Anand Educational Society, Devarapalli V. The income Tax Officer, Ward-1, Tadepalligudem

ITA 67/VIZ/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1612 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 19-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V SUBBA RAO
• Keywords: Maximum Marginal Rate; Rule of consistency; Earning of tax free income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 6 7 /VIZ/ 201 8 ( / ASSESSMENT YEAR: 20 1 0 - 1 1 ) M/S ANAND EDUCATIONAL SOCIETY D.NO.3 - 26, MAIN ROAD DEVARAPALLI WEST GODAVARI DIST. [PAN : A ABTA6104E ] VS. INCOME TAX OFFICER WARD - 1 TADEPALLIGUDEM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI , A R / RESPONDENT BY : SHRI D .V.SUBBA RAO , D R / DATE OF HEARING : 1 7 . 0 8 . 2018 / DATE OF PRONOUNCEMENT : 05 .0 9 .2018 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [ CIT (A ) ], RAJAMAHENDRAVARAM VIDE ITA NO. 018 3/201 3 - 1 4 DATED 09 .0 2 .201 8 F OR THE ASSESSMENT YEAR 20 1 0 - 1 1 . 2 I.T.A. NO . 6 7 /VIZ/201 8 M/S ANAND EDUCATIONAL SOCIETY, WEST GODAVARI DIST. 2. ALL THE GROUNDS OF APPEAL ARE RELATED TO THE LEVY OF MAXIMUM MARGINAL RATE ON THE INCOME ASSESSED INSTEAD OF NORMAL TAX RATES APPLICABLE TO THE SOCIETY. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A TRUST REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860. THE ASSESSING OFFICER (AO) FOUND THAT THE FUNDS OF THE TRUST/SOCIETY WE RE INVESTED IN CONTRAVENTION TO THE INVESTMENT PATTERN LAID DOWN IN SECTION 11(5) R.W.S.13(2 )(D) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS ACT). THOUGH THE ASSESSEE I S CLAIMING THE EXEMPTION U/S 11(5) AND 10(23)(C), SINCE THE SOCIETY CONTRAVENED THE PROVISIONS OF SECTION 11(5), THE AO BROUGHT THE INVESTMENTS TO TAX FOR WHICH THE LD.AR HAS ACCEPTED THE ADDITION MADE BY THE AO. HOWEVER, THE AO TAXED THE ASSESSEES INCOME AT MAXIMUM MARGINAL RATE. 4. AGGRIEVED BY THE ORDER OF THE AO, T HE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) FOLLOWED THE ORDER OF THE COORDINATE BENCH OF ITAT, HYDERABAD A BENCH IN THE CASE OF SAMAKAR NASTIK KENDRAM VS. ITO IN I.T.A. NO.733/HYD/1990 DATED 31.10.1992 AND UPHELD THE LEVY OF MAXIMUM M ARGINAL RATE IN THE CASE OF THE ASSESSEE. D URING THE COURSE OF 3 I.T.A. NO . 6 7 /VIZ/201 8 M/S ANAND EDUCATIONAL SOCIETY, WEST GODAVARI DIST. APPEAL HEARING, THE LD.AR BROUGHT TO OUR NOTICE THE DECISION OF THIS TRIBUNAL IN THE CASE OF VIDYODAYA EDUCATIONAL SOCIETY, VISAKHAPATNAM VS. DCIT IN I.T.A. NO.369/VIZ/2016 DATED 26.04.2018 AND SUBMITTED THAT IN THE CASE OF REGISTERED COOPERATIVE SOCIETY, THE PROVISIONS OF SECTION 167B(1) IS APPLICABLE AND NORMAL TAX RATES ARE CHARGEABLE , BUT NOT THE MAXIMUM MARGINAL RATE. 5 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON REC ORD. THOUGH THE LD.CIT(A) HELD THAT THE MAXIMUM MARGINAL RATE IS APPLICABLE IN THE CASE OF THE ASSESSEE , WHO IS HAVING EXEMPT INCOME AS WELL AS TAXABLE INCOME, BUT THERE IS NO SUCH DISTINCTION PROVIDED UNDER SECTION 167B OF THE ACT. THIS TRIBUNAL IN THE CASE CITED SUPRA HELD THAT NORMAL RATES ARE APPLICABLE IN THE CASE OF THE SOCIETY REGISTERED UNDER SOCIETIES ACT. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THIS TRIBUNAL IN PARA NO.10 - 11 WHICH READS AS UNDER : 10. THE NEXT SUBMISSION OF THE ASSESSEE IS TAXING THE INCOME AT MAXIMUM MARGINAL RATE. AS PER SECTION 167B OF THE ACT, IN CASE OF AN ASSESSEE REGISTERED UNDER SOCIETIES ACT, THE SAME IS EXCLUDED FOR TAXING THE INCOME AT FOR MAXIMUM MARGINAL RATE. FOR READY RE FERENCE WE EXTRACTRELEVANT PART OF SECTION 167B(1) OF THE ACT WHICH READS AS UNDER: 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 CORRESPONDI NG 4 I.T.A. NO . 6 7 /VIZ/201 8 M/S ANAND EDUCATIONAL SOCIETY, WEST GODAVARI DIST. 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 : PLAIN READING OF SECTION 167B OF THE ACT INDICATES THAT THE INCOME OF COMPANY OR COOPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER SOCIETIES ACT OF 1860 ARE EXCLUDED FROM CHARGING THE TAX AT MAXIMUM MARGINAL RATE ( MMR ) AND WOULD BE CHARGEABLE AT NORMAL RATES. IN THE SIMILAR FACTS AND CIRCUMSTANCES, THE COORDINATE BENCH OF ITAT IN ITA NOS.212 TO 215/VIZAG/2014 IN THE CASE OF SRI LAKSHMIGANAPATHI SEVA SAMITHI VS. CIT DATED 26.8.2016 HELD THAT IN CASE OF SOCIETY, THE APPLICATION OF MAXIMUM MARGINAL RATE DOES NOT ARIS E. FOR READY REFERENCE, WE REPRODUCE THE EXTRACT OF RELEVANT PART OF THE ORDER OF THE TRIBUNAL IN PARA NO.13 WHICH READS AS UNDER: 13. ..AS REGARDS THE APPLICABILITY OF MAXIMUM MARGINAL RATE OF TAX IS CONCERNED, THE CIT WAS OF THE OPINION THAT THE A.O . OUGHT TO HAVE APPLIED MAXIMUM MARGINAL RATE OF TAX TO THE INCOME OF THE SOCIETY. BUT, THE FACT IS THAT ONCE THE SOCIETY IS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, THE APPLICABILITY OF MAXIMUM MARGINAL RATE DOES NOT ARISE, IT IS BECAUSE THE SOCI ETIES ARE REGISTERED UNDER THE SOCIETIES REGISTRATION ACT ARE PROHIBITED FROM DISTRIBUTION OF ANY SURPLUS TO ITS MEMBERS. ONCE THE DISTRIBUTION OF PROFIT TO ITS MEMBERS IS PROHIBITED, THE QUESTION OF DETERMINATION OF SHARE OF EACH INDIVIDUAL MEMBER DOES N OT ARISE. HENCE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE RATE OF TAX APPLICABLE TO THE ASSESSEE IS MAXIMUM MARGINAL RATE OF TAX WITHOUT UNDERSTANDING THE PROVISIONS. 11. THE ASSESSEE IS A SOCIETY REGISTERED UNDER SOCIETIES ACT, 186 0 AS EVIDENCED FROM THE REGISTRATION CERTIFICATE.THE FACTS ARE SIMILAR IN THIS CASE, THEREFORE, FOLLOWING THE DECISION OF COORDINATE BENCH AND SECTION 167B OF THE ACT, WE HOLD THAT THE INCOME OF THE ASSESSEE IS TO BE TAXED AT NORMAL RATES BUT NOT AT MAXIMU M MARGINAL RATE, ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND ALLOW THE APPEAL OF THE ASSESSEE ON THIS GROUND. 6 . DURING THE APPEAL HEARING, THE LD.DR DID NOT BRING ANY OTHER DECISION OF THE HIGHER COURT TO CONTROVERT THE CASE LAWS RELIED UPON BY THE LD.AR. SINCE, THE FACTS ARE IDENTICAL, RESPECTFULLY FOLLOWING THE RULE OF CONSISTENCY AND THE VIEW TAKEN BY THIS TRIBU NAL IN THE CASE CITED SUPRA, WE HOLD THAT THE 5 I.T.A. NO . 6 7 /VIZ/201 8 M/S ANAND EDUCATIONAL SOCIETY, WEST GODAVARI DIST. INCOME OF THE ASSESSEE IS TO BE TAXED AT NORMAL RATES, BUT NOT AT MAXIMUM MARGINAL RATES. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD.CIT( A ) AND ALLOW THE APPEAL OF THE ASSESSEE. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 5 TH SEP , 201 8 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 05 . 0 9 .2018 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1 . / THE ASSESSEE - M/S ANAND EDUCATIONAL SOCIETY, D.NO.3 - 26, MAIN ROAD, DEVARAPALLI, WEST GODAVARI DIST 2 . / THE REVENUE INCOME TAX OFFICER, WARD - 1, TADEPALLIGUDEM 3 . THE PR. COMMISSIONER OF INCOME TAX , RAJAMAHENDRAVARAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS), RAJAMAHENDRAVARAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM