Trust denied exemption under sections 11-12 should be taxed under section 164(2) at individual rates, not section 164(1) maximum rate

ITAT Jodhpur held that a trust denied exemption under sections 11-12 should be taxed under section 164(2) at individual/AOP rates rather than section 164(1) at maximum marginal rate, as beneficiaries are general public with no specific shares. The tribunal noted the trust obtained section 12A registration on 22.03.2022, distinguishing it from provisions under sections 13(1)(c) and (d). CIT(A)'s decision to apply section 164(1) was incorrect. The tribunal also directed the AO to allow deduction of expenditure claimed for trust purposes, considering the subsequent registration. Both grounds raised by the assessee were allowed.

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Issues Involved:
1. Whether the assessee trust should be charged to tax at Maximum Marginal Rate (MMR) or as per the normal provision applicable for Individual and Association of Persons (AOP).
2. Disallowance of expenditure claimed by the assessee trust for the purposes of the trust.

Summary of Judgment:

Issue 1: Tax Rate Applicability

The core issue in these appeals is whether the assessee trust should be taxed at MMR or as per the normal provisions applicable to Individuals and AOPs. The assessee trust, not registered u/s 12A of the Income Tax Act, 1961, filed returns declaring income and calculating tax as applicable to individuals. The CPC processed the returns and charged tax at MMR, creating a demand.

The CIT(A) upheld the CPC's decision, stating that the trust, being unregistered, is subject to sections 164(1) and 167B, which mandate MMR. However, the Tribunal noted that the beneficiaries are the general public, and there are no determinate shares of beneficiaries. Therefore, the trust should be taxed u/s 164(2), which applies to trusts where income is not exempt under sections 11 and 12, and tax should be charged as if it were the income of an AOP.

The Tribunal concluded that the specific provision u/s 164(2) should apply, and the trust should be taxed at the rates applicable to an AOP/Individual, including the initial exemption. Thus, the decision of the CIT(A) to charge the assessee u/s 164(1) was incorrect. The ground raised by the assessee was allowed.

Issue 2: Disallowance of Expenditure

The assessee claimed an expenditure of Rs. 44,130 for the maintenance of the temple, which was disallowed by CPC u/s 143(1) and upheld by CIT(A) on the grounds that the trust was not registered u/s 12A. The Tribunal directed the AO to grant the benefit of the expenditure claimed, considering the trust's registration u/s 12A obtained on 22.03.2022. The ground raised by the assessee was allowed.

Conclusion

The appeals were allowed, and the Tribunal directed that the income of the trust should be charged to tax as per the provisions of section 164(2) at the rates applicable to an AOP/Individual, including the initial exemption. The disallowance of expenditure was also overturned, and the AO was directed to grant the benefit of the claimed expenditure.

The decision in ITA No. 121/Jodh/2021 was applied mutatis mutandis to the other appeals (ITA Nos. 122 to 124-Jodh-2021 and 237/Jodh/2023).

Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.

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