2019 (6) TMI 1047 - AT - Income Tax

Assessment of trust - applicability of provisions of Sec.167B - applicability of tax rates applicable to an individual - entire income belonged to only one person, i.e. the Deity - HELD THAT - The perusal of Sec.167B reveals that the provision applies to an association or persons or body of individuals where its income is indeterminate or unknown then the tax shall be charged at the maximum marginal rate. In the present case, it is a fact that the Deity is the sole beneficiary and it is not a case where the share of its income is unknown or indeterminate. In such a situation provisions of Sec.167B would not be applicable and since the Deity is a juristic person and having the status of an individual, as held in the case of Official Trustee of West Bengal 1973 (12) TMI 1 - SUPREME COURT the tax rates and the slabs as applicable to an individual would apply. I therefore hold so. Direct that the tax slab as applicable to individual be applied to the assessee. Thus, the grounds of assessee are allowed.

Summary

Issues Involved:
1. Tax liability calculation for a religious trust not registered under section 12A.
2. Applicability of tax rates for an individual versus provisions of Sec.167B of the Act.

Issue 1: Tax liability calculation for a religious trust not registered under section 12A:
The appeal pertains to the assessment year 2015-16 where the assessee, a religious trust formed in 1968, filed its return of income declaring total income of ?71,590. The Assessing Officer (AO) charged a tax liability at a flat rate of 30%, resulting in a demand of ?27,138. The trust objected to this treatment, arguing that the tax should not be charged at a flat rate but should allow for a basic exemption of ?2,50,000, as applicable to an Association of Persons (AOP) not registered under section 12A. The trust contended that since the income was for the maintenance and upkeep of a deity, the tax rates applicable to individuals should apply. The dispute centered on whether the tax should be computed based on individual rates or under the provisions of Sec.167B of the Act, which applies when the income is indeterminate or unknown for an association or body of individuals. The tribunal, after considering the submissions, held that since the deity was the sole beneficiary and the income was not indeterminate, Sec.167B did not apply. Instead, the tribunal directed that tax slabs applicable to individuals should be used for calculating the tax liability of the trust.

Issue 2: Applicability of tax rates for an individual versus provisions of Sec.167B of the Act:
The key contention revolved around whether the trust's income, which is dedicated to the maintenance of a deity, should be taxed at the rates applicable to individuals or under Sec.167B of the Act. The tribunal noted that the trust was created in 1968 with the sole beneficiary being the deity, as per the trust deed. Given that the deity was a juristic person and the income was clearly designated for its upkeep, the tribunal concluded that the tax rates and slabs applicable to individuals should govern the tax calculation for the trust. The tribunal emphasized that since the income was not indeterminate or unknown, Sec.167B did not apply in this scenario. Consequently, the tribunal allowed the trust's appeal, directing that the tax slab applicable to individuals be used in determining the tax liability.

In conclusion, the appellate tribunal ruled in favor of the religious trust, allowing the appeal and directing that the tax liability should be calculated using the tax rates applicable to individuals, given the specific circumstances of the trust's income being dedicated to the maintenance of a deity, the sole beneficiary.