Shree Vyadeshwar Devasthan Fund, Ratnagiri V. Deputy Commissioner of Income-tax, CPC-Bangalore, Bangalore

ITA 1678/PUN/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1337 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 13-09-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 03-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Maximum Marginal Rate
• Section: 11; 12A; 22

Judgement Text

आयकर अपीलीय अधिकरण “एक सदस्य मामला” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PUNE श्री एस.एस. विश्वनेत्र रवि, न्याविक सदस्य के समक्ष । BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आिकर अपील सं. / ITA Nos.1677 & 1678/PUN/2019 वनर्ाारण िर्ा / Assessment Years : 2014-15 & 2015-16 Shree Vyadeshwar Devasthan Fund, Main Road, Guhagar, Distt.-Ratnagiri – 415703 PAN : AADTS9064P .......अपीलार्थी / Appellant बनाम / V/s. The DCIT, CPC, Bangalore ......प्रत्यर्थी / Respondent Assessee by : Shri Pramod Shingte Revenue by : Shri M.G. Jasnani सुनवाई की तारीख / Date of Hearing : 22-09-2022 घोषणा की तारीख / Date of Pronouncement : 10-10-2022 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : Both the appeals by the assessee against the common order dated 24-10-2019 passed by the Commissioner of Income Tax (Appeals)-2, Kolhapur [‘CIT(A)’] for assessment years 2014-15 and 2015-16. 2. Since, the issues raised in both the appeals are similar basing on the same identical facts. Therefore, with the consent of both the parties, we proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience. 2 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 3. First, we shall take up appeal in ITA No. 1677/PUN/2019 for A.Y. 2014-15. 4. The only issue is to be decided is as to whether the CIT(A) justified in confirming the order of CPC, Bangalore of levying tax at the maximum marginal rate instead of rates applicable to individuals. 5. Heard both the parties and perused the material available on record. I note that the assessee is a religious trust but no registration u/s. 12A of the Act was available to the year under consideration. Therefore, the assessee filed return of income declaring a total income of Rs.9,95,188/-. According to the ld. AR, the CPC, Bangalore mechanically proceeded to apply tax rate at maximum marginal rate which resulted in additional demand. He contends that there was no opportunity for the assessee to put forth its claim for application of tax rate applicable to individuals. I note that the assessee preferred an appeal before the CIT(A) which ended in confirming the order of CPC in applying maximum marginal tax rate. I note that the ld. AR drew my attention to the provisions u/s. 164(2) of the Act and argued sub-section (2) of section 164 is applicable to the facts on hand. The proviso to section 164(2) is not applicable since there was no violation u/s. 13(1)(c) and (d) of the Act. On careful reading of sub-section (2) of section 164 of the Act, I 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. It is also not disputed that the income was not derived from property held under the trust wholly for charitable and religious purpose. I note that the copy of 3 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 notarized trust deed is placed on record consisting of 1 to 22 pages. It is noted from Point No. 3 of the said trust deed that all movable and immovable properties of trust mentioned in the Schedule I or any other properties remained mentioning through oversite are treated as property of the trust. Further, the new income accretions thereto by way of acquisition, donations, gift or by any other source shall be called trust properties. Therefore, it is not disputed by the ld. DR that the income so declared is not derived from the properties held by the assessee. As discussed above since there is no dispute with regard to deriving of income from property held under trust which is wholly for charitable or religious purposes, in my opinion, shall be treated as income of the association of persons in the absence of any registration u/s. 12A of the Act at tax rate available to the association of persons. I note that the ld. DR vehemently contested that proviso to sub-section (2) of section 164 is applicable which clearly states when income is not exempt or violation u/s. 13(1)(c) and (d) the relevant income shall be charged at the maximum marginal rate. I note that 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, I 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. 6. Further, the ld. AR argued that CBDT Circular No. 320 dated 11-01- 1982 is applicable to the facts on hand and drew my attention to page 6 of the impugned order. On careful reading of the said circular I note that CBDT clarified that new section 167A of the Act will not be attracted in the case of registered society, trade and professional associations, social and 4 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 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. 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. 7. Further, the CIT(A) discussed about Circular No. 387 of 1984 wherein it was held that the earlier Circular No. 320 dated 11-01-1982 superceded by Circular No. 387 of 1984. Further, he held if the shares of beneficiaries of a trust are not indeterminate/specified or unknown the income of the said trust has to be taxed at maximum marginal rate by taking support from Circular No. 387 of 1984. The ld. AR argued that the CIT(A) conveniently taking some portion of the said circular and held maximum rate of tax is applicable to the assessee. He submits that the CIT(A) has to read the entire Circular No. 387 of 1984 as a whole, but not, taking those portions which are not applicable to the assessee. He drew my attention to full text of the said circular at page 3 of the paper book. On perusal of the said circular, I note that at Point No. 28.1 it is explained that levy of income-tax at maximum marginal rate is applicable in the case of charitable and religious trusts which forfeit tax exemption. I note that the assessee did not forfeit the tax exemption but it was denied for not having registration u/s. 12A of the Act. Therefore, maximum marginal rate would not be applied to the assessee under Point No. 28.1. Further, the contention of ld. AR is that the CIT(A) conveniently reproduced Point Nos. 28.3, 28.4, 28.5, 28.6 and 28.7 of Circular No. 387 of 1984. He submits that the said Point Nos. 28.2 to 28.7 are not applicable as the assessee did not forfeit the exemption provided under (a) to (c) under Point No. 28.2. I note that under Clause (a), the levy of maximum marginal rate will come 5 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 into play if the author of the trust, trustee or manager of the trust, substantial contributor to the trust and any relative of such author, trustee, etc. directly or indirectly are beneficiaries. The Clause (b) explains that any part of the income or any property of the trust is used for applied directly or indirectly, for the benefit of specified categories and the trust funds are invested in contravention of the investment pattern for such funds as laid down under the Income Tax Act under Clause (c). In the present case, I do not see any of the conditions are applicable where the specified categories of persons mentioned in Clause (a) or any income applied directly or indirectly to such categories of persons or investments made in contravention of the provisions of the Income Tax Act under Clause (b) and (c), respectively. Therefore, in my opinion, the said Circular No. 387 of 1984 is not applicable to the assessee, as rightly pointed by the ld. AR that the CIT(A) without considering the Point No. 28.1 applied conveniently as if there was a violation of conditions mentioned in Point No. 28.2. 8. Further, the ld. AR placed on record orders of this Tribunal in the case of Shri Hanuman Mandir Trust reported in 84 ITD 83 (Pune- Trib.)(SMC) and in the case of Vijaya Durga Devi Trust in ITA No. 494/PUN/2019. On perusal of the order in the case of Shri Hanuman Mandir Trust (supra) which held the income derived from property held under trust wholly for charitable or religious purposes, provisions of section 164(2) will come into operation and proviso to section 164(2) is not applicable. The relevant portion of the at para 7 of the aid order is reproduced hereunder for ready reference : “7. I have considered the rival submissions and perused the facts on record. I have perused the terms and contents of the trust deed which have been reproduced (supra) and after doing so, I hold that the assessee-trust has to be considered as a public religious trust in view of the judgment of the Hon'ble Supreme Court in the case of Devki Nandan v. Murlidhar (supra). The submission of the assessee before the CIT(A) that it is the deity who is the assessee and that, therefore, the status should be that of individual is 6 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 not correct, in view of the observations of the Hon'ble Supreme Court reproduced (supra). Accordingly, I direct that the status of the assessee has to be taken as that of AOP. But since the assessee's income is one derived from property held under the trust wholly for charitable or religious purposes, provisions of Section 164(2) will come into operation, but since under Schedule to Finance Act, rates of income-tax for AOP were the same as those of individual and, therefore, the assessee even though assessable under the status of AOP is still to be taxed as per the rates applicable to an individual. I further hold that proviso to Section 164(2) was wrongly applied in the present case to tax the assessee at the maximum marginal rate, because maximum marginal rate could be applied only if there was failure on the part of the trust under Section 13(1)(c) or 13(1)(d) of the Act which is not the reason for denying benefits of Section 11 in the present case. In view of the above legal position, I hold that Section 164(2) applies and the tax is to be calculated on the AOP on the minimum marginal rate.” 9. In the light of above finding of Tribunal in SMC Bench in the case of Shri Hanuman Mandir Trust (supra), I 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, the finding of Tribunal in SMC Bench in the case of Shri Hanuman Mandir Trust (supra) is applicable to the facts on hand and I hold that the assessee is assessable under the status of AOP, as per the rates applicable to an individual. 10. Further, in the case of Vijaya Durga Devi Trust (supra) 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. 7 ITA Nos.1677 & 1678/PUN/2019, A.Ys. 2014-15 & 2015-16 11. In view of my decision in ground No. 1, the additional ground raised by the assessee becomes infructuous, requiring no adjudication. 12. In the result, the appeal of assessee is allowed. ITA No. 1678/PUN/2019, A.Y. 2015-16 13. Both sides are unanimous in stating that the issues raised in the appeal and the facts in ITA No.1678/PUN/2019 are identical to ITA No. 1677/PUN/2019. Since, the facts in ITA No. 1678/PUN/2019 are similar to ITA No. 1677/PUN/2019, the findings given by us while deciding the appeal of assessee in ITA No. 1677/PUN/2019 would mutatis mutandis apply to ITA No. 1678/PUN/2019, as well. The appeal of assessee is allowed, accordingly. 14. To sum up, both the appeals of assessee are allowed. Order pronounced in the open court on 10 th October, 2022. Sd/- (S.S. Viswanethra Ravi) JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 10 th October, 2022. रदव आदेश की प्रविवलवप अग्रेवर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A)-2, Kolhapur 4. The Pr. CIT-2, Kolhapur 5. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, “एक सदस्य मामला” बेंच, पुणे / DR, ITAT, “SMC” Bench, Pune. 6. गार्ड फ़ाइल / Guard File. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune