2024 (11) TMI 1247 - AT - Income Tax

Taxing of Returned Income of Assessee Trust under Maximum Marginal Rate in place of normal rate and levy of interest U/s 234 A, B, C D - HELD THAT - In the present case, the appellant trust has claimed to be formed for the purpose of public charitable activities and registered with Devasthan Vibhag under the Rajasthan Public Trust Act 1959 and since 1970, it is regularly filing its return of income. However, no details are provided whether the appellant was granted registration u/s 12AA either before the CIT appeal or before us. The appellant trust issue of application of tax rate on the return income in absence of Registration u/s 12AA is covered by the decision of Gurjar Pushkarana Vidyotejak Mandal 1987 (12) TMI 60 - ITAT AHMEDABAD-A wherein held where assessee-trust is not entitled to exemption under section 11 or 12 by virtue of provisions to section 13(1)(b), its income cannot be charged at maximum marginal rate but has to be charged at rates specified for an AOP u/s 164(2). If the provisions of clause (c) or (d) of sub-section (1) of section 13 are attracted, then, the relevant income of the trust has to be taxed at maximum marginal rate. The provision of Section 164(2) lays down that where relevant income or part of the income is not exempt u/s 11 due to violation of Section 13(1)(c ) or 13(1)(d) of the Act, then in that eventuality tax shall be charged on the relevant income or part of the relevant income at MMR and not that entire income of the trust would be charged to tax at MMR. In the present case, the entire income declared in the Income Tax return by the appellant Trust is not exempted in absence of registration u/s 12AA. Meaning thereby the income returned shall be chargeable to Tax at normal tax rates as per proviso to section 164(2) of the I.T. Act 1961. In the case of Income Tax Officer vs. Gurjar Pushkarana Vidyotejak Mandal (Supra) the proviso to Section 164(2) is well considered and in our view appellant trust case is squarely covered. Thus, we don't think it would be relevant to examine whether the appellant trust has violated the provisions of section 13 of the Act as the same has become infructuous in the facts and circumstances of the present case. In absence of registration u/s 12AA, the whole income of the appellant trustee shall be subject to Normal Tax Rate as per proviso to section 164(2) of the Income Tax Ac, 1961 as applicable in the case of AOP. Assessee appeal allowed.

Summary

Issues:
Taxing of Returned Income of Assessee Trust under "Maximum Marginal Rate" instead of normal rate and levy of interest U/s 234 A, B, C & D of the Income Tax Act.

Analysis:

Issue 1: Taxing of Returned Income at Maximum Marginal Rate
The appeal was filed against an order taxing the income of the assessee trust at the Maximum Marginal Rate (MMR) instead of the normal rate. The appellant contended that the tax should be charged at the normal rate applicable to an Association of Persons (AOP) as per the provisions of section 164(2) of the Act when a trust is not registered under section 12AA. The appellant trust claimed to be formed for public charitable activities and registered under the Rajasthan Public Trust Act 1959 but failed to provide details of registration under section 12AA. The Tribunal referred to a decision of ITAT Ahmedabad Bench, which held that if a trust is not entitled to exemption under section 11 or 12 due to certain provisions, its income should be taxed at rates specified for an AOP under section 164(2) and not at the Maximum Marginal Rate. The Tribunal concluded that in the absence of registration under section 12AA, the income of the appellant trust should be subject to normal tax rates as per the proviso to section 164(2), overturning the decision of the lower authorities.

Issue 2: Levy of Interest U/s 234 A, B, C & D
The appellant also challenged the levy of interest under sections 234A, 234B, 234C, and 234D of the Act. The Tribunal noted that the appellant denied the liability for charging any such interest, claiming it to be contrary to the provisions of law and facts. However, the Tribunal's decision to set aside the order taxing the income at the Maximum Marginal Rate and directing the application of normal tax rates on the return income of the appellant trust rendered the issue of interest levy moot. As a result, the appeal was allowed, and the impugned order was deemed infirm and set aside, with directions to apply the normal tax rate on the return income of the appellant trust.