2022 (6) TMI 725 - AT - Income Tax

Assessment of trust - benefit of the exemption as provided under section 11 - application for registration under section 12AA of the Act was made in pursuance to the provisions of sub section (2) of section 12AA - whether the assessment was pending before the assessing officer as on the date of registration granted by the learned CIT exemption? -whether intimation generated under the provisions of section 143(1) of the Act is an assessment in the manner as provided under the proviso attached to section 12A(2) - HELD THAT - As relying on SR. KOSHTI VERSUS COMMISSIONER OF INCOME-TAX. 2004 (12) TMI 62 - GUJARAT HIGH COURT we hold that the intimation generated under section 143(1) of the Act is not an assessment and therefore we hold that the benefit as provided under the 1st proviso to subsection 2 of section 12AA of the Act is unavailable to the assessee. In addition to the above, we also note that the assessee while filing the return of income has not claimed the benefit of the provisions of section 11 of the Act which can be verified from the computation of income available on pages 1 to 3 of the paper book. Thus, we are not convinced with the argument of the learned counsel for the assessee. Application of Maximum Marginal rate @ 30% - Whether the rate of an individual should be applied or the maximum marginal rate of tax in the manner as provided under the provisions of section 164? - Admittedly, the person has filed the return of income in the representative capacity in the manner as provided under clause (iv) of section 160 of the Act. To this proposition, there is no dispute. It is also not under challenge that the trust on hand is a discretionary trust meaning thereby the beneficiaries of the trust are not known. In other words the trust being public trust was formed to carry out the charitable activities as evident from the trust deed, placed on pages 9 to 15 of the paper book. It was also provided in the trust deed that ownership of all money and the properties of the trust shall be of the trust and no member/organization shall have right of ownership. Likewise, in the event of dissolution of the trust, all the property of the trust after meeting the liabilities would be transferred to some other trust carrying on similar activity which can be verified from the registration certificate granted by the learned CIT exemption under section 80G of the Act Thus in the light of the above discussion it can be concluded that the tax shall be charged on the income of the assessee at the maximum marginal rate in pursuance to the provisions of section 164(1) of the Act. We find pertinent to deal with subsection (2) of section 164 of the Act which is applicable to a trust which is entitled for the benefit of the provisions of section 11 of the Act. As such subsection (2) of section 164 of the Act provides to charge the tax on the part of income which is not exempt treating the same as income of the Association of persons. However, in the case on hand, the trust before us is not eligible for exemption under section 11 of the Act for the year under consideration. Therefore, the same cannot be treated as Association of persons in the manner as provided under subsection (2) of section 164 of the Act. In view of the above and after considering the facts in totality, we do not find any infirmity in the order of the authorities below. Hence, we uphold the order of the learned CIT(A). Thus the ground of appeal of the assessee is hereby dismissed.

Summary

Issues:
1. Application of maximum marginal rate of tax on income below taxable limit.
2. Status of the assessee as Association of Persons (AOP) and tax treatment.
3. Interpretation of provisions of section 164 of the Income Tax Act.

Issue 1: Application of maximum marginal rate of tax on income below taxable limit

The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals), challenging the application of the maximum marginal rate of tax on income declared below the taxable limit. The Assessee contended that it should be treated as an Association of Persons (AOP) and taxed at the normal slab rate applicable to individuals. The Assessee argued that the income declared was below the taxable limit and should have been subject to the basic exemption limit available to individuals. The Assessee also claimed that the income, derived from fixed deposits, should not be subject to the maximum marginal rate of tax as per the provisions of section 11(5) of the Act. However, the CIT(A) upheld the application of the maximum marginal rate of tax, citing provisions of section 164 of the Act.

Issue 2: Status of the assessee as Association of Persons (AOP) and tax treatment

The Assessee, a recognized charitable trust, disputed its classification as an Association of Persons (AOP) by the assessing officer. The Assessee argued that it should be taxed as an individual and be entitled to the basic exemption limit. The Assessee highlighted that it was registered as a Public Trust with the Charity Commissioner and had applied for registration under section 12AA of the Act. The Assessee contended that the benefit of exemption under section 11 of the Act should be granted, and the slab rate of tax applicable to individuals should be considered. However, the authorities maintained that the provisions of section 164 of the Act, which prescribe the maximum marginal rate of tax, were applicable to the Assessee.

Issue 3: Interpretation of provisions of section 164 of the Income Tax Act

The Tribunal analyzed the provisions of section 164 of the Act concerning the tax treatment of income for trusts. It was established that the Assessee, being a discretionary trust with unknown beneficiaries, did not qualify for the exemption under section 11 of the Act. Therefore, the Tribunal concluded that the tax should be charged on the income of the Assessee at the maximum marginal rate as per section 164(1) of the Act. Additionally, subsection (2) of section 164, which applies to trusts eligible for section 11 exemptions, was found inapplicable to the Assessee. Consequently, the Tribunal upheld the order of the CIT(A) and dismissed the appeal filed by the Assessee.

This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal ITAT Ahmedabad regarding the tax treatment of the Assessee and the interpretation of relevant provisions of the Income Tax Act.