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Facts
The assessee, a charitable trust, filed its return of income for AY 2021-22. The processing officer applied the Maximum Marginal Rate (MMR) instead of normal slab rates, and also levied interest under Section 234C. The assessee appealed to the CIT(A), who dismissed the appeal.
Held
The Tribunal held that Section 167B of the Income Tax Act, which prescribes MMR, is not applicable to the assessee, a public charitable trust, as the beneficiaries' shares are not indeterminate. The Tribunal also referred to CBDT Circular No. 320/1982, which clarifies that tax should be applied at normal rates for such trusts.
Key Issues
Whether the Maximum Marginal Rate (MMR) is applicable to a charitable trust instead of normal slab rates, and whether interest under Section 234C was correctly levied.
Sections Cited
143(1), 234C, 167B, 10(25), 164(1)(iv)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES ‘E’: NEW DELHI.
Before: SHRI S. RIFAUR RAHMAN & SHRI RAJ KUMAR CHAUHAN
PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)ADDL/JCIT (A), Agra (hereinafter referred to ‘ld. CIT (E)’) dated 20.03.2025 for Assessment Year 2021-22.
At the time of filing of appeal, the Registry has pointed out a defect that appeal is time barred by 83 days.
We have heard both the counsels on the issue of condonation of delay. In our considered opinion, there was a reasonable cause for the delay in filing the appeal. Therefore, we condone the delay in filing the appeal before the Tribunal.
Brief facts of the case are, assessee filed its return of income on 11.10.2021 declaring Total Income at Rs. 53,60,300/-. The above return was processed u/s 143(1) of the Income Tax Act (in short “Act”) and they proceeded to determine the taxable income and adopted maximum marginal rate (MMR), instead of applying normal slab rates applicable in the case of the trust. In that process the interest determined u/s 243C of the Act also reworked.
Aggrieved with the order, assessee preferred an appeal before NFAC, Delhi and filed detailed submissions objecting to adoption of tax rates of MMR instead of Slab rates. After considering the submissions of the assessee Ld. CIT(E) dismissed the grounds raised
by the assessee and also rejected the case laws relied by the assessee.
6. Aggrieved with the above order assessee is in appeal before us and raised following grounds of appeal:- I RATE OF TAX:
1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [CIT(Appeals)] erred in confirming the Tax levied by the learned Assessing Officer (CPC) at flat rate of 30%, instead of normal slab rates applicable in the case of the Appellant while processing the Return of Income under Section 143(1) of the Act.
1.2 The learned CIT(A) failed to appreciate that the Appellant is an Association of Persons (AOP), a charitable trust not availing benefits of Section 11 of the Act and is liable to pay tax at the slab rates applicable in the case of an Individual, etc.
1.3 The learned CIT(Appeals), failed to appreciate the submissions made by the Appellant. The learned CIT(Appeals) failed to consider and deal with various case laws relied upon and referred to by the Appellant.
1.4 It is submitted that the issue involved is certainly a debatable question of law and hence tax at a higher rate could not have been imposed while processing the Return of Income under section 143(1) of the Act.
1.5 It is submitted that tax payable by the Appellant is increased in gross violation of principles of natural justice, i.e. without affording any opportunity of being heard to the Appellant.
The Appellant prays that the learned Assessing Officer may kindly be directed to re-compute the tax by applying the normal slab rates and reduce the tax levied accordingly.
II. INTEREST UNDER SECTION 234C OF THE ACT:
On the facts and in circumstances of the case and in law, the learned CIT(A) erred in levying interest of Rs 6,205/-instead of Rs. 1,377/-under the provisions of Section 234C of the Act, while processing the Return of Income under Section 143(1) of the Act.
The appellant prays that the erroneous interest charged under Section 234C of the Act may kindly be deleted as the same is contrary to the law and unwarranted.
The appellant hereby reserves the right to add to, alter or amplify the above grounds of appeal.
7. At the time of hearing Ld. AR of the assessee submitted that assessee is a charitable trust engaged in carrying out charitable activities by granting donations to other trusts/institutions holding valid eligibility certificates and carrying on charitable activities for the public at large. The assessee has not claimed/nor it is entitled to the benefits of exemption under Section 11 of the Act. Accordingly, the assessee filed the Return of Income in the status of Association of Persons (AOP). He submitted that the CPC had wrongly applied the tax rates and also charged additional interest u/s 243c of the Act. Further, he submitted that before making the above changes CPC has not given opportunity to the assessee to file its objection, 8. At the time of hearing Ld. AR submitted the issue under consideration is squarely covered in the case of Coordinate Bench decisions in Vindhya Trust order dated 23.07.2025 & Jasmina Trust 2025 order dated 12.09.2025.
On the other hand, Ld. DR relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record, we observed that the issue and grounds of appeal
raised by the assessee against the adoption of tax rate in the case of the assessee and the issue is whether the tax should be applied in the case of the assessee by adopting MMR or Regular Tax Slabs. We find that the exactly similar issue was considered by the coordinate Bench in the case of Vindhya Trust & Jasmina Trust (Supra). The issue under consideration is dealt by the coordinate bench as under:-
7. Considered the rival submissions and material placed on record. We observe that in the current assessment year, lower authorities have applied the rate of MMR and also applied surcharge applicable to AOP as applicable to section 167B (1) of the Act. However, it is brought to our notice that the constitution and functions of the assessee are exactly similar and consistently followed by the assessee. In subsequent assessment year ie. 2022-23, Id. CIT (A) has considered the similar facts on record and allowed the same by relying on the CBDT circular. For the sake of brevity, the same is reproduced below :-
7.2.5. Section 167(1) of the Act, makes it very clear that this section would not apply to the company or a co-operative society or a society registered under the Societies Registration Act. 1860 (21 of 1960), or under any law corresponding to that Act in force in any part of India. The appellant is a charitable trust registered under Charitable and Religious Trust Act, 1920 and therefore, appellant can't be subjected to taxa MMR at any cost
7.2.6. The appellant being a public charitable trust, there profit ratio shares can't be allocated among the members and once right is not allocated, the question whether the shares are determinate or indeterminate doesn't arise. Further, this organization was not formed for a benefit of few individuals, like in private trusts and therefore sharing of income and determination of income of each individual does not arise. As per sub-section (2) of section 1678 of the Act which deals with association of persons or body of individuals, not being a case falling under sub-section (1), where individual shares of members are not indeterminate or unknown, in other words, the shares of members is known and fixed is also not applicable to facts of the appellant for the reason mentioned supra. Hence, the rate of MMR under both sub sections (1) and (2) of 1678 is not applicable to appellant case.
72.7. It is pertinent to refer to the Circular of the CSDT in No. 320, dated 11.01.1982. The said circular is reproduced as under.
"Circular: No. 320 [F. No. 131(31)81-TP (PL)), dated 11-1-1982- SECTION 167A ASSESSMENT WHERE SHARES OF MEMBERS UNKNOWN)
Whether the section is applicable to income received by trustees
A reference is invited to paragraph 15. 1 to 15.7 of the Explanatory Notes on the provisions relating to direct taxes in the Finance Act, 1981 [Circular No. 308, dated 29-6-1981) which explain the scope and ambit of section 167 A. as inserted by the Finance Act, 1981
2 A question has been raise whether the provisions of section 167 A of the Income-tax Act which provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown would also apply to income receivable by trustees on behalf of provident funds, superannuation fonds, gratuity funds, pemsion funds, ete, created bona fide by persons carrying on business or profession exclusively for the benefit of the persons employed in such business The Board have been advised that cases where income received by the trustees on behalf of a recognized provident fund, approved superannuation fund and approved gratuity fund is governed by section 10(25) of the Income-tax Act, the question of their being charged to tax does not arise. So far as cases where income is receivable by the trustees, on behalf of an unrecognized provident fund or an unapproved superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by section 164(1)(iv) of the Income-tax Act, as hitherto. Similarly, in thẻ cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new section 167 A will not be attracted and accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate".
7.2.8. In view of the above, the appeal of the appellant is allowed and AO is directed to tax the appellant's income at the normal tax rates applicable to AOP or Body of Individuals for the AV 2022-23
Similarly, we observe that ITAT, Cochin Bench in the case of Mahakavi Edasseri Smarka Trust (supra) considered the similar issue and held as under- We again find no reason for application of section 1678 of the Act, prescribing the maximum marginal rate in the instant case, which is one of a charitable trust. Section 1678, as a reading of the provision would show, is only where the shares of the beneficiaries of the trust are not known. The assessee registered as a charitable trust, is a public body and, accordingly, there is no question of it's beneficiaries being individual members, whose shares have therefore to be defined. The application thereof in the instant case is wholly misconceived. The matter in fact stands clarified by the Board per it's Circular No. 320, dated 11/01/1982, also binding on the Revenue. The tax rate accordingly is to be computed as per the normal rates as applicable to Association of Persons. The same, in our view, is again an apparent mistake and, where contested, outside the ambit of s. 143(1)((a) in the first instance, so that it could not have been effected there-under. 4.7 We decide accordingly."
Respectfully following the above decision and also the decision of the Ld. CIT (A) in subsequent assessment year i.e. 2022-23, we allow the grounds raised
by the assessee.
11. Respectfully following the above decisions, we are inclined to allow the grounds raised by the assessee.
12. In the result appeal filed by the assessee is allowed.
13. Order pronounced in the open court on this day of 6th February, 2026.
Sd/- Sd/- (RAJ KUMAR CHAUHAN) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 06.02.2026 *Mittali Sr. PS