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Facts
The assessee, Jasmina Trust, filed its returns which were processed under Section 143(1) of the Income Tax Act. The AO levied tax at a flat rate of 30% and a surcharge of 37%, denying the refund claimed by the assessee.
Held
The tribunal held that the assessee, being a charitable trust operating as an Association of Persons, is not subject to the maximum marginal rate (MMR) or the surcharge of 37%. The tax should be computed at the normal slab rates applicable to an AOP.
Key Issues
Whether the assessee, a charitable trust registered under the Charitable and Religious Trust Act, 1920 and operating as an AOP, is liable to be taxed at the maximum marginal rate and at a surcharge of 37% when its income is not indeterminate or unknown?
Sections Cited
143(1), 234C, 11, 167B, 167A, 10(25), 164(1)(iv), 12AA, 143(1)(a)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCHES: A : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
ORDER PER ANUBHAV SHARMA, JM: These are appeals preferred by the assessee against the orders dated 10.03.2025, 10.03.2025 and 11.03.2025 of the Commissioner of Income-tax (Appeals)-1, Kolkata (hereinafter referred to as the ld. First Appellate Authority or ‘the Ld. FAA’ for short) in Appeals No.NFAC/2020-21/10187137, No.Addl./JCIT(A)-1, Kolkata/10008/2021-22 and Addl./JCIT(A)-1, Kolkata/10043/2022-23 arising out of the appeals before it against the intimation dated 13.10.2022, 15.06.2023 and 14.02.2024 u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the CPC, Bengaluru (hereinafter referred to as the Ld. AO).
ITAs No.2209, 2210 & 2211/Del/2025
2. The appeals were heard together as they have common questions of law and fact and what comes up is that the assessee’s return were processed u/s 143(1) of the Act by denying the refund claimed on the basis that the ld. AO has levied tax on the entire income of the assessee at a flat rate 30% instead of normal slab rate applicable and surcharge has been levied @ 37% instead of assessee’s claim of 15% and, further interest u/s 234C of the Act have been levied. The ld. CIT(A) has confirmed the tax levied by the AO at the flat rate of 30% while processing the return u/s 143(1) of the Act.
The case of the assessee is that the tax authorities have failed to appreciate that the assessee is an Association of Persons, a charitable trust not availing benefit of section 11 of the Act and is liable to pay tax at the slab rate applicable in the case of an individual. Similarly, the surcharge levied at 37% on the entire income instead of 15% could not have been levied as the total income of the assessee in including income by way of dividend of does not exceeds Rs.5 crores. The ld. AR has submitted that it is not covered by either clause (iii) or clause (iv) of the Paragraph (A) of Part-I of First Schedule to the Finance Act /- and, hence, surcharge is payable on such income @ 15% and not @ 37%. Similarly, as far as the levying of interest u/s 234C of the Act is concerned, it was submitted that the same is consequential.
Although ld. DR has defended the orders of the ld. tax authorities below, what we find is that the assessee is a charitable trust engaged in carrying out
ITAs No.2209, 2210 & 2211/Del/2025 charitable activities by granting donation to other trusts/institutions holding valid eligibility services and carrying on charitable activities for the public at large. The assessee has surrendered the certificate of registration granted to it u/s 12AA of the Act and, thus, has not claimed benefit of section 11 of the Act. The return of income has been filed in the status of Association of Persons and the assessments have been completed on that basis from year to year. It appears that tax authorities have erred in considering the members of the AOP as trustees. In similar circumstances, similarly situated assessee have been benefitted by the coordinate Bench decision in Vidhya Trust vs. DCIT, and in Rose Trust vs. DCIT, ITA No.3036/Del/2024. As for the sake of convenience, the findings in Vidhya Trust (supra)’s case which were also relied in Rose Trust (supra) are reproduced below:- “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 i.e. 2022-23, ld. 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 tax @ 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 3
ITAs No.2209, 2210 & 2211/Del/2025 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 subsection (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. 7.2.7. It is pertinent to refer to the Circular of the C8DT in No. 320, dated 11.01.1982. The said circular is reproduced as under: "Circular: No. 320 [F. No. 131(31)/81-TP (Pt.)], dated 11-1- 1982SECTION 167A ASSESSMENT WHERE SHARES OF MEMBERS UNKNOWN) 911. Whether the section is applicable to income received by trustees on behalf of provident funds created exclusively for the benefit of employees 1. 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.
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 funds, gratuity funds, pension funds, etc., 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 the cases of registered societies, trade and professional associations, social and sports clubs, charitable or religious 4
ITAs No.2209, 2210 & 2211/Del/2025 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 AY 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:- “4.6 We again find no reason for application of section 167B of the Act, prescribing the maximum marginal rate in the instant case, which is one of a charitable trust. Section 167B, 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.