Income Tax Appellate Tribunal - Bangalore
M/S Basil Mendes Memorial Educational ... vs Income Tax Officer ... on 14 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH : BANGALORE
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND
SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER
ITA No.2887/Bang/2017
Assessment Year : 2011-12
M/s. Basil Mendes
Memorial Educational and
The Income Tax
Charitable Trust,
Officer,
2-11-821/2 &, Ashlene,
Vs. Ward - 1 (1)
Opp. Circuit House,
(Exemptions),
Kadri Hills,
Mangalore.
Mangalore - 575 004.
PAN: AABTB4742K
APPELLANT RESPONDENT
Appellant by : Smt. Pratiksha Pai, CA
Respondent by : Dr. P.V. Pradeep Kumar, Addl. CIT (DR)
Date of hearing : 17.07.2018
Date of Pronouncement : 14.09.2018
ORDER
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A), Mangalore dated 14.11.2017 for Assessment Year 2011-12.
2. The grounds raised by the assessee are as under.
"1. The order of the Learned AO has delivered without adequate consideration of the correct position of law.
2. The order of the Learned CIT(A) upholding the order of the AO is erroneous since the facts of the case has not been properly considered.
3. The Appellant has been denied natural justice on account of wrong interpretation of the position of law and rate of tax applicable to the income.
4. The order of the learned AO in so far as it is against the Appellant is opposed to law, equity, and weight of evidence, probabilities, facts ITA No.2887/Bang/2017 Page 2 of 9 and circumstances.
5. The learned AO is not justified in taxing income of the Trust at Maximum Marginal Rate. The order of the learned CIT (A) in upholding this tax rate may also be quashed.
6. The Learned AO has wrongly made a presumption that the activities of the Trust are commercial in nature without making any study into the day-to-day functioning of the Trust. The Learned AO has not applied his mind in going through the income of the Trust which indicates that there is no income of any commercial nature. The incomes are only in the form of Educational Course fee collected from students.
7. Such other grounds as may be urged at the time of hearing.
For the above and other grounds that may be urged at the time of hearing of appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered."
3. It was submitted by ld. AR of assessee that the copy of deed of trust dated 02.12.2008 is available on pages 39 to 55 of paper book along with the supplementary trust deed dated 10.05.2016. In particular, he drawn our attention to clause no. 3(h) of the said deed of trust as available on page no. 43 of paper book and pointed out that as per this clause of this deed of trust, the funds and income of the Trust shall be solely utilized for the achievement of its objects and no portion of it shall be utilized for payment to the Trustee/ member by way of profits, interest, dividend, salary etc. He submitted that under these facts, the provisions of section 164(1) are not applicable. He further submitted that the provisions of section 167B are also not applicable in the present case. As against this, the ld. DR of revenue supported the orders of authorities below. He also submitted that the present appeal is in respect of the proceedings which started by the order passed by the AO u/s. 154 of IT Act dated 31.10.2012 on an application filed by the assessee for rectification u/s. 154 dated 30.07.2012. He submitted that the issue has to be decided against the assessee in view of the provisions of section 167B of IT Act.
4. We have considered the rival submissions. We find that in paras 5.1 to 5.4 of the order of CIT (A), entire facts along with the contents of the assessee's application for rectification u/s. 154, the assessee's written submission dated 13.11.2017 and the finding of CIT (A) are available and hence, for the sake of ITA No.2887/Bang/2017 Page 3 of 9 ready reference, these paras from the order of CIT (A) are reproduced hereinbelow.
"5. Decision on the grounds of appeal 5.1 The appellant is a Trust but not registered u/s 12A of the Income Tax Act, 1961. The Trust filed its return of income for AY 2011-12 on 30-03-2012 declaring total income of Rs.1,95,930/-. The return was processed u/s 143(1) on 22-062012 assessing income at Rs.1,95,930/-. The assessee filed return of income in ITR-5 claiming the status of AOP. While processing the Return of Income, income of the assessee is charged to tax at Maximum Marginal Rate. The assessee filed application for rectification u/s 154 dated 30-07-2012 for the AY 2011-12 stating that the assessee is a 'Public Charitable Trust' and not a 'Private Trust' and the rate applicable is normal tax rates with basic exemption. The AO rejected the rectification application.
5.2 The relevant portion of the order u/s 154 is reproduced below:
In order to recti the assessee's claim, assessee was requested to furnish the following details on or before 10-09-2012.
1. Copy of 12A certificate
2. Details of trustees with their PAN & Income tax details The above details have not been submitted by the assessee so far.
Verification of 12A Registration in Office of the Commissioner of Income tax, Mangalore also confirms that the assessee is not registered u/s 12A as on date. Further, verification of the trustee's assessment details, it is seen that the trustees are having PAN and filing their Income tax returns and are also having taxable income.
Further verification of the Return of Income of the assessee shows that the assessee has declared the income under the head 'Profits & Gains from Business & Profession' and filed Return of Income in ITR 5 which is meant for assessee declaring income under the head income from 'Business & Profession'. Assessee also claimed status of AOP and not status of 'Trust' in the Return of Income filed for AY 2011-12. It is also seen that the gross receipts are Rs. 1,42,30,600/- and out of this major expenditure incurred is towards Advertisement amounting to Rs. 48,65,536/- & towards Business Promotion amounting to Rs. 5,22,461/-. This also confirms that the assessee activity is more commercial in nature.
As the status of the assessee is treated as 'AOP' for tax purpose, the tax rates applicable is as per the provisions of Sec 164(1). Hence, maximum rate of tax is applicable in this case.
5.3 Appellant's written submission dated 13-11-2017:
The learned AO has taken a wrong notion that income of charitable trust or institutions (if not exempt) are subject to 30% tax plus applicable surcharge and cess (as on the basis of companies or firm).ITA No.2887/Bang/2017 Page 4 of 9
All Trust or Institutions or any other legal obligation are liable to assessed as "Association of Person" and Part I of First schedule to the Annual Finance Act prescribes rate of taxes at which different persons will be liable to pay taxes and clause (I) of that part prescribes AOP to be taxed as same as on the basis of individual.
As per Income Tax Act, Sec-167B is applicable in case of AOP / BOI taxation. So if Trust or Institution are liable to be assessed as AOP then obliviously section 167B does also have applicability in case of charitable trust or institutions. But section 167B will not be applicable in case of charitable trust or institutions because of following two reasons;
a. Sec-167B of Income Tax Act, 1961 specifically excludes Companies and societies registered under societies registration Act, 1980 or any other similar legislation.
b. The different rates as prescribed in section I67B are based upon knowledge and determined of share of individual members.
As far as charitable or religious organizations are concerned there is no scope of share of income or surplus among members concerned. Hence it can be said now that charitable or religious trust or institutions are subject to tax at the rate applicable to individual assessee.
AOP-Trust is subject to maximum marginal rate only in the following cases:
I. Income for private religious purpose{sec-13(1)(a)} II. Income for the benefit of particular religious community(sec- 13(1)(b)} III. Income for the benefit of persons specified in section 13(3) {sec-13(1)(c)} IV. Funds not invested in accordance with provisions of sec-11(5) {sec-13(1)(d)} V. Anonymous donation {sec-115} Therefore, the Appellant submits that except in the conditions mentioned above Charitable Trust or institutions are subject to income tax at the rate applicable to individual assessee provided exemption under section 11 or 12 of 10(23C) is not available.
5.4 The submissions of the appellant and rectification order were carefully considered. There is no merit in the arguments of the appellant. The assessee itself declared the income under the head 'Profits & Gains from Business & Profession' and filed Return of Income in ITR 5 which is meant for assessee declaring income under the head income from 'Business & Profession'. Assessee also claimed status of AOP and not status of 'Trust' in the Return of Income filed for AY 2011-12. It is seen that the gross receipts are Rs.1,42,30,600/-
and out of this major expenditure incurred is towards Advertisement amounting to Rs.48,65,536/- & towards Business Promotion ITA No.2887/Bang/2017 Page 5 of 9 amounting to Rs.5,22,461/-. This confirms that the activity of assessee is commercial in nature. As the status of the assessee is treated as 'AOP' for tax purpose, the tax rate applicable is as per the provisions of Sec 164(1). Hence, maximum marginal rate of tax is applicable in this case. The AO also discussed the issue clearly and I agree with reasoning given by the AO. There is no reason to interfere with the order of the AO. The grounds are rejected."
5. From the above paras reproduced from the order of CIT (A), it is seen that as per CIT (A), the tax rate applicable in the present case is as per the provisions of section 164(1) of IT Act. Hence, for the sake of ready reference, we reproduce the provisions of sub section 1 of section 164 of IT Act. The same is as under.
"Charge of tax where share of beneficiaries unknown.
164. (1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income"
and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate:
Provided that in a case where--
(i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or
(ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or
(iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-
testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or
(iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business ITA No.2887/Bang/2017 Page 6 of 9 or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons :
Provided further that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him."
6. From the contents of the assessee's written submissions dated 13.11.2017 reproduced by CIT(A) in Para 5.3 of his order, it has been stated that section 167B is applicable in case of AOP/BOI but as per the assessee, section 167B is not applicable in the case of charitable trust or institutions. Hence we reproduce the provisions of section 167B of IT Act also for ready reference. The same is as under.
"Charge of tax where shares of members in association of persons or body of individuals unknown, etc. 167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate :
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate. (2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],--
(i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax ITA No.2887/Bang/2017 Page 7 of 9 shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.--For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter."
7. When we go through the assessee's application for rectification u/s. 154, we find that this is the claim of the assessee that the assessee is a public charitable trust and not a private trust and therefore, maximum marginal rate is not applicable in the case of the assessee. As per the order passed by the AO u/s. 154, it is seen that the AO has stated in this order that to rectify as per the assessee's claim, the assessee was requested to furnish the copy of 12A certificate and details of trustees with their PAN and income details and thereafter, the AO has stated in the said order that these details have not been submitted by the assessee till the order was passed by him on 31.10.2012 although the query was raised by him on 10.09.2012. He also noted that on verification of 12A registration in Office of the Commissioner of Income tax, Mangalore, it is confirmed that the assessee is not registered u/s. 12A as on 31.10.2012. He further noted that from the verification of the trustee's assessment details, it is seen that the trustees are having PAN and filing their income tax returns and are also having taxable income. The AO has also stated in his order passed by him u/s. 154 that further verification of the return of income of the assessee shows that the assessee has declared the income under the head "Profits & Gains from Business & Profession" and the return of income was filed in ITR 5 which is meant for assessee declaring income under the head "Income from Business & Profession". The AO has also noted that the assessee has claimed status of AOP and not of trust in the return of income filed by the assessee for the present year. The AO has concluded on this basis that as the status of assessee is treated as "AOP" for tax purpose, the section applicable is section 164(1) and therefore, maximum marginal rate of tax is ITA No.2887/Bang/2017 Page 8 of 9 proper in the present case. This is admitted position that section 167B is applicable in case of AOP and BOI because this is the stand taken by the assessee in written submissions filed before CIT(A) on 13.11.2017 as reproduced by CIT(A) in Para 5.3 of his order.
8. This is the second argument of ld. AR of assessee that section 167B is not applicable in respect of charitable trust/institutions. But we find no merit in this contention of assessee because we do not find any mention in the provisions of section 167B as per which charitable trust, institutions are excluded from its applicability. As per the explanation to section 167B, it is provided that for the purpose of this section, if the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown and if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or BOI or at any time thereafter, MMR is applicable In the present case, it is stated before us that as per clause 3(h) of the trust deed, the funds and income of the Trust shall be solely utilized for the achievement of the objects of the trust but we find that as per para no. 12 of the same trust deed, the trust shall be irrevocable but the trustees at any time in their discretion and for the better fulfillment of the objects of the trust may dissolve the trust and distribute the funds and properties of the trust to such institution or persons, as they may decide and approved by the objects of the trust. When we read both these clauses simultaneously, it comes out that during the life time of trust, the income / funds of the trust cannot be utilized by the trustees but if at any point of time, the trustees decides to dissolve the trust, the funds and properties of the trust can be distributed to any person as the trustees may decide and therefore, it cannot be said that the trust fund cannot be used by the trustees at all. Under these facts, in our considered opinion, the share of the trustees in the trust fund is not known and it is indeterminate and therefore, there is no infirmity in the orders of the lower authorities as per which, they applied provisions of section 164(1) of IT Act. Hence we decline to interfere in the order of CIT (A) on this issue.
ITA No.2887/Bang/2017 Page 9 of 99. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on the date mentioned on the caption page.
Sd/- Sd/-
(SUNIL KUMAR YADAV) (ARUN KUMAR GARODIA)
Judicial Member Accountant Member
Bangalore,
Dated, the 14th September, 2018.
/MS/
Copy to:
1. Appellant 4. CIT(A)
2. Respondent 5. DR, ITAT, Bangalore
3. CIT 6. Guard file
By order
Senior Private Secretary,
Income Tax Appellate Tribunal,
Bangalore.