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TMI Blog2025 (1) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... axability of each co-owner to ensure that the correct rate of taxation is applied.
Co-ownership agreement, and judicial precedents, it is evident that Section 26 of the Act governs the taxation of the rental income from house property in this case.
In light of the provisions of Section 167B of the Act, it is essential to ascertain whether any member of the AOP is taxable at a rate higher than MMR. In the interest of justice and to ensure compliance with the Act, the orders of the CIT(A) for both A.Y. 2022-23 and A.Y. 2023-24 are set aside, and the matter is restored to the file of the AO for proper verification.
AO is directed to:
a) Verify the tax rates applicable to each co-owner based on their individual tax returns.
b) If none of the co-owners is taxable at a rate exceeding MMR, the income shall be taxed in the hands of the AOP at normal slab rates applicable to individuals under Section 167B(2) of the Act.
c) If any co-owner is taxable at a rate higher than MMR, the income of the AOP shall be taxed at MMR as per the provisions of Section 167B of the Act.
Appeals of the Assessee allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of an AOP where the shares of members are indeterminate. 4. Aggrieved by the orders of the CIT(A), the assessee is in appeal before us with following grounds of appeal(s), which are common for both the AY(s) except the quantum: 1. The Ld. CIT(A) has erred in law and on facts in upholding the charging of surcharge at Maximum marginal rate as per intimation on the income of Co-ownership governed by section 26 of the income tax act. 2. He has erred in law and on facts and observing that the facts of current A.Y. and facts of the appellant for A.Y. 2015-16 are not identical in as much as that the co-ownership having rental income is undisputed and income has been shown in the hand of co-ownership on account of TDS being made in the name of Co-ownership in which shares of co-owners are specific. 3. He has erred in law and on facts in applying provision of section 86 and section 67A to the facts of the co-ownership having rental income to be assessed as per section 26 of the Income tax act. 4. He has grievously erred in law and facts in observing that the decision of Honourable ITAT Kolkata Bench reported in 79 ITD 539 (KOL) in the case of Executors of the estate of B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the tenants of the premises will be appropriated first to pay all taxes. Assessment charges, duties or calls made by Government, Revenue or Local Authorities. The Surplus will be distributed among the co-owners of the premises in the proportions mentioned hereinabove." 5.1. The AR placed reliance on the decision of Kolkata Bench in case of ACIT Vs. Executors of the Estate of Bhagwan Devi Sarogi [(2001) 79 ITD 539 (Kolkata ITAT)]. 6. The Departmental Representative (DR), on the other hand, relied on the order(s) of CIT(A) and stated that the CIT(A) has distinguished the decision of CIT(A) in assessee's own case of A.Y. 2015-16 as in the said A.Y. the rental income has been taxed in the hands of respective co-owners and the return of income was filed by the assessee showing NIL income. 7. The AR in rejoinder, stated that the CIT(A) in case of Aslali Store House for A.Y. 2022-2023, has given decision in favour of assessee where the facts are exactly same. The AR also stated that the rental income is shown in the hands of the AOP for claiming TDS credit, but the agreement establishes that the income belongs to the individual co-owners in fixed proportions. 8. We have heard the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use case are identical to the present case, further strengthening the assessee's position. 8.5. The AR placed reliance on the decision of the ITAT Kolkata Bench in the case of ACIT v. Executors of the Estate of Bhagwan Devi Sarogi [(2001) 79 ITD 539], which held that Section 26, being a special provision, overrides the general provisions of Section 167B and when the shares of co-owners are specific and ascertainable, the income is to be taxed in the hands of individual co-owners, and the levy of surcharge at MMR under Section 167B of the Act is not warranted. This decision is directly applicable to the present case, as the co-ownership agreement clearly establishes specific and determinate shares of the co-owners. 8.6. The AR clarified that the rental income was shown in the hands of the AOP for administrative purposes, such as claiming TDS credit, but the substantive ownership of the income belongs to individual co-owners in specific proportions. While this explanation aligns with Section 26 of the Act, it must be noted that provisions under the Act allow for TDS credit to be passed on to members of an AOP. Resorting to such a practice of filing the return in the hands of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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