AOP granted benefit of basic exemption limit by the ITAT holding that Maximum Marginal Rate was not applicable.
In a recent judgment, ITAT Lucknow has held that AOP was entitled to the benefit of the basic exemption limit which was denied by CPC applying the Maximum Marginal Rate.
ABCAUS Case Law Citation:
4204 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the order passed by the CPC Bengaluru denying it the basic exemption limit applicable to Association of Persons (AOP) and levy of tax at Maximum Marginal rate (MMR).
The appellant assessee was a charitable institution, but was not registered under section 12A of the Income Tax Act, 1961 (the Act) during the assessment year under consideration.
The assessee enjoyed income from rent and interest from bank, during the year under consideration. The return was filed as an AOP after computing tax liability as applicable to AOP after considering basic exemption limit of Rs. 2.50 lakhs
However, the Central Processing Centre (CPC), Bangalore, while processing the return u/s 143(1) of the Act computed the tax liability by applying the MMR of tax to the income of the institution.
Aggrieved, the assessee approached the First Appellate Authority, challenging the tax demand and submitted that the basic exemption available to an AOP was to be allowed since the assessee was purely a charitable institution and no part of the surplus was to be distributed amongst the members and that further the entire surplus accumulated was to be applied for charitable purposes as and when the need arose.
The assessee also submitted that the CPC had travelled beyond its scope by applying the Maximum Marginal Rate (MMR) of tax to the income of the institution for the reason that such kind of adjustment was neither provided for nor permissible in terms of section 143(1) of the Act.
The CIT(A) dismissed the appeal observing that in the return, the assessee had failed to identify all its members and their percentage of shares and, therefore, the shares of the members were indeterminate and unknown and, therefore, the tax was to be levied at the Maximum Marginal Rate only.
Before the Tribunal the assessee submitted that the status of the assessee was more 175 years old and that the members come together for a common purpose, i.e., charity. It was reiterated that the surplus arising has never ever been distributed amongst the members or applied for the benefit of any of the members.
Attention of the Tribunal was drawn to the intimations passed by the CPC in the case of the assessee for preceding four assessment years wherein the Income Tax Department had accepted the returns of income as filed by the assessee and had allowed the benefit of basic exemption to the assessee.
The Tribunal observed that in earlier assessment years the returns of income filed by the assessee were duly accepted without denying basic exemption available to the assessee. Further, although the assessee might have filed its return of income as an AOP, as per the bylaws of the assessee, no member can avail any monetary benefit/share of profit of the said institution. It was undisputed that no portion of the surplus of the institution was to be distributed or parted way with in favour of any member and/or surplus was to be accumulated for the purpose of being applied to charitable purposes as and when the need arises.
Further, the Tribunal observed that as rightly pointed out, CBDT Circular No. 320 dated 11.1.1982, wherein it has been specifically provided that in case of registered Societies, trade and professional associations, social and sports clubs, charitable or religious trusts, etc., where the members or trustees are not entitled to any share in the income of the association of persons, provisions of section 167A of the Act will not be attracted and accordingly tax will be payable at the rate ordinarily applicable to the total income of an AOP and not at the Maximum Marginal Rate members or trustees are not entitled to any share in the income of the association of persons, provisions of section 167A of the Act will not be attracted and accordingly tax will be payable at the rate ordinarily applicable to the total income of an AOP and not at the Maximum Marginal Rate.
The Tribunal found it worthwhile to mention that section 167A of the Act was omitted w.e.f. 1.4.1989 and a new section 167B of the Act was introduced and subsequently w.e.f. 1.4.1993 section 167A of the Act was again inserted in the Income Tax Act. Thereafter, a new section 167B of the Act was inserted which is applicable to association of persons and body of individuals. In my considered opinion, the said CBDT Circular would be applicable to section 167B of the Act. The CPC had made disallowance in terms of section 167B of the Act only.
Therefore, looking into the past history of the assessee as well as the CBDT Circular and also
the order of the Co-ordinate Bench the Tribunal held that the assessee was entitled to benefit of exemption and accordingly the impugned appellate order was set aside and the Assessing Officer was directed to allow the benefit of basic exemption to the assessee and not charge Tax at the Maximum Marginal Rate.
Download Full Judgment Click Here >>
- ITAT deleted disallowance u/s 40A(3) as assessee never operated any bank account
- The Companies (Compromises, Arrangements and Amalgamations) Amendment Rules 2024
- Bar Council of India may now invest funds in Private Sector Banks
- ICAI sets up Branch of SIRC in Vizianagaram District with effect from 14.08.2024
- Appeal order set aside as assessee clearly indicated notice not to be sent on email
