2019 (3) TMI 910 - AT - Income Tax

Rectification of mistake u/s 154 - mistake apparent from the record - in original order individual tax rates were wrongly charged - AO after examination of trustee taxability charged maximum marginal rate u/s 167B - Further examination is a patent mistake - not part of record but brought in 154 proceedings - HELD THAT - Therefore the provisions of section 167B are not applicable automatically, but can be applied only after examination of facts as to whether any of the Member of the AOP has income which exceeds the maximum amount which is not chargeable to tax in the relevant years. It is not a mistake apparent from the record which can be rectified u/s 154 of the Act. The AO has to examine the facts and also has to verify the income of each of the Trustees. Assessee had stated that the return of income of Mr. Mahesh Kumar Khetan was not part of the assessment records of the assessee, but the same is referred to by the AO in the order u/s 154. Therefore, the AO had clearly verified the record of Mr. Mahesh Kumar Khetan to come to the conclusion that his income exceeded the maximum limit of the income which is not chargeable to tax. AO had exceeded his jurisdiction in exercising his powers u/s 154 of the Act. It was clearly a debatable issue and as held by the Hon ble Supreme Court in the case of T.S. Balaram vs. Volkart Bros 1971 (8) TMI 3 - SUPREME COURT a mistake apparent from the record must be patent mistake on which there can be no two opinions. Therefore, according to me, the initiation and exercise of powers u/s 154 of the Act by the AO is not sustainable. Even on merits, we find that the Trustees are not the beneficiaries in any way and there is a sole beneficiary who has no other income but the income generated by the Trust. The assessee Trust is not carrying on any business but is only managing the income from other sources for the benefit of the beneficiary. Therefore, even on merits, we are not inclined to accept the order u/s 154 of the Act. - Decided in favour of assessee.

Summary

Issues involved:
1. Validity of proceedings under section 154 of the Income Tax Act.
2. Application of section 167B of the Income Tax Act to determine tax rates for an Association of Persons (AOP).
3. Whether the AO exceeded jurisdiction in exercising powers under section 154 of the Act.

Detailed Analysis:

1. Validity of proceedings under section 154:
The case involved multiple assessees with a common issue. The AO initially processed the returns under section 143(1) of the Act and later issued a notice under section 154 to rectify the alleged mistake of charging tax at individual rates instead of under section 167B. The assessees contended that there was no mistake apparent from the record, as the AOP was correctly taxed at individual rates due to having a single beneficiary. The AO's decision was challenged before the CIT (A) and subsequently before the Tribunal. The learned Counsel argued that the AO had not considered all relevant facts and had exceeded jurisdiction in invoking section 154.

2. Application of section 167B for AOP taxation:
The AO applied section 167B to tax the AOP at the maximum marginal rate, considering one member's income exceeding the non-taxable limit. The assessees argued that as the Trust had a single beneficiary and the Trustees were not beneficiaries, the AOP should be taxed at individual rates. They cited case law supporting their position. The Tribunal analyzed the provisions of section 167B and concluded that the AO had not properly examined whether any member's income exceeded the non-taxable limit, rendering the application of section 167B premature and not a mistake apparent from the record.

3. Exceeding jurisdiction under section 154:
The Tribunal cited relevant case law, including the judgments in T.S. Balaram vs. Volkart Bros and CIT vs. Keshri Metal (P) Ltd, to establish that a mistake apparent from the record must be clear and not subject to debate. It was emphasized that the AO's decision to apply section 154 was erroneous as the issue was debatable and required detailed examination. The Tribunal found that the Trustees were not beneficiaries and the Trust was managing income for the sole beneficiary, making the application of section 154 unsustainable. Consequently, the Tribunal allowed the appeals of the assessees, holding that the AO had exceeded jurisdiction under section 154.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the validity of proceedings under section 154, the application of section 167B for AOP taxation, and the AO's jurisdiction in exercising powers under section 154 resulted in the appeals of the assessees being allowed. The judgment emphasized the importance of clear errors in the record for invoking section 154 and the need for proper examination before applying tax provisions such as section 167B.