2024 (9) TMI 141 - AT - Income Tax

AOP income taxed proportionally when members have determinate shares and different tax rates apply

ITAT Delhi ruled on AOP taxation where members' shares were determinate (domestic company 99.99%, foreign company 0.01%). The tribunal held that when AOP ... Assessment of assessee/AOP - Applicability of tax @ 40% along with surcharge & cess on its total income alongwith the levy of consequential interest under section 234A, 234B and 234C - HELD THAT:- From the plain reading of the section 167B of the Act, it is evident that the taxability of an AOP is based on whether the share of its members is determinate or not. When the share of members of the AOP is indeterminate, then tax is charged at a Maximum Marginal Rate (In short, the 'MMR') or at a rate higher than MMR in case one of the member’s income is chargeable to tax at a rate higher than MMR. MMR is defined under the Act as the rate of income-tax (including surcharge & cess on income-tax, if any) applicable to the highest income slab for an individual, AOP or Body of Individuals. In this case the appellant/assessee AOP has clearly mentioned in its ITR that the members’ share in the AOP’s profit is determinate (TPL 99.99% and Chint 0.01%) and both members’ income without including their income from AOP are chargeable to tax. The ITR also reveals that the TPL is the domestic company and Chint is a Chinese company. It emerges that the income of TPL is chargeable to tax @ MMR (30%) and that of Chint at the rate higher than MMR (@ 40%) as it is a foreign company. By placing reliance on the order in the case of Herve Pomerleau International CCCL Joint Venture [2019 (10) TMI 1167 - ITAT CHENNAI] DR has raised the issue that whether the members’ share in the AOP’s profit is determinate and the Long-term Agreement, MOU, Consortium Agreements, Profit sharing Agreement, etc. between the member of AOP contain the clause relating to profit sharing of the members of AOP. We are of the considered opinion that the total income of Chint, without including the income from the appellant/ assessee AOP, is chargeable to tax @ 40% plus surcharge, plus Education Cess plus Secondary and Higher Education Cess as applicable on its total income; therefore, the tax shall be charged on that portion or on the part of income of AOP which is relatable to the share of Chintat such a higher rate (40%) plus surcharge, plus Education Cess plus Secondary and Higher Education Cess as the case may be and the remaining/balance of income @ MMR plus surcharge, plus Education Cess plus Secondary and Higher Education Cess as the case may be. Accordingly, we order so. Resultantly, 99.99% of the income of the appellant/assessee AOP has to be taxed @ 30% plus surcharge, plus Education Cess plus Secondary and Higher Education Cess as the case may be and 0.01% @ 40% plus surcharge, plus Education Cess plus Secondary and Higher Education Cess as the case may be. We do not find any merit in the Ld. AR’s contention that the interest under the Act has not been charged as per law; therefore, we decline to interfere with the finding of the JCIT(A) on this score. Issues:Applicability of tax rate @ 40% on total income of appellant/assessee AOP, levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961.Analysis:1. Applicability of Tax Rate @ 40%:The appellant challenged the tax rate of 40% applied by the Assessing Officer on the entire taxable income, arguing that only a proportion of the income should be taxed at 40% for the member who is a foreign company, while the rest should be taxed at 30% for the domestic company. The Authorized Representative contended that the law provides for differential tax rates based on the members' status and income levels. The argument was supported by citing judicial decisions emphasizing consistency in tax treatment. The Senior Departmental Representative countered by questioning the determinacy of members' shares in the AOP's profit. The Tribunal analyzed Section 167B(2) of the Act, which specifies tax treatment based on determinate or indeterminate shares of AOP members. Considering the determinate shares of TPL and Chint in the AOP's profit, the Tribunal ruled that 99.99% of the income should be taxed at 30%, while 0.01% should be taxed at 40%, aligning with the members' tax status.2. Levy of Interest under Sections 234A, 234B, and 234C:The appellant contested the levy of interest under sections 234A, 234B, and 234C, arguing that it was not in accordance with the law. However, the Tribunal upheld the JCIT(A)'s decision regarding the interest levied, stating that there was no merit in the contention that the interest was not charged as per the law. The Tribunal declined to interfere with the JCIT(A)'s findings on this issue, thereby partly allowing the appeal.In conclusion, the Tribunal's judgment clarified the tax treatment for the appellant/assessee AOP based on the determinate shares of its members, ensuring differential tax rates for the domestic and foreign companies involved. The Tribunal also upheld the levy of interest under sections 234A, 234B, and 234C, finding no legal basis to overturn the JCIT(A)'s decision. The appeal was partly allowed, providing a nuanced resolution to the issues raised by the appellant.