Pawai Trust vs DCIT

1.

Rate of tax : On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the tax levied by the AO at flat rate of 30 percent, 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. The Ld. 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. the appellant prays that the AO may kindly be directed to recompute the tax by applying the normal slab rates and reduce the tax levied accordingly.

2.

Erroneous levy of surcharge : The CIT(A) erred in confirming the surcharge levied by the AO at the rate of 30.90 percent on the entire income of the appellant instead of applicable rate of 15 percent in case of the appellant while processing return of income filed for the above year under section 143(1) of the Act. The CIT(A) failed to appreciate that the total income of the appellant for the above year is Rs. 5,76,32,670/- including the income by way of dividend Rs. 5,51,09,160/-) exceeds Rs. 5 crores. However, 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 as total income excluding dividend income of Rs. 5,51,09,160/- is only rs. 25,23,509/- and surcharge is liable on such income at the rate 15 percent and not at the rate 30.90 percent. Kindly refer grounds of appeal.

3.

Interest under section 234C of the Act : On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in levying interest of Rs. 4517/-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.

4.

Adjustment made under section 143(1) of the Act. On the facts and in circumstances of the case and in law, the CIT(A) erred in confirming tax levied by the DDIT, CPC (hereinafter referred as AO) at the rate flat rate of 30 percent (i.e. Maximum Marginal Rate) while processing the return of income under section 143(1) of the Act. It is submitted that that the adjustment has been made without affording the appellant any opportunity of being heard and the same is in gross violation of principles of natural justice and also the provisions of Section 143(1) of the Act. It is submitted that the issue relating to the rate of tax and surcharge is high debatable question of law and cannot be settled under section 143(1) of the Act.

10.

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)

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

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

8.

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 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."

9.

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.