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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 ..... he maximum marginal rate under Section 167B of the Income Tax Act, 1961 [hereinafter referred to as "the Act"]. The levy of surcharge was determined pursuant to intimations issued by the CPC, Bengaluru under Section 143(1) of the Act. Since the facts and grounds of appeal for both years are identical except for the quantum involved, we are disposing of both the appeals through a combined order for the sake of convenience. Facts of the Case: 2. The assessee is an Association of Persons (AOP) engaged in managing rental income from co-owned immovable property For both the years under consideration, the assessee filed its return of income and the same were processed by the CPC u/s. 143(1) of the Act raising demands in both the years. The dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pholding 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 err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorrectly treated the shares of co-owners as indeterminate and applied the maximum marginal rate under Section 167B of the Act. The AR further stated that the co-ownership agreement dated 29.04.2006 clearly specifies the shares of the co-owners, making Section 167B of the Act inapplicable. The AR placed on records the copy of co-ownership agreement. The AR argued that in the CIT(A)'s orders for earlier assessment years the revenue has accepted that taxed the rental income in the hands of individual co-owners, establishing a consistent principle of taxation under Section 26 of the Act. The AR placed on records copies of CIT(A)'s orders for A.Y. 2013-14 and A.Y. 2015-16. The AR placed on records the copy of order of CIT(A) in case of Aslal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival contentions and carefully considered the material on record, including the provisions of the Income Tax Act, the co-ownership agreement, judicial precedents, and the arguments advanced by both parties. The core issue in dispute is whether the rental income from house property earned by the assessee is to be taxed under Section 26 of the Income Tax Act in the hands of individual co-owners or at the Maximum Marginal Rate (MMR) under Section 167B, as applied by the CPC and upheld by the CIT(A). 8.1. We have gone through the co-ownership agreement dated 29.04.2006, which specifies that the rental income will be distributed among the co-owners in specific and pre-determined proportions after meeting all tax and other liabilities. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation of income from co-owned property with determinate shares, and the surcharge levied under Section 167B was deleted. The facts of the Aslali Storage House 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o ensure that the correct rate of taxation is applied. 8.8. Based on the facts, the 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. However, 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. 8.9. The AO is directed to: a) Verify the tax rates applicable to each co-owner based on their individual tax return ..... X X X X Extracts X X X X X X X X Extracts X X X X
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