximum marginal rate will not arise on merits also.
The Ld.DR on the contrary, supported the order passed by the Ld.CIT(A).
We notice that the AO has levied tax at maximum marginal rate by invoking the provisions of section 167B of the Act. The said provisions are read as under:-
“167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co- operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate :
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],— (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.”
4.1. A careful perusal of the provision would show that the provisions of sec.167B(1) specifically excludes a society registered under Societies Registration Act, 1860. We notice that the assessee herein is a society registered under the Societies Registration Act. The certificate given by the Asst. Registrar of Societies is scanned below:-
Hence, the provisions of section 167B of the Act will not apply to the assessee. Accordingly, the tax authorities are not justified in levying tax at maximum marginal rate. Even otherwise, according to Ld A.R, the tax demanded by the AO for this year has already been deleted by the appellate authorities. Accordingly, we set aside the order passed by the Ld.CIT(A) and quash the rectification order passed by the AO u/s. 154 of the Act.
In the result, the appeal filed by the assessee is allowed.