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2022 (2) TMI 161 - AT - Income TaxAssessment of trust - Mutuality of interest - 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 - As decided in own case 2014 (8) TMI 1221 - ITAT CHENNAI relying on 2013 (11) TMI 1270 - ITAT CHENNAI 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 - grounds raised by the Revenue on this point are rejected. TDS u/s.194A on the interest payment made by the assessee's trust - HELD THAT - As in assessee's own case in earlier years 2013 (11) TMI 1270 - ITAT CHENNAI wherein the Tribunal exactly on same facts held that no disallowance can be made u/s. 40(a)(ia) of the Act, as there is no need for deducting TDS u/s. 194A of the Act.
Issues Involved:
1. Distribution of surplus among members of Self Help Groups (SHGs). 2. Applicability of TDS under Section 194A of the Income Tax Act on interest payments made by the assessee's trust. 3. Claim of exemption under Section 10(10C) of the Income Tax Act. Detailed Analysis: 1. Distribution of Surplus Among Members of Self Help Groups (SHGs): The primary issue in these appeals concerns the distribution of surplus among members of SHGs. The assessee argued that the Commissioner of Income Tax (Appeals) erred in concluding that the share of the appellant trust was indeterminate or unknown, thus applying the maximum marginal rate of tax under Section 164(1) of the Income Tax Act. The Tribunal noted that this issue was previously adjudicated in the assessee's favor by the Co-ordinate Bench in several cases, including ITA Nos. 1098/Mds/2012, 1100 to 1104/Mds/2012, and 1288 to 1322/Mds/2014. The Tribunal reiterated that the assessee trusts operate under a model where they distribute 95% of the surplus to SHGs, retaining 5% for administrative purposes. The SHGs, in turn, distribute these funds among their members, who are clearly identified and documented. Therefore, the Tribunal held that the distribution of surplus is determinate and governed by the principles of mutuality, meaning the 95% surplus distributed to SHGs is not taxable. Consequently, the appeals were allowed on this issue. 2. Applicability of TDS Under Section 194A of the Income Tax Act: The second issue pertains to whether the assessee's trust was required to deduct TDS under Section 194A on interest payments. The assessee contended that as a facilitator and representative assessee for SHGs, the interest burden ultimately fell on the individual members of the SHGs, who were not liable for audit under Section 44AB. Therefore, the provisions of Section 194A were not applicable. The Tribunal referred to its earlier decision in ITA Nos. 1100 to 1104 & 1098/Mds/2012, where it was held that the assessee trusts, acting as facilitators and representative assessees, were not required to deduct TDS on interest payments. The SHGs, being mutual concerns, incurred the interest expenditure, and their individual members, not being liable for audit, were exempt from the provisions of Section 194A. Thus, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and allowed the appeals on this issue. 3. Claim of Exemption Under Section 10(10C) of the Income Tax Act: The final issue involved the assessee's claim for exemption under Section 10(10C) of the Income Tax Act. During the hearing, the assessee's counsel conceded this ground, stating that if the previous two issues were resolved in their favor, this ground would not be pressed. Since the Tribunal allowed the appeals on the first two issues, it dismissed this ground as un-academic, without further adjudication. Conclusion: The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on the issues of surplus distribution and TDS applicability, while dismissing the exemption claim under Section 10(10C) as un-academic. The order was pronounced on 24th January 2022 at Chennai.
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