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Facts
The assessee, a trust, filed its return of income. The AO/CPC processed the return and computed tax liability by taxing the income on the basis of Maximum Marginal Rate (MMR) instead of the normal rate, and levied interest under sections 234A, 234B, and 234C. The assessee claimed status as a trust by virtue of registration under the Rajasthan Public Trust Act, 1959, but did not provide details of registration under Section 12AA of the Income Tax Act, 1961.
Held
The Tribunal held that in the absence of registration u/s 12AA of the Income Tax Act, 1961, the entire income of the appellant trustee shall be subject to Normal Tax Rate as per the proviso to section 164(2) of the Act, as applicable in the case of an AOP. The impugned order passed by the CIT(A) was found to be infirmity and perverse.
Key Issues
Whether taxing the income of the assessee trust at Maximum Marginal Rate (MMR) instead of the normal rate, and levying consequential interest, is justified when the trust is not registered under Section 12AA of the Income Tax Act, 1961.
Sections Cited
143(1), 234A, 234B, 234C, 234D, 246, 164(2), 11, 12, 13(1)(b), 13(1)(c), 13(1)(d), 12AA
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Income Tax Appellate Tribunal, JAIPUR BENCHES, “SMC” JAIPUR
Before: SH. SANDEP GOSAIN & DR. M. L. MEENA
The captioned appeal has been filed by the assessee against the order of the ld. CIT, Appeal/ADDL/JCIT(A), Bhubaneshwar (hereinafter referred to as “the JCIT(A)” dated 24.07.2024 which is arising out of the Assessment Order dated 16.12.2019 passed u/s 143(1) of the Income Tax Act, 1961 (in short “the Act”) by the DCIT, CPC, Bengaluru (in short “The AO, CPC”) in respect of Assessment Year: 2018-19.
The assessee has raised the following grounds of appeal:
“1.1. The impugned assessment order u/s 143(1) dt. 16.12.2019 is, are bad in law, illegal, invalid, void ab-initio on facts of the case, for want of jurisdiction, and also barred by limitation and various other reasons and hence the same may kindly be quashed. 1.2 The Id. AO has grossly erred in law as well as on the facts of the case in passing the ex-parte order without providing adequate and reasonable opportunity of being heard and in gross breach of law. Hence the additions so made by the id. AO may kindly be quashed and delete.
2. The Id. CIT(A) has grossly erred in law as well as on the facts of the case in confirming the action of the Id. AO in taxing the income of assessee on the basis of Maximum Marginal Rate (MMR) on the total income in place of normal rate as applicable as per law in the present case and erred in raising the demand. Hence the tax so charged on MMR basis by the AO and confirmed by the Id. CIT(A) is being totally contrary to the provisions of law and facts on the record and hence same may kindly be deleted in full and direct to the ld. AO to tax on normal rate on the returned income.
The Id. AO has grossly erred in law as well as on the facts of the case in charging interest u/s 234A,234B and 234C, 234D. The appellant totally denies it liability of charging of any such interest. The interest, so charged, being contrary to the provisions of law and facts, may kindly be deleted in full.
4. The appellant prays your honour indulgences to add, amend or alter of or any of the grounds of the appeal on or before the date of hearing.”
Returned Income of Assessee Trust under "Maximum Marginal Rate" in place of normal rate bedises levy of interest U/s 234 A, B, C & D of the Act.
The appellant assessee has filed its Return of Income declaring income of Rs. 3,59,064/- on 31.08.2018 and the return was processed u/s 143(1) of the Act, accepting the returned income at Rs. 3,59,064/-.
However, the AO/CPC has computed tax liability at Rs. 1,13,486/- by taxing the income based on Maximum Marginal Rate and consequently, levied interest U/s 234 A, B, and C of the Act.
Aggrieved by the said order, the appellant has filed appeal u/s 246 of the Act before the Ld. CIT(A) who has rejected the appeal by observing as under:
“6.1. It is seen from the grounds of appeal filed by the appellant that the sole ground for dispute is regarding taxing under "Maximum Marginal Rate" in place of normal rate as well as levy of interest U/s 234 A, B, C & D of the Act.
6.2. It is seen the case of the appellant that it is claiming the status of trust by virtue of its registration under Rajasthan Public Trust Act, 1959. However, no details are provided whether the appellant is granted registration U/s 12 AA of the Income Tax act, 1961.
Panchayti Dharamshala Kaseran Trust v. ITO 6.3. In the case of the appellant claiming itself to be trust, it is required that for claiming exemption under Income Tax Act, 1961, it should be registered U/s 12 AA of the Income Tax act, 1961. In case there is failure to get itself registered; the entity shall be treated as an AOP to be taxed at Maximum Marginal Rate. Getting itself registered under Rajasthan Public Trust Act, 1959 doesn't itself ipso facto confer the assessee the right to avail exemption under Income Tax Act, 1961 unless the appellant is registered as a charitable organization U/s 12 AA of the Income Tax act, 1961.
6.4. Going through the ROI filed by the appellant, it is revealed that no specific details regarding its registration or re-registration if any are provided in "Other Details" of the ROI.
6.5. Therefore, keeping in view of the facts described supra, I find no infirmity with the order of the CPC in taxing the income of the appellant at Maximum Marginal Rate for want of proof.”
Having heard both the sides, perusal of material of record, impugned order and case law cited before us, we find that the AO although has accepted the returned income u/s 143(1) of the act filed by the appellant Trust but charged the tax under "Maximum Marginal Rate" in place of normal rate and levied consequential interest U/s 234 A, B, and of the Act.
In the present case, the appellant has claimed the the status of trust by virtue of its registration under Rajasthan Public Trust Act, 1959. However, no details were provided either with the Return of Income before AO/CPC was granted registration U/s 12 AA of the Income Tax act, 1961.
The Ld. AR submitted that the impugned order u/s 143(1) dated 16.12. 2019 as well as the decision taken by the Id. CIT(A) is bad in law, invalid, illegal. The AR explained that the ld. AO and ld. CIT(A) has erred in applying Maximum Marginal Rate (MMR), by ignoring the proviso to section 164(2). The Ld. AR has pleaded that tax rates would be applicable at normal rate on the line of AOP as per provisions of section 164(2) of the Act when a trust has not been registered u/s 12AA of the Act. The Ld. DR for the department relied on impugned order and submitted that the submissions and oral arguments of the Ld. AR failed to demonstrate that how applicability of Tax at Maximum Marginal Rate and consequential charging of interest u/s 234A, B and C was contrary to the provisions of law.
In the present case, the appellant trust has claimed to be formed for the purpose of public charitable activities and registered with Devasthan Vibhag under the Rajasthan Public Trust Act 1959 and since 1970, it is regularly filing its return of income. However, no details are provided whether the appellant was granted registration under section 12AA of the appellant trust issue of application of tax rate on the return income in absence of Registration u/s 12AA is covered by the decision of ITAT Ahmedabad Bench the case of Income Tax Officer vs. Gurjar Pushkarana (AHD) of 1986 which reads as under:-
Where assessee-trust is not entitled to exemption under section 11 or 12 by virtue of provisions to section 13(1)(b), its income cannot be charged at maximum marginal rate but has to be charged at rates specified for an AOP under-section 164(2). If the provisions of clause (c) or (d) of sub-section (1) of section 13 are attracted, then, the relevant income of the trust has to be taxed at maximum marginal rate. However, where the assessee is not entitled to exemption under section 11 or 12, by virtue of the provisions contained in clause (b) of sub-section (1) of section 13, its income cannot be charged at the maximum marginal rate but its income has to be taxed at rates specified for an AOP as provided under section 164(2).
The provision of Section 164(2) lays down that where relevant income or part of the income is not exempt u/s 11 due to violation of Section 13(1)(c ) or 13(1)(d) of the Act, then in that eventuality tax shall be charged on the relevant income or part of the relevant income at MMR and not that entire income of the trust would be charged to tax at MMR. In the present case, the entire income declared in the Income Tax return by the appellant Trust is not exempted in absence of registration u/s 12AA of the Act. Meaning thereby the income returned shall be chargeable to Tax at normal tax rates as per proviso to section 164(2) of the I.T. Act 1961. In the case of Income Tax Officer vs. Gurjar Pushkarana Vidyotejak Mandal appellant trust case is squarely covered.
In view of above, we don't think it would be relevant to examine whether the appellant trust has violated the provisions of section 13 of the Act as the same has become infructuous in the facts and circumstances of the present case. In absence of registration u/s 12AA, the whole income of the appellant trustee shall be subject to Normal Tax Rate as per proviso to section 164(2) of the Income Tax Ac, 1961 as applicable in the case of AOP. Accordingly, we hold the impugned order passed by ld. CIT(A) is infirmity and perverse to the facts on record and as such, the impugned order is hereby set aside with the direction to the AO to apply Normal Tax Rate on the return income of the appellant-trust.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 10.10.2024.