2018 (11) TMI 48 - AT - Income Tax

Denial of exemption u/s 11 - application of maximum marginal rate - deemed registration u/s 12A - Held that - The provisions at section 12A(2) will apply from the assessment year immediately following the financial year in which such application is made. In this case, the application of registration is made on 27.11.2015, hence the exemption under section 11 & 12 will be applicable not before A.Y. 2016-17. Further, the proviso section 12 A(2) will also not apply in the case of the assessee as the assessee has not shown any income derived from the property under trust. Beside this, the registration granted by CIT does not grant exemption u/s 11,12 &13 automatic and it is conditional after the Assessing Officer satisfies himself about the genuineness of the activities claimed. The claim of the assessee that it should not be taxed at maximum marginal rate is also not tenable as the PAN of the assessee suggests that the assessee is a Body of Individuals and not Trust as the fifth character of PAN is B and not T which should be the case of Trust. As the Return of Income was filed by the assessee in capacity of Body of Individuals and automatically the provisions of section 11, 12 &13 will not apply in the case of the appellant unless the registration is granted by CIT which was granted later. Hence, the provisions of section 167B (1) of the Act clearly suggests that under this situation the appellant has to be taxed at maximum marginal rates. No infirmity in the order of CIT(A) in upholding the action of the CPC Bangalore in taxing the assessee at maximum marginal rate. Capital receipt - Held that - CIT(A) has relied upon the order dated 16.5.2017 of ITAT, Delhi Bench in the case of Divine Educational Institute & Social Development Society vs. ITO 2017 (5) TMI 966 - ITAT DELHI wherein, it has been held that corpus fund which is meant for specific purpose to meet out capital expenditure could not be part of annual receipts, even if the trust is not registered under section 12AA of the Income Tax Act. However, in the present case the assessee has shown the receipt towards corpus fund of building account which is a capital receipt which has been invested in FDR. Therefore, Ld. CIT(A) correctly followed the aforesaid decision of ITAT and held that this receipt and treated as capital receipt to meet the capital expenditure and not chargeable to tax. No relief can be given on account of interest on FDR of Building Fund also which is a revenue receipt and income during the year. Further, other deductions claimed by the assessee were not allowed u/s 11 & 12 of the Act and there is no infirmity in the intimation u/s 143(1) of CPC Bangalore. CIT(A) has passed well reasoned order which does not need any interference, on my part, therefore, uphold the same and reject the grounds raised by the Assessee.

Summary

Issues Involved:
1. Confirmation of various disallowances and application of maximum marginal rate under section 143(1) of the Act.
2. Denial of exemption under sections 11 and 12 of the Act.
3. Application of maximum marginal rate instead of slab rates under section 167B(1) of the Act.
4. Inclusion of interest earned on FDRs made out of corpus fund in taxable income.
5. Treatment of gross receipts as taxable income without allowing related expenses.

Detailed Analysis:

1. Confirmation of Various Disallowances and Application of Maximum Marginal Rate:
The CIT(A) confirmed the disallowances and application of the maximum marginal rate while passing the order under section 143(1) of the Act. The assessee contended that such action was not permissible under the Act and sought cancellation of the order. The Tribunal upheld the CIT(A)'s decision, stating that the processing of the return by CPC, Bangalore, was correct and the disallowances were justified.

2. Denial of Exemption Under Sections 11 and 12:
The assessee argued that it was entitled to exemption under sections 11 and 12 of the Act, citing deemed registration under section 12A(2). However, the Tribunal noted that the application for registration under section 12AA was made on 27.11.2015, applicable from AY 2016-17, whereas the case pertained to AY 2014-15. The Tribunal clarified that the provisions of section 12A(2) apply from the assessment year immediately following the financial year in which the application is made. Since the registration was granted later, the exemption under sections 11 and 12 was not applicable for AY 2014-15.

3. Application of Maximum Marginal Rate Instead of Slab Rates:
The Tribunal found that the assessee, being a Body of Individuals (BOI) and not a Trust, was correctly taxed at the maximum marginal rate under section 167B(1) of the Act. The PAN of the assessee indicated it was a BOI, and the provisions of sections 11, 12, and 13 did not apply as the registration under section 12AA was granted later.

4. Inclusion of Interest Earned on FDRs Made Out of Corpus Fund:
The assessee contended that the interest earned on FDRs from the corpus fund should not be included in taxable income. The Tribunal upheld the CIT(A)'s decision, stating that while the corpus fund itself is not taxable, the interest earned from it is a revenue receipt and thus taxable.

5. Treatment of Gross Receipts as Taxable Income Without Allowing Related Expenses:
The assessee argued that only the surplus should be taxable, not the gross receipts, and sought deduction for expenses incurred towards the receipts. The Tribunal found no infirmity in the CIT(A)'s decision to treat the gross receipts as taxable income, as the deductions claimed were not allowable under sections 11 and 12 due to the lack of registration for the relevant assessment year.

Conclusion:
The Tribunal dismissed the appeals, upholding the CIT(A)'s decisions on all grounds. The assessee's claims for various deductions, exemptions, and application of slab rates were rejected, and the treatment of interest income and gross receipts as taxable was affirmed. The order emphasized the importance of registration under section 12AA for claiming exemptions under sections 11 and 12 and the applicability of maximum marginal rates for BOIs.