Air Force Navy Farm Owners Welfare Association, New Delhi V. ITO ward -1(1), Noida

ITA 1992/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8577 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 07-03-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Maximum Marginal Rate; Benefit of exemption

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: SMC-1 (HEARING THROUGH VEDIO CONFERENCING), NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 1992/DEL./2019 ASSESSMENT YEAR: 2013-14 AIR FORCE NAVY FARM OWNERS WELFARE ASSOCIATION, C-2/52, SECTOR-31, NOIDA VS. ITO, WARD-1(1), NOIDA, UP PAN :AAAJA0972B (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 29/10/2018 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-I, NOIDA [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2013-14 IN SECOND ROUND OF THE PROCEEDINGS. THE ASS ESSEE HAS RAISED FOLLOWING GROUNDS OF THE APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE ASSESSMENT ORDER MADE BY LD. AO BY N OT ALLOWING THE BASIC EXEMPTION PROVIDED TO THE ASSESSEE BECAUS E: APPELLANT BY SHRI RAJIV SAXENA, ADV. MS. SUMANGALA SAXENA, ADV. RESPONDENT BY SHRI R.K. GUPTA, SR. DR DATE OF HEARING 13.07.2020 DATE OF PRONOUNCEMENT 16.07.2020 2 ITA NO.1992/DEL./2019 A. THE SOCIETY IS REGISTERED UNDER SOCIETY REGISTRA TION ACT 1960 WHERE MEMBERS ARE FIXED BEING OWNERS OF 99 FARM UNI TS AND SO NOT INDETERMINATE. B. SOCIETY IS REGISTERED AS AJP ACCORDINGLY PAN IS ALLOTTED AS AJP THEREBY STATUS OF THE ASSESSEE IS AJP AND ASSESSMEN T MADE IN THE STATUS OF AOP IS BAD IN LAW. C. BOTH THE LOWER AUTHORITIES FAILED TO APPRECIATE THAT SECTION 167B IS NOT APPLICABLE TO THE SOCIETIES REGISTERED UNDER THE SOCIETY REGISTRATION ACT AND IT IS SPECIFICALLY EXCLUDING S OCIETIES EVEN UNDER SUB-SECTION (2) WITH THE OPENING WORDS ITSELF IN BRACKETS. D. BOTH THE LOWER AUTHORITIES ALSO FAILED TO APPREC IATE THAT RATES OF INCOME TAX APPLICABLE TO CO-OPERATIVE SOCIETIES CAN NOT BE APPLIED ON THE SOCIETIES REGISTERED UNDER SOCIETIES REGISTR ATION ACT 1860. E. BOTH THE LOWER AUTHORITIES HAVE NOT APPRECIATED THAT SECTION 167B IS APPLICABLE TO THE AOPS AND BOIS ENGAGED IN THE BUSINESS WHOSE SHARES ARE INDETERMINATE BUT SOCIETIES REGIST ERED UNDER SOCIETY REGISTRATION ACT, COMPANY AND CO-OPERATIVE SOCIETIES HAVE BEEN SPECIFICALLY EXCLUDED 2. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS IN CONFIRMING THE INCOME ASSESSED BY LD. AO AT RS. 1,39,820/- AS AGAINST INCOME DECLARED AT RS 37,080/- WITHOUT ALLOWING CLA IM OF EXPENDITURE INCURRED AGAINST THE INCOME FOR THE GEN UINE AND ACTUAL EXPENSE NOT DISPUTED BY THE AO WHICH WERE RE QUIRED TO BE REDUCED FOR CALCULATING THE INCOME OF THE ASSESSEE AT RS. 37,081/- AS RIGHTLY CALCULATED BY THE ASSESSEE AFTER ADJUSTI NG THE EXPENSES AS PER INCOME AND EXPENDITURE ACCOUNT. THE ABOVE GROUNDS OF APPEALS ARE INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEN D OR WITHDRAW ALL OR ANY GROUNDS HEREIN OR ADD ANY FURTHER GROUND S AS MAY BE CONSIDERED NECESSARY DURING THE HEARING OF THESE GR OUNDS. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE 99 ( NINTY-NINE) AIR-FORCE AND NAVY OFFICERS CONSTITUTED AN ASSOCIAT ION FOR MANAGEMENT OF FARMHOUSES ALLOTTED TO THEM BY THE AI R FORCE NAVAL HOUSING BOARD. THIS ASSOCIATION WAS REGISTERE D UNDER THE SOCIETY REGISTRATION ACT, 1860. THE ASSOCIATION CLA IMED ITS FUNCTIONING ON THE CONCEPT OF MUTUALITY WITHOUT IND ULGING IN ANY BUSINESS ACTIVITY. FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE 3 ITA NO.1992/DEL./2019 FILED RETURN OF INCOME ON 20/07/2013 DECLARING TOTA L INCOME OF 37,080/-. THE ASSESSING OFFICER IN THE ASSESSMENT O RDER DATED 29/01/2016, HOWEVER, ASSESSED INTEREST INCOME OF 1,39,820/- FROM NONMEMBERS AS TAXABLE. THE ASSESSING OFFICER H ELD THE STATUS OF THE ASSESSEE AS ASSOCIATION OF PERSONS (A OP) AS AGAINST CLAIM OF THE ASSESSEE AS ARTIFICIAL JURIDICAL PERSO N (AJP) AND APPLIED MAXIMUM MARGINAL RATE OF TAX AFTER INVOKING SECTION 167B OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT ). ON FURTHER APPEAL, THE LD. CIT(A) IN HIS ORDER DATED 13/06/201 6 UPHELD THE STATUS OF THE ASSESSEE AS AOP. AGAINST THE SAID ORD ER OF THE LD. CIT(A), THE ASSESSEE BEFORE THE INCOME TAX APPELLAT E TRIBUNAL (IN SHORT THE TRIBUNAL) RAISED THE ONLY ISSUE THAT IR RESPECTIVE OF THE STATUS OF THE ASSESSEE HELD BY THE ASSESSING OFFICE R AS AOP, THE ASSESSEE BEING REGISTERED UNDER SOCIETIES REGISTRAT ION ACT, 1860 PROVISION OF SECTION 167B WERE NOT APPLICABLE. THE TRIBUNAL IN ITS ORDER DATED 12/04/2017 RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE APPLICABILITY OF SECTION 167B IN THE CASE OF THE ASSESSEE. IN COMPLIANCE TO THE O RDER OF THE TRIBUNAL, THE ASSESSING OFFICER VIDE ORDER DATED 09 /10/2017 APPLIED THE TAX RATE APPLICABLE IN THE CASE OF COOP ERATIVE SOCIETY WITHOUT PROVIDING ANY BENEFIT OF BASIC EXEMPTION LI MIT. ON FURTHER APPEAL, THE LEARNED CIT(A) REFERRED TO THE PROVISIO N OF SECTION 167B AND HELD THAT PROVISION OF SUBSECTION (2) OF S ECTION 167B IS APPLICABLE OVER THE FACTS OF THE CASE. HE, ACCORDIN GLY, DECLINED THE BENEFIT OF EXEMPTION FROM THE TAX ON THE MINIMUM AM OUNT AND ENTIRE INCOME OF THE ASSESSEE WAS SUBJECTED TO MAXI MUM MARGINAL RATE OF TAX. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOV E. 4 ITA NO.1992/DEL./2019 3. BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE OPT ED FOR HEARING THROUGH VIDEOCONFERENCING AND FILED A PAPER BOOK CONTAINING PAGES 1-73. HE REFERRED TO THE COPY OF T HE ORDER OF THE TRIBUNAL PLACED ON PAGE 40-44 AND SUBMITTED THAT PR OVISIONS OF SECTION 167B(2) ARE NOT APPLICABLE ON ANY SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT 1860. HE ALSO RAISED THE ISSUE THAT ASSESSEE HAS BEEN ALLOTTED PAN UNDER THE STATUS OF ARTIFICIAL JURIDICAL PERSON (AJP) AND, THEREFORE, A SSESSMENT OF THE SAME BY THE ASSESSING OFFICER AS WELL AS LD. CIT(A) AS AOP IS NOT JUSTIFIED. ACCORDING TO HIM, THE PROVISIONS OF SECT ION 167B ARE APPLICABLE ONLY IN CASE OF ASSOCIATION OF PERSON OR BODY OF INDIVIDUALS AND ASSESSEE BEING NOT EITHER OF THEM, THE PROVISION OF SECTION 167B ARE NOT APPLICABLE. 4. THE LEARNED DR, ON THE OTHER HAND, ALSO APPEARED T HROUGH VIDEOCONFERENCING AND RELIED ON THE ORDER OF THE LD . CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES ON THE ISSUE IN DIS PUTE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT BEFORE THE TRIBUNAL IN FIRST ROUND OF THE PROCEEDING, THE ASSE SSEE DID NOT DISPUTE ASSESSING OF THE ASSESSEE IN THE STATUS OF AOP AND THE ONLY ISSUE WHICH WAS DISPUTED WAS OF APPLICABILITY OF SECTION 167B AND TAXING AT MAXIMUM MARGINAL RATE. THE RELEV ANT PART OF THE ORDER OF THE TRIBUNAL IS REPRODUCED AS UNDER: 5. THE LEARNED CIT(APPEALS) HELD THAT THE ASSESSEE IS TO BE TAXED AS AOP BECAUSE AJP IS ONLY TO BE DEEMED HAVE AN EXI STENCE ONLY WHERE DOES NOT COVERED IN ANY OTHER CLAUSES OF SECT ION 2(31). BEFORE US THE ONLY LIMITED POINT MADE BY THE ID. COUNSEL M S. SUMANGALA SAXENA IS THAT THE ID. ASSESSING OFFICER WHILE APPL YING THE MAXIMUM MARGINAL RATE AFTER INVOKING PROVISION OF S ECTION 167B HAS FAILED TO CONSIDER THE FACT THAT UNDER THE SAID PRO VISION ITSELF, EXCEPTION HAS BEEN CARVED OUT FOR SOCIETIES REGISTR ATION ACT 1860. THUS, EVEN IF THE ASSESSEE IS TO BE CHARGED OF TAX AS AOP THEN ALSO IT CANNOT BE TAXED AT MAXIMUM MARGINAL RATE. IN SUPPOR T OF HE DREW 5 ITA NO.1992/DEL./2019 OUR ATTENTION TO THE COPY OF REGISTERED CERTIFICATE ISSUED BY THE REGISTRAR OF SOCIETIES PLACED AT PAGE 1 OF THE PAPE R BOOK. THUS, SHE SUBMITTED THAT THE ASSESSEE SHOULD NOT BE TAXED AS MAXIMUM MARGINAL RATE. 5.1 IN VIEW OF THE SUBMISSION OF THE ASSESSEE IN FIRST ROUND OF THE PROCEEDING BEFORE THE TRIBUNAL, THE TRIBUNAL RE STORED THE ISSUE OF EXAMINING THE APPLICABILITY OF SECTION 167 B IN THE CASE OF THE ASSESSEE. IN VIEW OF THE ABOVE, THE LIMITED ISS UE BEFORE US IS WHETHER PROVISIONS OF THE SECTION 167B ARE APPLICAB LE IN THE CASE OF THE ASSESSEE. 5.2 WE FIND THAT THE LD. CIT(A) IN THE IMPUGNED ORDER HAS REPRODUCED, THE PROVISION OF SECTION 167B OF THE AC T AND, THEREAFTER, PROCEEDED TO HOLD THAT, IN THE CASE OF THE ASSESSEE PROVISION OF SECTION 167B (2) ARE APPLICABLE. THE S ECTION 167B(2) PRESCRIBE THAT IN CASE OF ANY ASSOCIATION OF PERSON (NOT BEING A CASE FALLING UNDER SUBSECTION 1 OF 167B ), IF TOTAL INCOME OF THE ANY MEMBER OF THE ASSOCIATION OF PERSON (EXCLUDING THE SHARE FROM SUCH ASSOCIATION) EXCEEDS THE MAXIMUM AMOUNT, WHICH IS NOT CHARGEABLE TO TAX UNDER THE FINANCE ACT OF THE RELEVANT YEAR, THE TAX SHALL BE CHARGED ON THE TOTAL INCOME OF THE ASSOCIATION AT MAXIMUM MARGINAL RATE. IN VIEW OF THE PROVISION, TH E LEARNED CIT(A) HELD THAT INCOME OF THE MEMBERS BEING IN THE SLAB OF MAXIMUM RATE OF TAX, THE SOCIETY IS NOT ENTITLED TO THE BENEFIT OF EXEMPTION FROM THE MINIMUM AMOUNT AND LIABLE TO THE INCIDENCE OF MAXIMUM MARGINAL RATE INCOME OF SECTION 167B(II) OF THE ACT. 5.3 IN OUR OPINION, THE FINDING OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE IS WELL REASONED. A SOCIETY REGISTERED U NDER THE SOCIETIES REGISTRATION ACT, 1860, HAS BEEN EXCLUDED FROM THE 6 ITA NO.1992/DEL./2019 PROVISION OF SECTION 167B9(1). THUS, IN CASE OF ANY SOCIETY, WHICH THOUGH HAS BEEN HELD AS ASSOCIATION OF PERSON AND I NCOME OF SUCH ASSOCIATION IS INDETERMINATE; SUCH SOCIETY WIL L BE EXCLUDED FROM INVOKING OF MAXIMUM MARGINAL RATE. BUT, THE PR OVISION OF SECTION 167B(2) ARE APPLICABLE IN CASE OF ASSOCIATI ON OF PERSONS NOT BEING A CASE FALLING UNDER SUB-SECTION 1. THE R ELEVANT PROVISION IS REPRODUCED AS UNDER: CHARGE OF TAX WHERE SHARES OF MEMBERS IN ASSOCIATI ON OF PERSONS OR BODY OF INDIVIDUALS UNKNOWN, ETC. 167B. (1) . (2) WHERE, IN THE CASE OF AN ASSOCIATION OF PERSON S OR BODY OF INDIVIDUALS AS AFORESAID [NOT BEING A CASE FALLING UNDER SUB-SECTION (1)], (I) THE TOTAL INCOME OF ANY MEMBER THEREOF FOR TH E PREVIOUS YEAR (EXCLUDING HIS SHARE FROM SUCH ASSOCIATION OR BODY) EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO TAX IN TH E CASE OF THAT MEMBER UNDER THE FINANCE ACT OF THE RELEVANT YEAR, TAX SHALL BE CHARGED ON THE TOTAL INCOME OF THE ASSOCIATION OR B ODY AT THE MAXIMUM MARGINAL RATE; (II) ANY MEMBER OR MEMBERS THEREOF IS OR ARE CHARGE ABLE TO TAX AT A RATE OR RATES WHICH IS OR ARE HIGHER THAN THE MAXIM UM MARGINAL RATE, TAX SHALL BE CHARGED ON THAT PORTION OR PORTI ONS OF THE TOTAL INCOME OF THE ASSOCIATION OR BODY WHICH IS OR ARE R ELATABLE TO THE SHARE OR SHARES OF SUCH MEMBER OR MEMBERS AT SUCH H IGHER RATE OR RATES, AS THE CASE MAY BE, AND THE BALANCE OF THE T OTAL INCOME OF THE ASSOCIATION OR BODY SHALL BE TAXED AT THE MAXIM UM 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 INDETERMI NATE 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. 5.4 IN VIEW OF THE CLEAR AND UNAMBIGUOUS PROVISIONS OF 167B(2), IF INCOME OF ANY MEMBER (OTHER THAN THE SHARE OF SU CH ASSOCIATION) IS HIGHER THAN THE BASIC EXEMPTION LIM IT OF THE 7 ITA NO.1992/DEL./2019 RELEVANT YEAR, THE INCOME OF THE ASSOCIATION IS CHA RGEABLE AT THE MAXIMUM MARGINAL RATE. 5.5. BEFORE US, THE ASSESSEE HAS NOT DISPUTED THE FINDI NG OF THE LEARNED CIT(A) THAT INCOME OF ITS MEMBER DURING THE YEAR UNDER CONSIDERATION EXCEEDS THE BASIC EXEMPTION LIMIT. 5.6 IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND AN Y ERROR IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDINGLY, WE UPHOLD THE SAME. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORD INGLY DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16TH JULY, 2 020. SD/- SD/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 TH JULY, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI