Apartment Owners' Associations Registered Under Societies Registration Act Cannot Be Taxed At Maximum Marginal Rate: ITAT Bangalore Clarifies Scope of Section 167B

Background to the Controversy

A pattern has been emerging where the Centralized Processing Centre (CPC) treats Resident Welfare Associations (RWAs) and Apartment Owners' Welfare Associations as if they were profit-making entities, either because of processing errors, misreading of facts, or incomplete disclosure by the assessee regarding the true nature of the entity. This tendency has grown noticeably in recent assessment cycles. A frequently litigated question is the applicable tax rate for such bodies — specifically, whether an Apartment Owners' Welfare Association registered under the Societies Registration Act or a State Apartment Ownership law must be taxed at the Maximum Marginal Rate (MMR) prescribed under Section 167B of the Income-tax Act, 1961, or whether it should instead be assessed at the normal slab rates applicable to an Association of Persons (AOP).

The Bangalore Bench of the Income Tax Appellate Tribunal addressed this precise question in Ajmera Green Acres Apartment Owners Welfare Association v. ITO (ITA No.1423/Bang/2026, order dated 29 June 2026), holding that a registered society cannot be pushed into the Maximum Marginal Rate bracket simply because the return shows members' shares as nil or indeterminate. This decision offers meaningful relief to a large number of RWAs and Apartment Owners' Associations operating across India.

Facts Leading to the Dispute

The assessee association was registered under the Karnataka Societies Registration Act, 1960. For Assessment Year 2024-25, it filed its return declaring total income of ₹12.49 lakhs, computing tax at normal AOP slab rates. When CPC processed this return under Section 143(1), it recalculated the tax by applying the Maximum Marginal Rate instead. On appeal, the Commissioner (Appeals) upheld this adjustment, reasoning that since the return showed the members' shares as "indeterminate," Section 167B automatically got triggered. Aggrieved, the association approached the Bangalore ITAT.

Question for Determination

The core issue before the Bench was: can a society registered under the Karnataka Societies Registration Act be taxed at the Maximum Marginal Rate under Section 167B merely on account of the return reflecting members' shares as zero or indeterminate?

The governing statutory text reads as follows: