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Facts
The assessee, a registered resident welfare society, filed its return of income declaring interest income and computed tax at 30%. The AO/CPC processed the return and levied surcharge at Maximum Marginal Rate (MMR). The CIT(A) confirmed the AO's action. The assessee appealed, arguing that as a society registered under the Rajasthan Societies Registration Act, Section 167B of the Income Tax Act is not applicable, and thus MMR should not be applied.
Held
The Tribunal held that Section 167B(1) explicitly excludes societies registered under the Societies Registration Act from the provisions of MMR. Therefore, the assessee should be taxed at normal slab rates and not MMR. The inadvertent mistake in filing the return by the assessee should be rectified by the authorities.
Key Issues
Whether a society registered under the Societies Registration Act is excluded from the levy of Maximum Marginal Rate (MMR) under Section 167B of the Income Tax Act, and if so, whether the surcharge levied is justified. Also, whether the assessee can claim benefit of basic exemption limit and slab rates despite inadvertently computing tax at a flat rate.
Sections Cited
250, 139(1), 143(1), 167B, 2(29C), 47(iv), 45, 164(3), 154
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Income Tax Appellate Tribunal, JAIPUR BENCHES,”SMC” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM
PER DR. S. SEETHALAKSHMI, J.M. This appeal by the assessee is directed against the order of the Ld. Addl/JCIT(A)-5, Mumbai, dated 09.01.2025 for assessment year 2024- 25, passed under Section 250 of the Income Tax Act, 1961 ('the Act').
2. The assessee has raised following grounds:-
1. “1. In the facts and circumstances of the case and in law, the ld. CIT(A)/NFAC has erred in confirming the action of the ld. AO/CPC, in denying the benefit of the basic exemption limit to the assessee, while processing the return of income. The tax liability has been computed at the Maximum Marginal Rate (“MMR”) without allowing the basic exemption as claimed by the assessee. The action of Mall of Jaipur Owners Welfare Association, Jaipur. the ld. CIT(A)/NFAC is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by allowing the benefit of basic exemption limit to the assessee.
2. In the facts and circumstances of the case and in law, the ld. CIT(A)/NFAC has erred in confirming the action of the ld. AO/CPC, in levying surcharge in addition to taxability at MMR. The action of the ld. CIT(A)/NFAC is illegal, unjustified, arbitrary, and against the fats of the case. Relief may be granted by quashing levy of surcharge on MMR.
3. The assessee craves its rights to add, amend or alter any of the grounds on or before the hearing.”
Brief facts are relevant for the adjudication of the present appeal are that the appellant is a Resident Welfare Society registered under the provisions of the Rajasthan Societies Registration Act, 1958. The assessee is a non-profit entity established solely for ensuring maintenance and upkeep of the Mall of Jaipur. The assessee filed its return of income under Section 139(1) of the Act on 31.07.2024, declaring total income of Rs. 22,12,550, comprising solely of interest income earned from fixed deposits. Assessee, at the time of filing the return of income, computed its tax liability at the maximum marginal rate of 30%. The AO(CPC) processed the return under Section 143(1), accepting the returned income but levied surcharge at 25% on the total tax computed.
Aggrieved, from the said order of assessment the assessee has filed an appeal before the ld. CIT(A). who after hearing the Mall of Jaipur Owners Welfare Association, Jaipur. contention of the assessee, dismissed the appeal of the assessee by giving following findings on the issue:- “5. Decision: I have gone through the facts of the case, the ground of appeal
and the submissions made by the appellant. It is seen that all the grounds raised relate to the levy of surcharge at MMR and hence all the grounds are adjudicated together as under: 5.1 The brief facts of the case are that the appellant is a society registered under the Rajasthan Society Registration Act, 1958 with effect from 13.10.2021. The appellant had filed the return as an AOP. In the return of the income for AY 2024-25 the appellant had offered the income from other sources of Rs.22,12,553/-. While processing the return, the taxable income declared by the appellant was accepted by the CPC. The calculation of tax by the assesseee and the CPC u/s 143(1) is given below for ease of reference- Income Calculation as per return Calculation by CPC u/s 143(1) Income from other Rs. 22,12,553/- Rs. 22,12,553/- sources Total income Rs. 22,12,553/- Rs. 22,12,553/- Tax Rs. 6,63,765/- Rs.6,63,765/- Surcharge
0. Rs. 1,65,941/- Education Cess @4% Rs. 26,551/- Rs. 33,188/- Total Tax Rs. 6,90,316/- Rs. 8,62,894/- Thus, it is evident that the appellant had not calculated any surcharge for the reason that income was below Rs. 50,00,000/- whereas CPC calculated the surcharge at MMR. In this proceeding the appellant has submitted that no member of the society was eligible to receive any income from the society and hence the provisions of 167A are not attracted and the AO was therefore incorrect in levying the surcharge at MMR. The appellant has also relied upon the decision of Hon'ble ITAT Hyderabad in the case of Secunderabad Club Vs Assistant Commissioner of Income Tax (2002)
83. ITD 199 (HYD)in support of such claim. The submission of the appellant are considered. The issue raised of charging the surcharge at MMR in the case of an AOP is directly covered by the very Mall of Jaipur Owners Welfare Association, Jaipur. recent decision of ITAT, Bangalore in the case of Clestra Foundation Vs ITO ward 4(2)(3), Bangalore in dated 18.11.2024 reported in [2024] 169 taxmann.com 46 (Bangalore -Trib.) wherein it was held that Maximum Marginal Rate (MMR) includes surcharge in relation to highest slab of income even though income of assessee is way below Rs. 50 lakhs. The relevant extract of the order of the Hon'ble ITAT is as under: 5. We have carefully considered the rival submissions and perused the materials available on record. In the present appeal it is an undisputed fact that the assessee is a private trust and therefore should be taxed at the maximum marginal rate. There is no dispute with regard to the total income declared by the assessee in its return of Income. It is also an undisputed fact that the assessee has himself calculated the maximum marginal rate by applying the income tax rate applicable in relation to the highest slab of income in case of an Individual/AOP/BOI. Further the assessee himself calculated the surcharge in relation to highest slab of Income on Interest Income only. The sole dispute is that whether MMR includes surcharge in relation to highest slab also even though the income of the assessee is way below the 50 Lakhs 5.1 Before proceeding further, it is appropriate to take note of section 2(29C) of the Act for the purpose of this case, which reads as under: "2(29C)"maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year" 5.2 Thus, from the plain reading of above section, the expression "Maximum Marginal Rate" is the rate of income tax (including surcharge on income tax, if any) applicable in relation to the highest slab of income in case of an individual, AOP or BOI as specified in the Finance Act of the relevant year. We also take a note that "including surcharge on income tax, if any" has been put in a pair of marks (), which in our opinion indicate that the text within them is conditional i.e. the bracketed information only applies, if certain conditions are met as often seen with phrases like "if any". We are of the opinion that the inclusion of surcharge, if any implies that this amount is contingent upon the surcharge in relation to the highest slab of income as specified in the Finance Act of the relevant year. We agree with the view taken by the Id. CIT(A) that Finance Act of every year is only relevant to know the highest slab of rate of tax and surcharge. The word "if any" in the section 2(29C) of the Act is relevant, if the surcharge to the highest slab of income is mentioned in the relevant Finance Act and it will be applicable for a particular assessment year. Here the word "surcharge, if any" has relevance to levy of surcharge, if mentioned in the Finance Act. If surcharge of highest slab is mentioned in the Finance Act, then surcharge will be included in the tax and MMR will be calculated accordingly. If no surcharge is mentioned in the Mall of Jaipur Owners Welfare Association, Jaipur. schedule of Finance Act, then no surcharge will be included in the tax quantum for calculating the MMR. This word does not remedially suggest to include surcharge in MMR as per different slab rates of income. We are of the opinion that the information that is enclosed with a pair of brackets can be removed from a sentence and still make sense as they are mostly just extra information. Therefore, if surcharge is not specified in the Finance Act, then it will not be a part of maximum marginal rate and only rate of income tax in relation to the highest slab of income will be considered. Under the similar facts and circumstances, recently the coordinate bench of ITAT, Mumbai in the case of Anant Bajaj Trust v. Dy. Director of Income Tax, CPC in dated 26.8.2024 for the AY 2022-23 held as under "08. We have carefully considered rival contentions and perused the orders of the learned lower authorities.
9. In the present appeal, there is no dispute between the parties that the assessee should be taxed at the maximum marginal rate. The issue is how to calculate the maximum marginal rate.
10. The assessee has computed maximum marginal rate by taking the income tax rate applicable in relation to the highest slab of income in case of an individual. This is also not in dispute. Both the parties agreed that the income tax rate should be considered in relation to the highest slab of income in case of individual.
11. But the dispute is what should be the rate of surcharge applicable. According to the assessee the rate of surcharge shall be the surcharge applicable to the assessee according to the income slab of the assessee and should not be at the highest rate of surcharge provided in the finance act. According to the revenue, the surcharge rate should also be the highest rate of surcharge applicable in case of an individual. Section 2 (29C) defines the maximum marginal rate as under- [(29C) "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual 91. association of persons or, as the case may be, body of individuals) as specified in the Finance Act of the relevant year.) 12. According to the provisions of section 2 (290) the maximum marginal rate means the rate of income tax (including surcharge on income tax, if any). applicable in relation to the highest slab of income in the case of an individual as specified in the finance act of the relevant year. Thus, when an assessee is to be taxed at the maximum marginal rate, Maximum Marginal rates is to be arrived at by adding Highest slab of tax and Highest slab of surcharge applicable in case of an individual. This is also the opinion expressed in the Commentary of Chaturvedi & Pithisaris as well as of Vinod Singhania. The Id. CIT (A) has also quoted it extensively. We tend to agree with this view.
Mall of Jaipur Owners Welfare Association, Jaipur.
Language of law is also clear that maximum Marginal rate shall be Maximum rate of tax which is tax and surcharge of the highest rate in case of an individual 14. If the surcharge was to be charged according to the slab rates of the assessee, it was not required to be mentioned in section 2 (29C) of the Act. There would not have been any need to mention surcharge u/s 2 (29C) of the act because it would have been then computed under the finance Act as per slab applicable to income of the assessee. Thus, the purpose of mentioning surcharge in that section is to tax MMR as the Highest rate of tax for tax and surcharges. We should not read the section in the manner that word 'surcharge" mentioned in section 2 (290) becomes redundant 15. It is immaterial whether the CPC in one of the years accepted the ROI filed by the assessee, but when the issues are raised before us, we cannot hold that unsustainable view of revenue is in accordance with the law.
Honourable Kerala High court in case of C.V. Divakaran Family Trust[2002] 122 Taxman 405/254 ITR 222 (Kerala) held as under 2. We have heard Sri P.K.R. Menon, senior counsel for the revenue, and Sri P. Balachandran, counsel for the assessee. Sn Menon contended that the definition of 'miaximiumi marginal rate' contained in Explanation 2 to section 164(3) is free from doubt The counsel for the assessee contended that the interpretation placed by the Tribunal based on another decision of the Tribunal is correct. It is his contenbon that 'maximum marginal rate is not the maximum rate as rightly held by the Tribunal.
3. Explanation2 to section 164(3) which is the subject-matter of these references is as follows: "Explanation 2.-In this section, 'maximum marginal rate means the rate of income tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an association of persons as specified in the Finance Act of the relevant year." There is no dispute that section 164 is the relevant section under which the assessee has to be assessed. It is the charging section by itself and all that it says is that the 'maximum marginal rate of tax is to be applied on the computed income. 'Maximum marginal rate is defined as the rate of tax applicable in relation to the highest slab of income provided for association of persons in the relevant Finance Act. We feel that the definition is not capable of any doubt, and the only meaning that it admits is that the rate on the maximum slab of income for association of persons is to be treated as the maximum marginal rate of tax for the purpose of section 164. The Finance Act for each year prescribes various slabs for each category of assessees and the corresponding rates of tax applicable. We find that the rate of tax on the highest slab for association of persons under the relevant Finance Act is 55 per Mall of Jaipur Owners Welfare Association, Jaipur. cent and, therefore, the Assessing Officer rightly levied the same. The interpretation placed by the Tribunal for providing marginalization is against the definition contained in Explanation2 to section 164(3), When the statute says that the maximum marginal rate' is the rate applicable on the highest slab of income, there is no scope for enquiry into the meaning of marginal and we feel the Tribunal committed an error by assigning a literal interpretation to the definition clause contained in Explanation2. We, therefo therefore, find that the Assessing Officer has rightly applied the 'maximum marginal rate at 55per cent which was the rate applicable on the highest slab of income for association of persons under the relevant Finance Act. We find that the Calcutta High Court in Surendranath Gangopadhyaya Trust v. CIT [1982] 10 Taxman 203/138 ITR 583 (Bombay) and the Madhya Pradesh High Court in Piarelal Sakseria Family Trust v. CIT [1982] 136 ITR 583 (Madhya Pradesh) have taken a similar view in the matter. In view of our interpretation, the questions have necessarily to be answered in favour of the revenue and against the assessee and we do so."
Honourable Supreme Court in case of Gosar Family Trust. Jamnagar and Ors. v. Commissioner of income Tax, Rajkot and Ors (28.04.1995 SC)- MANU/SC/0316/1995 has held that "12. We must say that the policy of law as disclosed from Section 164(1) is to discourage discretionary trusts by charging the income of such trusts in the hands of trustees at the maximum marginal rate except in certain specified situations. The trust deed concerned herein is a discretionary trust of an extremely unusual type."
Thus, Levy of maximum marginal rate on Trust is a specific anti avoidance rule and therefore should be given a strict interpretation. Law prescribes that tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate. There is no intention to charge the assessee a bit lower than the rates of tax and surcharge applicable to an individual of maximum rate. We draw strength to hold so from the decision of Honourable Bombay high court in case of CIT V JK Holdings [[2003] 133 Taxman 443/270 ITR 593 (Bombay)] 19. Though we are aware about several decision of ITAT on this issue Namely (1) Lintas Employees Holiday Assistance (ITA No 1796 /MUM/2024 dated 26072024], (2) Ujjwal Business Trust Bombay V CPC ITA 602/M/2024 dt 28- 062024) (3) Tayals Sales Corporation [2003] 1 SOT 579 (Hyderabad) /ITO v. Tayal Sales Corporation [2003] 1 SOT 579 (Hyderabad), however as none of those decisions have considered the decision of honorable Supreme court and Honourable high courts and also the authoritative commentaries were also not placed before benches, we tend to follow the decision of Honorable High courts.
Mall of Jaipur Owners Welfare Association, Jaipur.
In the result, we confirm the order of the id. CIT (A) holding that maximum marginal rate is Correctly computed by the CPC taking the Maximum rates of Income tax and maximum rates of surcharge applicable in case of an individual for the AY.
Appeal of the assessee is dismissed." 5.3 Of late, again the same coordinate bench of ITAT, Mumbai in the case of Aaradhya Jain Trust v. ITO in [IT Appeal No. 2197 (Mum) of 2024, dated 7- 10-2024) dated 7.10.2024 for the AY 2022-23 held as under 8. We have carefully considered the rival contention and have also perused the orders of the lower authorities. In the present appeal, there is no dispute between the parties that assessee is a private discretionary trust, therefore, should be taxed at the maximum marginal rate. The issue involved is how to calculate the maximum marginal rate. The assessee has claimed while computing the maximum marginal rate by taking the Income Tax rate applicable in relation to the highest slab of income in case of an individual, this is also not in dispute. But the dispute is what should be the applicable rate of surcharge. The assessee claims that the rate of surcharge applicable to be assessee according to the income slab of the assessee and should not be at the highest rate of surcharge provided in the Finance Act. According to the Revenue, the surcharge rate should also be highest rate of surcharge applicable in case of an individual 9. Section 2(29C) of the Act defines maximum marginal rate. It provides that maximum marginal rate means the rate of income tax (including surcharge on income tax, if any) applicable in a relation to the highest slab of income in the case of an individual as specified in the Finance Act of the relevant year. Thus, according to the provisions, when assessee is to be taxed at maximum marginal rate, same is to be arrived at by taking highest slab of tax and highest slab of surcharge applicable in case of an individual. This view is already expressed in the commentary on Income Tax by Chaturvedi and Pithisaria as well as of the book published by Mr. Vinod Singhania. Even otherwise, language of law is clear that maximum marginal rate shall be maximum rate of tax and surcharge of the highest rate in case of an individual. If the surcharge was to be levied according to the slab rate of the assessee, it was not required to be mentioned in Section 2(29C) of the Act that rate of income tax (including surcharge of income tax, if any) applicable in relation to the highest slab of income in case of an individual. Thus, purpose of mentioning surcharge in that section is to compute maximum marginal rate as high rate of tax and also highest rate of surcharge. If one reads the provisions of the law as suggested by the learned A.R., mention of the word surcharge in Section 2(29C) of the Act becomes redundant. The definition is not capable of any doubt and only meaning that it admits is that the rate on the maximum slab of income and maximum rate of surcharge is to be treated as the maximum marginal rate. The Mall of Jaipur Owners Welfare Association, Jaipur. Finance Act for each year prescribes various slabs for each category of the assessee and the corresponding rates applicable. This view is also supported by the decision of the Hon'ble Kerala High Court in the case of CIT v. C.V. Divakaran Family Trust [2002] 122 Taxman 405/254 ITR 222 (Kerala). It is also true that the Policy of Law as suggested in Section 2(29C) of the Act is to discourage discretionary trust by charging the income of such trust in the hands of the trustee at the maximum marginal rate except in certain specified situation. Thus, such a policy is defeated, if we hold that the beneficiary of a trust is chargeable to tax and also surcharge at the highest slab, but the assessee trust is charged to tax at the highest slab but lower rate of surcharge. We also draw support from the decision of the Hon'ble Supreme Court in the case of Gosar Family Trust, Jamnagar etc v. CIT dated 28.04.1994 (MANU/SC/0316/1995).
10. The levy of maximum marginal rate on trust is thus specific anti Avoidance rule and therefore should be given a strict interpretation. Law prescribes that tax shall be charged on income in respect of which such person is so liable at the maximum marginal rate. There is no provision in the law to charge specific discretionary trust bit lower than the rates of tax and surcharge applicable to a beneficiary individual. We also draw strength from the decision of the Hon'ble Bombay High Court in the case of CIT v. JK Holdings [2003] 133 Taxman 443/270 ITR 593 (Bombay) 11. The learned A.R. have relied upon the several decisions of the coordinate Benches, however, none of those decisions has considered the decision of the Hon'ble Supreme Court and Hon'ble High Courts as well as the authoritative commentaries, as stated above. We are duty bound to follow those decisions.
12. In the result, we confirm the order of the learned CIT(A) holding that the maximum marginal rate is correctly computed by the Central Processing Centre by taking the maximum rate of income tax and maximum of rate of surcharge applicable in case of an individual for the assessment year and same is applicable on assessee, a private discretionary trust.
13. In view of above discussion, the Ground Nos. 1 to 5 of the appeal are dismissed.
The next contention of the assessee is that CPC does not have any power to vary the rate of surcharge by processing the retum of income u/s. 143(1) of the Act. For this proposition we find that CPC has power to compute the correct amount of tax and sum payable by the assessee in terms of provisions of Section 143(1)(b) and (c) of the Act. Therefore, on this ground also, we do not find any reason to interfere with the order of the learned CIT(A).
In the result, the appeal of the assessee is dismissed." 5.4 Since in the present case, the assessee has highly relied on the decision of ITAT Hyderabad 'B' Bench in the case of ITO v. Tayal Sales Corporation Mall of Jaipur Owners Welfare Association, Jaipur. [2003] 1 SOT 579 as well as decision of Hyderabad "SMC" Bench in the case of Sriram Trust, Hyderabad v. ITO (Exemptions) in to 441/Hyd/2024 dated 19.6.2024 for the AYs 2021-22 to 2023-24, in our opinion, the recent judgement of Mumbai Bench in the case of Anant Bajaj Trust cited (supra) has also considered the judgment in the case of Tayal Sales Corporation cited (supra) & therefore binding precedent. Accordingly, we respectfully following the decision in the case of Anant Bajaj Trust cited (supra) as well as Aaradhya Jain Trust cited (supra), we confirm the order of id. CIT(A) holding that Maximum Marginal Rate is correctly computed by the CPC taking the rate of income tax and surcharge applicable in relation to the highest slab of income in case of individual/AOP/BOI for the assessment year under consideration. With the above observations we dismiss the appeal of the assessee.
In the result, appeal of the assessee is dismissed. In the light of above decision, facts of the case, status of the appellant being an AOP and the mandate of the statute, it is held that the AO, CPC has correctly levied the surcharge at MMR. Consequently the grounds raised
in this appeal are dismissed.
6. In the result, appeal stands dismissed.”
As the assessee did not find any favour from the appeal filed before ld. CIT(A), who filed the present appeal against the said order of the ld. CIT(A) before this tribunal on the grounds as reiterated in para 2 above. To support the grounds so raised the ld. AR appearing on behalf of the assessee has placed reliance on the written submission which is extracted herein below:-.
SUBMISSIONS:
Mall of Jaipur Owners Welfare Association, Jaipur. 2.1. The entire edifice of the Revenue's case, as confirmed by the Ld. CIT(A)/NFAC, is built on the erroneous assumption that the Appellant's income is liable to be taxed at the Maximum Marginal Rate (MMR). This assumption is not only incorrect but is in direct contravention of the explicit language of Section 167B(1) the Income Tax Act, 1961. 2.2. The provision that mandates the application of MMR in the case of an AOP where the shares of its members are indeterminate is Section 167B of the Act. A plain reading of this provision reveals a clear and unambiguous statutory exclusion that is fatal to the Revenue's position. The section reads as follows: Charge of tax where shares of members in association of persons or body of individuals unknown, etc. 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.
2.3. The appellant is a society registered under the Rajasthan Societies Registration Act, 1958. This state legislation is a law corresponding to the Societies Registration Act, 1860. Therefore, the Appellant falls squarely within the exclusion carved out by the legislature in Section 167B(1). The consequence of this is unequivocal. The mandatory charge of tax at MMR under Section 167B is statutorily inapplicable to the Appellant.
2.4. Ld. lower authorities have completely overlooked this explicit statutory bar. The entire order of the ld. CIT(A), which delves deep into the components of MMR (i.e., whether it includes surcharge), is rendered an academic exercise built on a foundation that does not exist in law for the assessee.
2.5. The appellant is a mutual welfare society where members contribute for common benefit and are not entitled to any specific, individual share in the income of the society for their personal enrichment or profit. The concept of "share of a member" as envisaged for profit-oriented ventures does not apply here. The members do not have a beneficial interest in the income in a manner that it can be said to be their personal income. Therefore, provisions Mall of Jaipur Owners Welfare Association, Jaipur. of Section 167B are not applicable to the society. Therefore, income falls to be taxed at the rates ordinarily applicable to the total income of an Association of Persons, which are the slab rates prescribed in the annual Finance Act.
2.6. Reliance is placed on the following judgement wherein it has been held that Societies registered under Societies Registration Act would be chargeable to tax at the slab rates prescribed in the Finance Act and not at the Maximum Marginal Rate.
Case Law Ratio laid down Air Force Navy Farm When a society is registered under the Societies Owners Welfare Registration Act, 1860, the provisions of Section Association 167B of the Income Tax Act, 1961—regarding taxation at the maximum marginal rate (MMR) in case of indeterminate or unknown shares of members—are not applicable. Such a society shall be taxed at normal rates, not at MMR, even if assessed as an Association of Persons (AOP)
2.7. The assessee had explicitly contended in the Grounds of Appeal (GOA) that the basic exemption limit should be applied to their case, and that the provisions of MMR were not applicable [Page-4-5 of Ld. CIT(A) Order] However, ld. CIT(A), in his order at Page-5, summarily treated all grounds as being related to the levy of surcharge, thereby completely overlooking the foundational plea of the assessee.
2.8. In view of the explicit statutory exclusion contained in Section 167B(1) of the Act, the very basis for applying MMR to the Appellant's income is non- existent. The Appellant's total income of Rs. 22,12,550 for A.Y. 2024-25 should be taxable at the normal slab rates prescribed for an Association of Persons/Individual. 2.9. It is submitted that the assessee inadvertently,while filing the return of income, computed the tax liability by applying a flat rate of 30%,thereby failing to avail itself of the basic exemption limit and the benefit of applicable slab rates of taxation available to an individual. Notwithstanding this inadvertent error in the return filed voluntarily by the assessee, it was incumbent upon the ld. AO as well as the ld. CIT(A), in exercise of their quasi-judicial powers, to compute and levy tax strictly in accordance with the provisions of law. It was thus inappropriate and contrary to established principles of taxation for the authorities to take undue advantage of an unintentional and 2.10. The correct calculation of tax i.e., applying the slab rates is as under:
Particulars Calculation as Calculation as per Correct Calculation as per ROI Intimation u/s per slab rates 143(1) Total Income 22,12,550 22,12,550 22,12,550 Tax 6,63,765 6,63,765 4,76,265 Surcharge - 1,65,941 Not Applicable Education Cess 26,551 33,188 19,051 Total tax 6,90,316 8,62,894 4,95,316 2.11. Attention is drawn towards towardsDepartment Circular No. 14 (XL-35) of 1955 dated April 11,1955, wherein it was stated as under:
“Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department.”
2.12. Hon’ble ITAT Rajkot Bench in the case of Rupam Impex I.T.A. No.: 472/RJT/2014 held that “….it is not open to the Revenue authorities to take advantage of mistakes committed by the assessee. Tax cannot be levied on an assessee at a higher amount or at a higher rate merely because the assessee, under a mistaken belief or due to an error, offered the income for taxation at that amount or that rate. It can only be levied when it is authorized by the law, as is the mandate of Article 265 of the Constitution of India. A sense of fairplay by the field officers towards the taxpayers is not an act of benevolence by the field officers but it is call of duty in socially accountable governance. If authority is needed even for justifying this approach to the taxpayers, one need not look beyond the circulars issued by the CBDT itself. In Circular No. 14, which has been taken note of by the Hon’ble Bombay High Court in the case of Dattatraya Gopal Bhotte vs. CIT [(1984) 150 ITR 460 (Bom)], the Board has these words of advice for the field officers: ".............Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist taxpayer in every reasonable way, particularly in the matter of claiming and securing any relief Mall of Jaipur Owners Welfare Association, Jaipur. and in this regard the officers should take initiative in guiding the taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would in the long run benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Government........" 2.13. Reference may be drawn to Article 265 of the Constitution of India which requires that: there must be a law; the law must authorize the tax; and the tax must be levied and collected according to the law.
2.14. Reliance is drawn towards the recent judgement of Hon’ble ITAT, Delhi Bench in the case of Samast Vikas Ltd. vs. CIT [2025] 175 taxmann.com 145 (Delhi - Trib.), wherein it has been held as under:
2.14i. The capital asset being the land bearing Khasra no.32 situated at Fatehabad, Village Bundhera, Tehsil District-Agra sold to its 100% subsidiary M/s Bloom Inn Private Ltd. was not taxable in view of provisions of section 47(iv) of the Act and was therefore, wrongly offered to tax by the assessee in its return of income filed on 29.09.2016 for AY 2016-17 and was therefore clearly entitled to this relief in view of the Board Circular i.e. while computing the total income of the assessee, the same should not have been held as a taxable income u/s 45 of the Act as was done by the AO in the assessment order dated 30.12.2018.
2.14ii. On similar facts, the Hon'ble Delhi High Court in the case of CIT (International Taxation) v. Heidrick and Struggles Inc. [2024] 461 ITR 33 (Delhi) held that the Revenue can seek to levy tax only on income which falls within the ambit of the Act.
2.14iii. It further held that merely because the assessee placed the income under a wrong head, cannot possibly make it amenable to imposition of tax. In this cited case, the assessee had wrongly offered an amount of Rs.2,84,40,475 received from Heidrick and Struggles Pvt. Ltd. as income from other sources, which according to the assessee was not taxable, in view of the provisions of India US Tax Treaty as the services rendered by the assessee do not specify the 'make available clause of India US Tax Treaty'. The same was not accepted by the AO and the application u/s 154 of the Act of the assessee was rejected by the AO and the appeal against the said rejection was also dismissed by the ld. CIT(A).
2.14iv. On further appeal, the co-ordinate bench of the Tribunal allowed the appeal of the assessee relying upon Circular No. 14 of 1955 dated April 11, 1955 of the CBDT and the order of the Kolkata Tribunal in the case of Madhabi Nag Bankura v. ACIT [IT Appeal No. 512(Kol) of 2015, dated 9-12-2015] and of the Hon'ble Delhi High Court in the case of CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303 (Delhi)
2.14v. This judgment also reiterates the spirit of the CBDT Circular 14-XL-55 dated 11.05.1955, that the Department must collect only lawful taxes, and not take technical advantage of a taxpayer’s ignorance. That the tax should be collected only to the extent to which a taxpayer is liable and Officer of the Department should assist the taxpayer in every reasonable way particularly in the manner of securing relief and should take initiative in guiding the taxpayer where any proceedings suggest that some refund or relief is due to the taxpayer 2.15. In view of the above legal position, the assessee may please be allowed the benefit of basic exemption limit. 2.16. The levy of surcharge is governed by Finance Act. For the A.Y. 2024-25, the Finance Act, 2023, prescribes that surcharge is leviable on an AOP only if its total income exceeds the threshold of Rs. 50,00,000.
2.17. The admitted total income of the assessee for the year under consideration is Rs. 22,12,550. This amount is well below the statutory threshold for the levy of surcharge. Therefore, the action of ld. AO(CPC), as confirmed by Ld. CIT(A), in levying a surcharge of Rs. 1,65,941 is contrary to law and without jurisdiction.
2.18. The case laws relied upon by ld. CIT(A) are distinguished as under: Case Name (Cited in Assessee's Key Ratio of the Decision Reason for Inapplicability to CIT(A) Order) Status in Case Appellant Clestra Foundation Private Trust MMR as defined in Sec 2(29C) Appellant is a registered mutual vs. ITO Ward 4(2)(3) (AOP) includes the highest rate of tax welfare society, not a private trust. surcharge, as it is an anti- The anti-avoidance rationale is 1478/Bang/2024 avoidance measure. wholly inapplicable. Anant Bajaj Trust v. Private MMR includes the highest slab Appellant is not a private DDIT Discretionary of tax and the highest slab of discretionary trust. Further, the Trust surcharge applicable to an Appellant is statutorily excluded individual. from MMR u/s 167B(1). Aaradhya Jain Trust Private Confirmed the view in Anant The policy to discourage private v. ITO [ITA No. Discretionary Bajaj Trust. Stated that the trusts does not apply to a bona fide 2197 (Mum)/ 2024] Trust policy of law is to discourage welfare society. The legal character discretionary trusts. is fundamentally different. C.V. Divakaran Family Trust The definition of MMR is clear The case dealt with the Family Trust v. CIT and means the rate applicable on interpretation of MMR for a trust, [2022] 122 taxman the highest slab of income. not its applicability. For the 405/254 ITR 222 Appellant, the applicability of (Kerala) MMR itself is barred by Sec 167B(1) and CBDT Circular 320. Gosar Family Trust v. Discretionary The policy of law (u/s 164) is to This case explicitly links MMR to CIT (SC/0316/1995) Trust discourage discretionary trusts the policy of discouraging by charging them at MMR. discretionary trusts, a policy that has no relevance to a mutual welfare society.
2.19. The entire line of judicial precedents relied upon by the Ld. CIT(A) are wholly distinguishable and inapplicable, as those cases pertain to private discretionary trusts and are founded on an anti-avoidance rationale that has no bearing on the assessee. In view of the above benefit of basic exemption limit may please be granted to the assessee and levy of surcharge may please be quashed.”
6. Per Contra, the ld. DR supported the orders of the authorities below.
We have carefully considered the submissions from both sides and perused the material available on record. The key issue to adjudicate is whether the assessee, a registered welfare society, is liable to be taxed at the Maximum Marginal Rate under Section 167B of the Act, and whether the surcharge levied by CPC is justified. Reading of Section 167B(1) of the Act clearly stipulates that the provision of Maximum Marginal Rate does not apply to societies registered under the Societies Registration Act, 1958 or any corresponding State Act. It is an undisputed fact that the assessee is registered under the Rajasthan Societies Registration Act, Mall of Jaipur Owners Welfare Association, Jaipur. 1958. Therefore, the assessee falls squarely within the statutory exclusion provided in Section 167B(1), making the application of MMR legally untenable.
Further we note from the submissions of Ld. AR of the assessee that the lower authorities erred in applying the Maximum Marginal Rate (MMR) as prescribed under Section 167B of the Act. It was submitted that the assessee is a society duly registered under the Rajasthan Societies Registration Act, 1958, and therefore explicitly falls within the statutory exclusion provided under Section 167B(1). It was further argued that the lower authorities ignored the explicit statutory exclusion and wrongly imposed a surcharge based on the incorrect assumption of MMR applicability. Reliance was placed upon the judgment of the ITAT, Delhi Bench, in Air Force Navy Farm Owners Welfare Association (I.T.A No.1992/Del/2019) to support the contention that the MMR is not applicable to registered societies.
We note from the submissions of Ld. AR of the assessee that the assessee had inadvertently computed tax at the rate of 30% in the return of income filed, whereas the correct approach should have been to compute the tax by taking the benefit of applicable slab rates. It was contended by the ld. AR of the assessee that, irrespective of the Mall of Jaipur Owners Welfare Association, Jaipur. inadvertent mistake committed by the assessee while filing the return, it was incumbent upon the lower authorities, acting as quasi-judicial authorities, to rectify such an error and compute the tax liability at the correct rates.
Further we note that to support his submission Ld AR for the assessee placed reliance on Circular No. 14 (XL-35) dated April 11, 1955, and Co- ordinate Bench of ITAT Rajkot Bench in Rupam Impex, and ITAT Delhi Bench in Samast Vikas Ltd. [2025] 175 taxmann.com 145 (Delhi-Trib), copies of which were placed before us during the hearing. It was also submitted that even if such rectification was not done at the CPC level, the NFAC should have rectified this error at the appellate stage itself.
Taking into consideration of facts and circumstances of the case, We find merit in the contention of the ld. AR that the lower authorities erroneously overlooked this explicit statutory exclusion. Further, we are in with the judicial precedent cited, in this regard, cited before us, as rendered by ITAT, Delhi Bench in the case of Air Force Navy Farm Owners Welfare Association, that registered societies under Societies Registration Act are to be assessed at normal
Now, the next issue to be adjudicated by us is whether the assessee, after having filed the return of income voluntarily offering tax at the rate of 30%, can subsequently claim the assessment of tax at slab rates. In this context, we have carefully examined the decisions placed before us by the Ld. AR of the assessee as well as Departmental Circular No. 14 (XL-35) dated April 11, 1955. It is a well-established proposition that tax must be levied strictly in accordance with the law in force, and the Revenue authorities are obligated not to take advantage of the errors or mistakes committed by the assessee in filing its return of income. In the present case, the assessee, being a registered society, was clearly eligible for taxation at slab rates, despite having inadvertently computed its tax liability at the flat rate of 30% in its return. It was the responsibility of the lower authorities to rectify this mistake and grant the benefit of applicable slab rates to the assessee. We have perused the judgments of the ITAT Rajkot Bench in the case of Rupam Impex (ITA No.472/RJT/2014), the ITAT Delhi Bench in the case of Samast Vikas Ltd. [2025] 175 taxmann.com 145 (Delhi-Trib), and the relevant Departmental Circular. After due consideration of these judicial precedents and Circular, we find substantial merit in the plea raised by the assessee.
Mall of Jaipur Owners Welfare Association, Jaipur. 13. Accordingly, we direct the AO to compute the assessee’s tax liability afresh, based on the observation made hereinabove.
In the result, appeal of the assessee is allowed.
Order pronounced in the open Court on 11/09/2025.