SHREE VYADESHWAR DEVASTHAN FUND,,RATNAGIRI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CPC- BANGALORE,, BANGALORE

Since, the issues raised in both the appeals are similar basing on the same identical facts. Therefore, with the consent of both the parties, we proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience.

First, we shall take up appeal in ITA No. 1677/PUN/2019 for A.Y. 2014-15.

The only issue is to be decided is as to whether the CIT(A) justified in confirming the order of CPC, Bangalore of levying tax at the maximum marginal rate instead of rates applicable to individuals.

Heard both the parties and perused the material available on record. I note that the assessee is a religious trust but no registration u/s. 12A of the Act was available to the year under consideration. Therefore, the assessee filed return of income declaring a total income of Rs.9,95,188/-. According to the ld. AR, the CPC, Bangalore mechanically proceeded to apply tax rate at maximum marginal rate which resulted in additional demand. He contends that there was no opportunity for the assessee to put forth its claim for application of tax rate applicable to individuals. I note that the assessee preferred an appeal before the CIT(A) which ended in confirming the order of CPC in applying maximum marginal tax rate. I note that the ld. AR drew my attention to the provisions u/s. 164(2) of the Act and argued sub-section (2) of section 164 is applicable to the facts on hand. The proviso to section 164(2) is not applicable since there was no violation u/s. 13(1)(c) and (d) of the Act. On careful reading of sub-section (2) of section 164 of the Act, I note that in the case of relevant income which derived from property held under trust wholly for charitable or religious purposes, the said income is not exempt u/s. 11 of the Act is to be treated the income of association of persons. Admittedly, for having no registration u/s. 12A of the Act, the CPC, Bangalore denied exemption u/s. 11 of the Act, but however, applied maximum marginal rate. It is also not disputed that the income was not derived from property held under the trust wholly for charitable and religious purpose. I note that the copy of

Further, the ld. AR argued that CBDT Circular No. 320 dated 11-01- 1982 is applicable to the facts on hand and drew my attention to page 6 of the impugned order. On careful reading of the said circular I note that CBDT clarified that new section 167A of the Act will not be attracted in the case of registered society, trade and professional associations, social and

Further, the CIT(A) discussed about Circular No. 387 of 1984 wherein it was held that the earlier Circular No. 320 dated 11-01-1982 superceded by Circular No. 387 of 1984. Further, he held if the shares of beneficiaries of a trust are not indeterminate/specified or unknown the income of the said trust has to be taxed at maximum marginal rate by taking support from Circular No. 387 of 1984. The ld. AR argued that the CIT(A) conveniently taking some portion of the said circular and held maximum rate of tax is applicable to the assessee. He submits that the CIT(A) has to read the entire Circular No. 387 of 1984 as a whole, but not, taking those portions which are not applicable to the assessee. He drew my attention to full text of the said circular at page 3 of the paper book. On perusal of the said circular, I note that at Point No. 28.1 it is explained that levy of income-tax at maximum marginal rate is applicable in the case of charitable and religious trusts which forfeit tax exemption. I note that the assessee did not forfeit the tax exemption but it was denied for not having registration u/s. 12A of the Act. Therefore, maximum marginal rate would not be applied to the assessee under Point No. 28.1. Further, the contention of ld. AR is that the CIT(A) conveniently reproduced Point Nos. 28.3, 28.4, 28.5, 28.6 and 28.7 of Circular No. 387 of 1984. He submits that the said Point Nos. 28.2 to 28.7 are not applicable as the assessee did not forfeit the exemption provided under (a) to (c) under Point No. 28.2. I note that under Clause (a), the levy of maximum marginal rate will come

Further, the ld. AR placed on record orders of this Tribunal in the case of Shri Hanuman Mandir Trust reported in 84 ITD 83 (Pune- Trib.)(SMC) and in the case of Vijaya Durga Devi Trust in ITA No. 494/PUN/2019. On perusal of the order in the case of Shri Hanuman Mandir Trust (supra) which held the income derived from property held under trust wholly for charitable or religious purposes, provisions of section 164(2) will come into operation and proviso to section 164(2) is not applicable. The relevant portion of the at para 7 of the aid order is reproduced hereunder for ready reference : “7. I have considered the rival submissions and perused the facts on record. I have perused the terms and contents of the trust deed which have been reproduced (supra) and after doing so, I hold that the assessee-trust has to be considered as a public religious trust in view of the judgment of the Hon'ble Supreme Court in the case of Devki Nandan v. Murlidhar (supra). The submission of the assessee before the CIT(A) that it is the deity who is the assessee and that, therefore, the status should be that of individual is

In the light of above finding of Tribunal in SMC Bench in the case of Shri Hanuman Mandir Trust (supra), I note that the assessee is a religious trust and the income derived from property of the said trust utilized to the deity and there is not dispute with regard to the said fact as it was contended by the ld. AR that the entire income goes to the deity who is the assessee. Therefore, the finding of Tribunal in SMC Bench in the case of Shri Hanuman Mandir Trust (supra) is applicable to the facts on hand and I hold that the assessee is assessable under the status of AOP, as per the rates applicable to an individual.

Further, in the case of Vijaya Durga Devi Trust (supra) which is also a religious trust assessed in the status of AOP which is evident from para 2 of the said decision. The Tribunal held the income of the said trust is to be computed on the basis of tax rates applicable to an individual if the entire income is utilized for the upkeep of deity. As discussed above, there is no dispute with regard to the income of the assessee in the present case is used for deity i.e. assessee. Therefore, the income should be taxed at the rate applicable to the individual. Therefore, the order of CIT(A) is not justified and it is set aside. Thus, the ground raised by the assessee is allowed.

In view of my decision in ground No. 1, the additional ground raised by the assessee becomes infructuous, requiring no adjudication.

In the result, the appeal of assessee is allowed.

Both sides are unanimous in stating that the issues raised in the appeal and the facts in ITA No.1678/PUN/2019 are identical to ITA No. 1677/PUN/2019. Since, the facts in ITA No. 1678/PUN/2019 are similar to ITA No. 1677/PUN/2019, the findings given by us while deciding the appeal of assessee in ITA No. 1677/PUN/2019 would mutatis mutandis apply to ITA No. 1678/PUN/2019, as well. The appeal of assessee is allowed, accordingly.

To sum up, both the appeals of assessee are allowed.