2015 (1) TMI 1474 - 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 - Issue decided in favour of assessee as in 2014 (8) TMI 1221 - ITAT CHENNAI as relying on 2013 (11) TMI 1270 - ITAT CHENNAI upholding the order of CIT (A) in holding that 95% of surplus distributed among the members is not liable to be taxed. 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.

Summary

Issues:
1. Barred by limitation - Delay in filing appeals
2. Distribution of surplus amongst members - Tax liability

Analysis:
1. The appeals filed by the Revenue were found to be barred by limitation due to a delay of 144/131 days. The Revenue provided Affidavits citing reasons for the delay, which were accepted as not intentional. The delay was condoned, and the appeals were admitted for hearing on merits.

2. The common ground raised by the Revenue in all appeals was the distribution of surplus amongst members. The issue was whether the surplus distributed by the assessee trust to its members was liable for taxation at the maximum marginal rate. The Revenue contended that the distribution was indeterminate, leading to tax liability on the surplus income.

3. The assessee trust, represented by Shri K. Venkatesh Prabhu, argued that a similar issue had been decided in their favor by a co-ordinate Bench of the Tribunal in previous appeals. The trust's activities involved managing Self-Help Groups (SHGs) and distributing surplus income among members. The Tribunal had previously held that the surplus distributed to SHGs was not taxable income but rather the fruit of their efforts.

4. The Department representative, Shri A.V. Sreekanth, acknowledged the previous decision by the Tribunal but defended the assessment orders, claiming the grounds raised by the Revenue. Both sides presented their arguments, with the Department emphasizing the indeterminate nature of the surplus distribution.

5. After considering the orders of the authorities below and the previous Tribunal decisions, it was found that the issue in the current appeals mirrored the one already adjudicated by the co-ordinate Bench. The Tribunal upheld the previous decision, stating that the surplus distributed to SHGs was not taxable income but part of a mutual arrangement. Therefore, the Revenue's appeals were dismissed in line with the previous rulings.

6. The Tribunal confirmed that the surplus distribution among members of SHGs was not taxable income as it was determined, documented, and distributed based on proper accounts and procedures. The Tribunal endorsed the view that the SHGs and the assessee trusts were governed by the principles of mutuality, and the surplus income was not subject to taxation. The orders of the Commissioner of Income-tax(Appeals) were upheld, and the Revenue's grounds on this issue were rejected.