2022 (10) TMI 824 - AT - Income Tax

Assessment of trust/AOP - trust to be assessed in the status of AOP - Levying tax at the maximum marginal rate instead of rates applicable to individuals - exemption u/s 11 denied on no registration u/s. 12A - HELD THAT - On careful reading of sub-section (2) of section 164 we note that in the case of relevant income which derived from property held under trust wholly for charitable or religious purposes, the said income is not exempt u/s. 11 of the Act is to be treated the income of association of persons. Admittedly, for having no registration u/s. 12A of the Act, the CPC, Bangalore denied exemption u/s. 11 of the Act, but however, applied maximum marginal rate. Admittedly the exemption u/s. 11 was denied for not having registration u/s. 12A of the Act and there is no specific mention of that a violation u/s. 13(1)(c) and (d) of the Act. Therefore, find force in the arguments of ld. AR that there was no violation u/s. 13(1)(c) and (d) of the Act for denial of exemption u/s. 11 but exemption u/s. 11 denied only for not having registration u/s. 12A of the Act. Therefore, in my opinion, that proviso is not applicable as relied on by the ld. DR. Admittedly, the trustees are not entitled to any share in the income of the assessee as it is meant for charitable or religious purposes. Therefore, the tax rates in such cases are at the rate ordinarily applicable to an association of persons and not at the maximum marginal rate. In the light of above finding of Tribunal of Shri Hanuman Mandir Trust 2002 (2) TMI 357 - ITAT PUNE we note that the assessee is a religious trust and the income derived from property of the said trust utilized to the deity and there is not dispute with regard to the said fact as it was contended by the ld. AR that the entire income goes to the deity who is the assessee. Therefore, these findings are applicable to the facts on hand and hold that the assessee is assessable under the status of AOP, as per the rates applicable to an individual. Further, in the case of Vijaya Durga Devi Trust 2019 (6) TMI 1047 - ITAT PUNE which is also a religious trust assessed in the status of AOP which is evident from para 2 of the said decision. The Tribunal held the income of the said trust is to be computed on the basis of tax rates applicable to an individual if the entire income is utilized for the upkeep of deity. As discussed above, there is no dispute with regard to the income of the assessee in the present case is used for deity i.e. assessee. Therefore, the income should be taxed at the rate applicable to the individual. Therefore, the order of CIT(A) is not justified and it is set aside. Thus, the ground raised by the assessee is allowed.

Summary

Issues:
Appeal against the order of CIT(A) for assessment years 2014-15 and 2015-16 regarding the application of tax rate at the maximum marginal rate instead of rates applicable to individuals.

Detailed Analysis:

Issue 1: Application of Tax Rate
The main issue in the appeal was whether the CIT(A) was justified in confirming the order of CPC, Bangalore, which levied tax at the maximum marginal rate instead of rates applicable to individuals. The assessee, a religious trust without registration u/s. 12A of the Act, declared income of Rs. 9,95,188. The CPC applied the maximum marginal rate, leading to additional demand. The AR argued that the tax rate applicable to individuals should have been considered. The ITAT noted that without registration u/s. 12A, the trust's income is treated as that of an association of persons, not exempt u/s. 11. The CBDT Circular No. 320 clarified that trusts like the assessee, with no share for members or trustees, are taxed at rates applicable to an association of persons, not the maximum marginal rate.

Issue 2: Interpretation of Circulars
The CIT(A) referred to Circular No. 387 of 1984, suggesting the maximum marginal rate should apply if the trust's beneficiaries are indeterminate. However, the AR argued that the full circular should be considered, pointing out that the trust did not forfeit tax exemption but was denied it due to lack of registration u/s. 12A. The ITAT agreed that the maximum marginal rate was not applicable as there was no violation of the conditions specified in the circular.

Issue 3: Precedents and Tribunal Orders
The AR cited Tribunal orders in similar cases, such as Shri Hanuman Mandir Trust and Vijaya Durga Devi Trust, where trusts with income used for religious purposes were taxed at rates applicable to individuals. The ITAT relied on these precedents to determine that the assessee, a religious trust, should be taxed as an association of persons at rates applicable to individuals.

Conclusion:
Based on the analysis of the issues raised in both appeals, the ITAT allowed the appeals of the assessee, setting aside the order of the CIT(A) and directing that the income of the religious trust should be taxed at the rates applicable to individuals. The decision was in line with precedents and interpretations of relevant circulars and provisions of the Income Tax Act.