2017 (10) TMI 375 - AT - Income Tax

Income exempt to assessee having 12A registration - income brought to tax by the Assessing Officer at maximum marginal rate confirmed by CIT-A - determination of status of appellant - Held that - The appellant had not applied 85% of the surplus amount for the purposes of trust, it had also admitted that permission was not sought for accumulation of the surplus amount u/s. 11(2) of the Act. Consequently, Assessing Officer determined the taxable income at ₹ 71,840/- on the ground that 85% of the income was not utilized for charitable purposes during the relevant Assessment Year. Hon ble Madras High Court in the case of Anasuya Muthanna Vs. CIT (1996 (4) TMI 15 - MADRAS High Court ) held that where share of beneficiary is unknown and undeterminate, the assessee trust is subject to maximum marginal rate, In my view, appellant trust is discretionary trust. Hence, it is liable to be assessed as per the provisions of Sec.164(1). Assessing Officer s action of charging maximum marginal rate is in order - Decided against assessee.

Summary

Issues involved:
Appeal against order of Commissioner of Income Tax (Appeals) for Assessment Year 2010-11 regarding tax exemption under section 11 & 12 of the Act for a trust not spending 85% of its receipts for charitable purposes, and the applicability of maximum marginal rate for surplus income.

Analysis:
The appeal was filed by a trust granted registration under section 12A of the Act against the order of the Commissioner of Income Tax (Appeals) for the Assessment Year 2010-11. The trust's main sources of income were rent receipts and interest from a bank. The total receipts for the relevant year were &8377; 1,17,414, with a surplus income of &8377; 71,837 not spent for charitable purposes, leading to its taxation at the maximum marginal rate.

The trust contended that its entire income should be exempt due to having 12A registration. However, the Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision to tax the surplus income not utilized for charitable purposes, as per sections 11(1)(a) & 11(1)(b) of the IT Act. The trust had not applied 85% of the surplus amount for trust purposes and had not sought permission for accumulation of the surplus income under section 11(2) of the Act.

The Commissioner also rejected the trust's claim that it should be taxed at normal slab rates, stating that the determination of its status required a detailed process and was not a mistake apparent from the record. Citing a case from the Madras High Court, it was held that the trust, being a discretionary trust, was subject to the maximum marginal rate as per the provisions of Sec.164(1).

Upon review, the Tribunal found no reason to interfere with the Commissioner's decision and dismissed the appeal, affirming the taxation of the surplus income at the maximum marginal rate. The order was pronounced on October 6, 2017.