1987 (12) TMI 60 - AT - Income Tax

Summary

Issues:
1. Whether the trust should be taxed at the normal rate or the maximum marginal rate.
2. Interpretation of provisions under sections 164 and 13 of the Income Tax Act.

Analysis:
1. The Revenue appealed against the direction of the Appellate Assistant Commissioner (AAC) to tax the trust at the normal rate instead of the maximum rate. The Income Tax Officer (ITO) initially taxed the trust at the maximum marginal rate due to the trust being for a specific religious community, making it ineligible for certain exemptions. The AAC, following a similar case precedent, directed the ITO to tax the trust at the rate specified for an Association of Persons (AOP) under section 164(2) of the Act. The Revenue contended that the AAC erred in accepting the submissions made by the assessee and sought to reverse the AAC's order.

2. The crux of the issue lay in the interpretation of sections 164 and 13 of the Income Tax Act. The AAC, in a related case, accepted the argument that the trust should be treated as an AOP for taxation purposes under section 164(2) instead of being taxed at the maximum marginal rate. The AAC's decision was based on the provisions of sub-sections 2 and 3 of section 164, which dictate the taxation of income derived from property held under trust for charitable or religious purposes. The AAC's order was supported by the argument that the trust did not qualify for exemption under sections 11 and 12 due to its specific religious community focus, as per section 13(1)(b). The Tribunal upheld the AAC's decision, emphasizing that the trust's income should be taxed at the rates applicable to an AOP, in accordance with section 164(2), rather than at the maximum marginal rate.

3. The Tribunal's analysis focused on the provisions of section 164 and section 13 to determine the appropriate tax treatment for the trust. It was highlighted that the trust, not being a private trust, fell under section 164(2) for taxation purposes. Even with the proviso inserted in 1985, the trust's income could not be taxed at the maximum marginal rate as it did not qualify for exemption under sections 11 and 12, as specified in section 13(1)(b). Therefore, the Tribunal concluded that the AAC's direction to tax the trust at the rates applicable to an AOP under section 164(2) was correct. The appeal by the Revenue was dismissed, affirming the AAC's order.