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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the order of CIT(A) dated 20.5.2016. The assessee has raised the following grounds:-
“The order of the learned Commissioner of Income-tax 1. [Appeals]-4, dated 28/11/2017 and order of rectification passed by the learned assessing officer under section 154 of the Act dated 20/04/2016 in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant's case.
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The appellant denies itself liable to be assessed on a total 2. income of Rs.59,33,100/- as determined by the learned assessing officer in the impugned order of assessment as against the total income of Rs. 2,72,700/- returned by the appellant under the facts and circumstances of the case.
The learned Commissioner of Income-tax [Appeals] failed 3. to appreciate that the when the issue is debatable then the provisions of section 154 of the Act is not available to the learned assessing officer and the learned assessing officer ought not to have passed an order of rectification under section 154 of the Act on the facts and circumstances of the case. The learned Commissioner of Income-tax [Appeals] 4. failed to appreciate that the learned assessing officer was not justified in applying maximum marginal rate concept under Section 167B of the Act as against the slab rates mentioned in the Part I of the First Schedule of the Finance Act, 2013, since the provisions of section 167B of the Act is not applicable to the appellant since the appellant is a society registered under the provisions of The Societies Registration Act, and consequently the said provisions of section 167B of the Act is not applicable to the case of the Appellant and consequently passed an erroneous order, on the facts and circumstances of the case. The Appellant denies itself to be liable for the total tax 5. payable of Rs.22,41,391/- as against the disputed taxes determined in the original order of assessment under section 143[3] of the Act amounting to Rs.20,03,284/- on the assessed income under section 143[3] of the Act which is also in appeal pending for adjudication before your Honour. The learned Commissioner of Income-tax [Appeals] 6. failed to appreciate that the learned Assessing Officer erred in arriving at the tax payable and interest payable under Section 234 A and 234 B amounting to Rs.22,41,391/-, on the facts and circumstances of the case.
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The learned authorities below are not justified in law in 7. applying the maximum marginal rate as per the provisions of the Section 167B of the Act on the wrong premise that the shares of members are indeterminate or unknown.
The Appellant craves leave of this Hon'ble Tribunal to add, alter, revise, modify, delete or substitute any of the grounds urged above. 9. In view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant humbly pray before this Hon'ble Tribunal that the appeal may be allowed in the interest of justice and equity.”
None appeared on behalf of the assessee. We proceeded to decide the appeal after hearing the Ld. D.R.
Facts of the case are that the assessment was completed in this case u/s 143(3) of the Income-tax Act,1961 ['the Act' for short] on 28.12.2015 determining the income of the assessee at Rs.6,59,33,100/-. Subsequently, the AO passed an order of rectification u/s 154 of the Act on 20.4.2016 in order to rectify the computation of tax liability of the assessee by applying the section 167B of the Act. Against this, assessee went in appeal before Ld. CIT(A), who observed as follows:-
“7.(i) The rectification order u/s 154 and appellant's submissions has been duly perused. The reason for the impugned-rectification is evidently, on account of the tax being calculated as per the special provisions of section 167B of the I.T. Act, on the ground that, the shares of the AOP are indeterminate, as per the return of income filed in the status of AOP / BOI / Artificial Judicial Person. It is apparent from the Assessee's submissions that, no specific details / contentions have been provided on this aspect of membership / or the in-determinate
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shareholding. Even though the issue of mutuality is not apparently emanating from the impugned order u/s 154, the Assessee's primary contention in the present appeal is, on the grounds of the principle of mutuality claimed to be applicable to the appellant. The Assessee in its written submission has claimed non-taxability on basis of the principle of mutuality by placing reliance on certain judicial pronouncements.
(ii) It is evident from the Assessee's appeal that, the issue has been examined by the AO in his order u/s 143(3) dated 28/02/2015 which is also reported to be pending in first appeal with CIT(A)-9, Bengaluru. The impugned disallowances have been made on grounds of non-mutuality in respect of the interest-receipts on Bank-deposits. The said issues being pending for appellate-decision could not therefore fall within the simultaneous purview of the present appeal against the order u/s 154. The order u/s 154 under consideration is only in respect of application of correct tax rates, as a consequential action to the AO's order u/s 143(3) dated 28/02/2015.
(iii) The appellant remains at liberty to seek consequential rectification if any, arising from the final disposal. of the appellate-order (by CIT(A)49), in respect of the quantum issue, against the order u/s 143(3). In this view of the matter, AO's action in charging appropriate tax rates, in consequence to the order u/s 143(3) is a mistake apparent from records, which is rectifiable u/s 154.
In background of the facts and circumstances, the rectification order u/s 154 cannot prima-facie be held to be invalid. The assessee’s grounds of appeal are therefore disallowed, subject to above remarks.”
3.1 Against this assessee is in appeal before us by way of above grounds of appeal.
We have heard the rival submissions and perused the materials available on record. In this case assessee made contention before the Ld. CIT(A) as follows:-
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Whether the provisions of section 167B of the Act is applicable to the case of the Appellant on the facts and circumstances of the case: (i) In this regard the assessee wishes to submit that the assessee herein is liable to be taxed as an Association of Persons as specified in Paragraph A of Part I of the First Schedule of the Finance Act, 2013 which clearly states that in case of an Individual or any other artificial judicial person slab rates are applicable.
The Appellant submits that the Provisions of Section 167B [ii]. does not apply to a company or a co-operative society or a society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India.
The appellant reproduces the relevant provisions of section 167B of [iii]. the Act for the sake of ready reference:
"167B. Charge of tax where shares of members in association of persons or body of individuals unknown, etc.”
(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:
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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 subsection (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.]"
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(iv) It is submitted that appellant is registered under the. provisions of The Societies Registration Act and consequently as per sub-section [1] of section 167B of the Act the provisions of section 167 B of the Act is not applicable to the assessee's which are registered as per the Provisions of The Societies Registration Act. Reliance is also placed on the decision of the Hon'ble Income [v]. Tax Appellate Tribunal, Hyderabad in M/s. KMR Educational Society Vs. The Assistant Commissioner of Income Tax in ITA No.1300/Hyd/2014 [2015] reported 68 SOT 163 [Hyderabad- Trib]. The relevant observations of the Hon'ble Hyderabad Tribunal is reproduced hereunder:
"12. We have gone through the Act both 1860 and 2001 and the submissions of the learned counsel. We find that the A.P. Societies Registration Act, 2001 is corresponding to the Societies Registration Act, 1860. The learned counsel has submitted copy of certificate of registration and Memorandum of the society which indicate that it is a society registered under the Societies Registration Act, 2001. Hence the provisions of s. 1678 have no application to the society registered under the Societies Act or any other society formed in accordance on similar lines. Hence appeal of the assessee is allowed." Wherefore, the Appellant humbly pray before this Hon'ble [vi]. Tribunal that the action of the learned Assessing officer in bringing to tax at maximum marginal rate is unsustainable in law and further the learned assessing officer was not correct in holding that the shares of the members are indeterminate is also not proper and consequently the action of the learned assessing officer in brining to tax the income of the appellant at Maximum Marginal Rate that too in a proceedings under the provisions of section 154 of the Act which is debatable in nature is
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unsustainable and do not have any legs to stand the test of law and the order of the learned Commissioner of Income-tax [Appeals] without properly adjudicating the issue requires to be cancelled, for the advancement of substantial cause of justice.
Issue as regard to the jurisdictional aspect of the provisions of section 154 of the Act:
(i) It is submitted that in order to invoke the provisions of Section 154, it is essential that the apparentness of a mistake from the record has to be considered and established objectively. If there is a mistake apparent from the record it ought to be capable of being demonstrated objectively. The determination of the apparentness subjectively by the authority concerned is not sufficient [CIT v. General Electric Co. of India Ltd., [1978] 112 ITR 246,255,256 [Cal]]. [ii]. A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions [CIT v. Gujarat State Export Corporation Ltd., [2005] 279 ITR 477[Guj]] and as held in the decision of the Hon'ble Apex Court in the case of T.S. Balaram, Income-tax Officer Vs. Volkart Brothers, [1971] 82 ITR 50 [SC].
(iii) Therefore, the action of the learned assessing officer in passing the order under section 154 of the Act on an issue which is debatable is impermissible in law as held by the Hon'ble Courts as referred above. The issue of applicability of the provisions of section 167 B of the Act is debatable for the reasons as mentioned in the earlier paragraphs and as the proceedings initiated by the
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learned assessing officer in 154 proceedings is not mistake apparent from records and consequently the order of rectification passed under section 154 of the Act requires to be cancelled, for the advancement of substantial cause of justice.”
However, the Ld. CIT(A) was of the opinion that the AO is within his jurisdiction in exercising the power u/s 154 of the Act so as to apply the maximum marginal rate to compute the tax liability as per specific provisions of section 167B of the Act. The section 167B of the Act is applicable in case of AOP/BOI to determine the tax liability. If a Trust or Institution are liable to be assessed as AOP, then obviously section 167B of the Act does also have applicability in case of Trust or Institution. But section 167B of the Act will not be applicable in case of Charitable Trust or Institution on the following two reasons:- 1. Section 167B of the Act specifically excludes companies and societies registered under Societies Registration Act, 1980 or any other similar legislation. 2. The different rate as prescribed in section 167B of the Act are based upon knowledge and determined of share of individual members. 6. As far as charitable or religious organizations are concerned, there is no scope of share of income or surplus among members concerned. Hence, it cannot be said that charitable or religious trust or institution are subject to tax at the rate applicable to individual assessees.
AOP(Trust) is subject to maximum marginal rate only in the following cases:-
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Income for private religious purpose {Section 13(1)(a) of the Act} 2. Income for the benefit of particular religious community {Section 13(1)(b) of the Act} 3. Income for the benefit of persons specified in section 13(3) & 13(1) of the Act. 4. Funds not invested in accordance with the provisions of section 11(5) & 13(1)(d) of the Act. 5. Anonymous donation {section 11(5) of the Act}
Except in the conditions mentioned above, charitable trust or institutions are subject to tax at the rate applicable to individual assessee provided exemption u/s 11 or 12 or 10(23C) of the Act is not applicable. The contention of the assessee before the lower authorities was that the assessee is registered under Societies Registration Act consequently as per sub-section 1 of section 167B of the Act, the provisions of section 167B of the Act is not applicable to assessee. However, we find that the AO has overlooked the assessee as registered society and it has been assessed as AOP and this contention have no merit. Without prejudice to the above, the AO in his assessment order passed u/s 143(3) of the Act dated 28.12.2015 has not recorded anything with regard to the applicability of section 167B of the Act.
On the other hand, he took up this issue only in proceedings u/s 154 of the Act. To apply the section 167B of the Act, the AO has to examine the individual shares of members of an association of persons or body of individuals in whole or any part of the income of such association or body where it is indeterminate or unknown and if such shares are indeterminate or unknown on the date of formation
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of such association or BOI or at any time thereafter, MMR is applicable u/s 167B of the Act. In present case, the AO never examined these facts that while passing the assessment order u/s 143(3) of the Act or while passing the order u/s 154 of the Act and this issue is very much debatable which cannot be taken up while proceedings u/s 154 of the Act. Being so, in our opinion, the AO is not justified in rectifying the order so as to apply the section 167B of the Act in this case. Accordingly, we are inclined to allow the grounds taken by the assessee on this issue of applicability of section 167B of the Act by rectification proceedings u/s 154 of the Act. Accordingly, the appeal of the assessee is allowed.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 30th Jun, 2022
Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member
Bangalore, Dated 30th Jun, 2022. VG/SPS
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Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.