ITAT Delhi: Charitable Trust Not Claiming Section 11 Exemption Taxable at Normal Slab Rates, Not MMR
Background of the Dispute
The Income Tax Appellate Tribunal, Delhi Bench, in the case of Pawai Trust Vs DCIT, examined whether the income of a public charitable trust, which is not availing exemption under Section 11 of the Income Tax Act 1961, can be subjected to tax at the Maximum Marginal Rate (MMR) while processing its return under Section 143(1).
The assessee, a public charitable trust, had filed its return of income for Assessment Year 2021-22 in the status of an Association of Persons (AOP), voluntarily offering its income to tax without claiming the benefit of Section 11. The Centralized Processing Centre (CPC), however, processed the return by applying a flat rate of 30% plus applicable surcharge, treating the assessee as an AOP taxable at MMR, and recomputed interest under Section 234C.
On appeal, the NFAC/CIT(E) confirmed the CPC’s action. The assessee then approached the ITAT Delhi, challenging both the rate of tax and the consequential levy of higher interest under Section 234C.
Procedural History and Condonation of Delay
The appeal before the Tribunal was filed with a delay of 83 days.
- The Registry flagged this delay as a defect.
- Both parties were heard on the issue of condonation.
- After considering the explanation and submissions, the Tribunal held that there existed a reasonable and sufficient cause for the delay.
- The delay was condoned, and the appeal was admitted for adjudication on merits.
This cleared the way for the Tribunal to examine the core controversy relating to the appropriate tax rate and the treatment adopted under Section 143(1).
Facts Relevant to the Assessment
- The assessee trust filed its return of income on 11.10.2021, declaring a total income of Rs. 53,60,300/-.
- The return was processed under
Section 143(1)by CPC. - While processing, CPC:
- Treated the assessee as an AOP liable to tax at Maximum Marginal Rate (i.e., flat 30%);
- Did not apply the normal slab rates otherwise applicable to an AOP/individual category;
- Consequently recomputed interest under
Section 234C, resulting in a higher interest demand.
The assessee asserted that, as a public charitable trust not claiming Section 11 exemption, it should nonetheless be taxed at normal slab rates applicable to an AOP/individual, and not at MMR.
Appeal Before NFAC/CIT(E)
Aggrieved by the processing under Section 143(1), the assessee filed an appeal before NFAC, Delhi (CIT(E)).
The assessee argued:
- It is a charitable trust registered under the relevant charitable enactment, carrying on charitable activities for the benefit of the public by giving donations to other eligible trusts/institutions.
- It does not claim, nor is it assessed under,
Section 11. - It filed its return as an AOP and should be taxed at slab rates applicable to an AOP/individual.
- The CPC erred in mechanically applying MMR without examining the nature of the assessee as a public charitable trust.
- The assessee relied upon judicial precedents and a CBDT Circular which distinguish between public charitable trusts and private discretionary arrangements for the purpose of MMR.
The NFAC/CIT(E), however:
- Upheld the CPC’s action of applying a 30% flat rate on the income.
- Declined to grant relief on the basis of the case laws cited by the assessee.
- Rejected the assessee’s contention that the matter was debatable and therefore could not be rectified or altered at the
Section 143(1)stage by changing the applicable rate of tax.
This order prompted the assessee to prefer a further appeal to the ITAT Delhi.
Grounds of Appeal Before ITAT
The assessee raised detailed grounds, broadly covering two principal issues: