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Income Tax Appellate Tribunal, ‘’ SMC’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-9, Ahmedabad, dated 10/07/2018 arising in the matter of assessment order passed under s. 143(1) of the Income Tax Act, 1961 (here-in-after referred to as "the Act"), relevant to the Assessment Year 2015-16.
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The assessee has raised the following grounds of appeal:
1) That Hon’ble CIT(A)/Ahmedabad has erred in passing the appeal order by attracting provision of section 164 of the IT Act which is covered in the case of your appellant and dismissed the apeal 2) That your appellant is a recognized registered charitable trust and not a Association of Person (A.O.P) as treated by Dy CIT(CPC)/Banglore as well as Hon'ble CIT(A)-9/A'bad which is erroneous and unjustifiable. 3) That the Dy CIT (CPC), Banglore has passed the order u/s 143(1) of the I T Act determined total income of Rs 82,360/- which is below taxable income but applied Maximum Marginal rate @ 30%and tax payable them on Rs 26,150/-. 4) That the trust has made entire fund of the trust in the Fixed deposit with Union bank of India as per Sec. 11(5) of the IT Act. 5) That the Income of the Trust is very small and it could not be possible to distribute income amongst the large people of the Gujarat Rohit Samaj. It is therefore prayed before Hon'ble ITAT bench A'bad that tax levied @30% . May kindly be deleted and allow relief of tax of Rs 26150/-.
Your appellant craves liberty to add, alter, modify or withdraw any grounds before hearing in the appeal.
The only issue raised by the assessee is that the learned CIT(A) erred in confirming the order of the AO by applying the maximum marginal rate of tax on the income declared by it though the same was below the taxable limit.
The facts as emerging from the records available before us are that the assessee for the year under consideration has filed return of income declaring an income of Rs. 82,359/- under the head income from other sources. As per the assessee, the income was below the taxable limit as it was chargeable to tax at the rate as applicable to an individual. However, the assessee was treated as Association of persons in the intimation generated under section 143(1) of the Act dated 07th March 2017 whereby the tax at maximum marginal rate was applied without giving any benefit of the exemption as applicable in the case of an individual. As such, a demand of tax for Rs. 26,147/- including interest was raised in the name of the assessee in the intimation under section 143(1) of the Act.
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Aggrieved assessee preferred an appeal to the learned CIT-A.
The assessee before the learned CIT(A) contended that its status should be considered as AOP which is chargeable to tax Act at normal/ slab rate of tax as applicable to an individual. Therefore, the assessee is entitled for the basic exemption limit as available to an individual and therefore slab rate of tax should be applied. As per the assessee the basic exemption limit available to it for the year under consideration is of ₹2.50 lacs which is much higher than the amount of income declared by it in the income tax return.
6.1 It was also contended that income received by the assessee represents the interest income on the fixed deposits which is the investment covered under the provisions of section 11(5) of the Act. Accordingly, the same cannot be subject to rate of tax at the maximum marginal rate in view of the judgment of Hon’ble Bombay High Court in the case of DIT (Exemption) vs. Sheth Mafatlal Gagalbhai Foundation Trust reported in 249 ITR 533
However the learned CIT-A disregarded the contention of the assessee by observing that the case of the assessee is covered by the provisions of section 164 of the Act which provides to charge the tax at maximum marginal rate.
7.1 Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 20 and contended that the proviso to section 12A(2) of the Act provides to grant the benefit of exemption under section 11 of the Act even if the trust was not registered under section 12AA of the Act subject to the condition that the assessment for the preceding year was pending in which registration under 12AA was granted and there was no change in the objects and activities of the trust.
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8.1 The learned AR also contended that rate of tax as provided under section 164 of the Act as applicable to an individual should be considered. As such, it was the contention of the learned AR that the slab rate of tax should be applied on the income of the trust.
On the contrary the learned DR contended that the intimation generated under section 143(1) of the Act is not an assessment and therefore the benefit of the proviso to section 12 AA of the Act cannot be granted. The learned DR in support of his contention has relied on the judgment of Hon’ble Gujarat High Court in the case of S.R. Koshti vs. CIT reported in 276 ITR 165. The learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee being a trust was registered in the year 1998 as Public Trust with Charity commissioner, Ahmedabad under Mumbai Public Trust Act 1950. The assessee has filed the application for the registration under section 12AA of the Act vide application dated 21st March 2016 which was approved by the learned CIT exemption by granting the registration under section 12AA of the Act vide order dated 11th August 2016 which was effective from the assessment year 2016-17. Thus there is no ambiguity to the fact that the benefit of the exemption as provided under section 11 of the Act shall be available to the assessee from the assessment year immediately following the financial year in which the application for registration under section 12AA of the Act was made in pursuance to the provisions of sub section (2) of section 12AA of the Act. However, there is an exception provided in the proviso attached to subsection 2 of section 12AA of the Act which states that the benefit of the provisions of section 11 shall also be applicable to the trust with respect to the income derived from the property held under trust for any preceding assessment year of which the assessment is pending before the assessing officer as on the date of such registration and there
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was no change in the objects and activities of such trust. Thus the 1st controversy arises weather the assessment was pending before the assessing officer as on the date of registration granted by the learned CIT exemption. First of all, it has to be seen whether intimation generated under the provisions of section 143(1) of the Act is an assessment in the manner as provided under the proviso attached to section 12A(2) of the Act. This question has been answered by the Hon’ble Gujarat High Court in the case of S.R. Kosthi vs. CIT reported in 276 ITR 165 wherein it was held as under: On a plain reading of the Explanation to section 143 which was omitted by Finance Act, 1999, with effect from 1-6-1999, it became clear that even for the limited period when the Legislature wanted the intimation to be deemed to be an order, it was for limited purpose, namely, for the purposes of appeal under section 246 and revision at the instance of an assessee under section 264. Thus, even when the said Explanation was on the statute book, the power to invoke the provision of section 263 could not be exercised in the circumstances. For the year under consideration, admittedly, the said Explanation was not on statute book. The Commissioner, therefore, could not have, in the circumstances, treated the intimation as an order for the purposes of non-suiting the assessee by treating intimation dated 28-3- 2002 as being an order of assessment and, thus, denying the assessee a statutory right to file a revised return within the period of limitation. The revised return was filed within the period of limitation and was hence, valid. In those circumstances, the finding recorded by the Commissioner under section 263 that the revised return was non est in law, could not be sustained and was, accordingly, held to be bad in law. [Para 12]
10.1 In view of the above, we hold that the intimation generated under section 143(1) of the Act is not an assessment and therefore we hold that the benefit as provided under the 1st proviso to subsection 2 of section 12AA of the Act is unavailable to the assessee.
10.2 In addition to the above, we also note that the assessee while filing the return of income has not claimed the benefit of the provisions of section 11 of the Act which can be verified from the computation of income available on pages 1 to 3 of the paper book. Thus, we are not convinced with the argument of the learned counsel for the assessee.
The 2nd controversy arises for our adjudication whether the rate of an individual should be applied or the maximum marginal rate of tax in the manner as
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provided under the provisions of section 164 of the Act. Admittedly, the person has filed the return of income in the representative capacity in the manner as provided under clause (iv) of section 160 of the Act. To this proposition, there is no dispute. It is also not under challenge that the trust on hand is a discretionary trust meaning thereby the beneficiaries of the trust are not known. In other words the trust being public trust was formed to carry out the charitable activities as evident from the trust deed, placed on pages 9 to 15 of the paper book. It was also provided in the trust deed that ownership of all money and the properties of the trust shall be of the trust and no member/organization shall have right of ownership. Likewise, in the event of dissolution of the trust, all the property of the trust after meeting the liabilities would be transferred to some other trust carrying on similar activity which can be verified from the registration certificate granted by the learned CIT exemption under section 80G of the Act which is placed on pages 17/18 of the paper book. Based on the above, there is no scope of confusion with respect to the following: i. The assessee was not entitled for the benefit of exemption under section 11 of the Act for the year under consideration And ii. The beneficiaries of the trust were not known. The exception clause provided under section 164(1) of the Act was not applicable to the assessee. 11.1 Thus in the light of the above discussion it can be concluded that the tax shall be charged on the income of the assessee at the maximum marginal rate in pursuance to the provisions of section 164(1) of the Act.
11.2 At this juncture, we find pertinent to deal with subsection (2) of section 164 of the Act which is applicable to a trust which is entitled for the benefit of the provisions of section 11 of the Act. As such subsection (2) of section 164 of the Act provides to charge the tax on the part of income which is not exempt treating the same as income of the Association of persons. However, in the case on hand, the trust before us is not eligible for exemption under section 11 of the Act for the year
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under consideration. Therefore, the same cannot be treated as Association of persons in the manner as provided under subsection (2) of section 164 of the Act. In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the authorities below. Hence, we uphold the order of the learned CIT(A). Thus the ground of appeal of the assessee is hereby dismissed.
In the result the appeal filed by the assessee is dismissed.
Order pronounced in the Court on 27/04/2022 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/04/2022 Manish