2014 (8) TMI 1221 - AT - Income Tax

Assessment of trust - surplus distributed among the members - whether 95% of surplus of the assessee trust distributed among its members can be brought to tax at maximum marginal rate in the hands of the assessee treating the assessee as AOPs? - HELD THAT - The co-ordinate Bench of this Tribunal in SARVODAYA MUTUAL BENEFIT TRUST 2013 (11) TMI 1270 - ITAT CHENNAI and upheld the order of CIT (A) in holding that 95% of surplus distributed among the members is not liable to be taxed. The share of every beneficiary is quantified. Therefore, we find that the Commissioner of Income-tax(Appeals) is justified in coming to the conclusion that the assessee trusts and the SHGs are inter-related and they are all concerns governed by the principles of mutuality. The 95 per cent surplus distributed by the assessee trusts to the various SHGs working under them is nothing but the income of those SHGs themselves. It is not something that those groups are getting from outside by way of income. It is the fruit of their efforts. After finalising the accounts and computing the surplus, the profits are divided among those members, whose shares are determinate and whose roles are well defined. We endorse the view of the CIT (Appeals) that all these SHGs working under the assessee trusts are concerns governed by the principles of mutuality and accordingly the 95 per cent of surplus distributed among them are not in the nature of income. The Commissioner of Income-tax(Appeals) has rightly held that 95 per cent of the surplus distributed by the assessee trusts cannot be brought to tax. His orders on this point are confirmed and the grounds raised by the Revenue on this point are rejected.

Summary

Issues:
Whether 95% of surplus of the assessee trust distributed among its members can be taxed at maximum marginal rate in the hands of the assessee treating them as AOPs.

Analysis:
The appeals filed by the Revenue concern M/s. Sarvodaya Mutual Benefit Trust against various orders of the Commissioner of Income Tax (Appeals) for different assessment years. The core issue in all these appeals is whether the surplus distributed among trust members can be taxed at the maximum marginal rate. The Tribunal consolidated these appeals due to the common issue for convenience. The counsel for the assessee argued that a previous decision by the Tribunal supported their position that the surplus should not be taxed. The Departmental Representative, however, supported the Assessing Officer's decision to treat the assessees as AOPs and tax the surplus distributed among members.

Upon examination, the Tribunal found that the assessee trust is a prominent NGO working to raise the living standards of rural communities, especially marginalized groups. The trust manages Self-Help-Groups (SHGs) which undertake income-generating programs. The surplus income generated is distributed among SHG members, with 95% given to the members and 5% retained by the trust. The Tribunal noted that the distribution of surplus is based on proper accounts and procedures, with each beneficiary identified and their share quantified. As such, the Tribunal held that the SHGs and the trust operate under principles of mutuality, and the distributed surplus is not taxable income but the result of their collective efforts.

The Tribunal emphasized that each SHG member's share is determinate, and the distribution is not arbitrary but based on defined roles and proper accounting. Therefore, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision that the 95% surplus distributed among SHGs is not taxable income. Citing the previous Tribunal decision, the current Tribunal dismissed the Revenue's appeals and upheld the orders of the Commissioner of Income Tax (Appeals) in favor of the assessee trust.

In conclusion, all the appeals of the Revenue were dismissed, affirming that the 95% surplus distributed among trust members is not subject to taxation.