Charitable trust without 12AA registration taxed at normal AOP rates under section 164(2), not maximum marginal rate

The ITAT Jaipur ruled in favor of a charitable trust regarding tax rate application on returned income. The trust, registered under Rajasthan Public Trust Act 1959 since 1970, lacked registration under section 12AA of the Income Tax Act. The Revenue sought to tax the trust's income at maximum marginal rate (MMR). The ITAT held that without section 12AA registration, the trust's income should be taxed at normal rates applicable to Association of Persons under section 164(2) proviso, not at MMR. The tribunal distinguished this from cases where MMR applies due to violations of sections 13(1)(c) or 13(1)(d). The assessee's appeal was allowed.

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Issues:
Taxing of Returned Income of Assessee Trust under "Maximum Marginal Rate" instead of normal rate and levy of interest U/s 234 A, B, C & D of the Income Tax Act.

Analysis:

Issue 1: Taxing of Returned Income at Maximum Marginal Rate
The appeal was filed against an order taxing the income of the assessee trust at the Maximum Marginal Rate (MMR) instead of the normal rate. The appellant contended that the tax should be charged at the normal rate applicable to an Association of Persons (AOP) as per the provisions of section 164(2) of the Act when a trust is not registered under section 12AA. The appellant trust claimed to be formed for public charitable activities and registered under the Rajasthan Public Trust Act 1959 but failed to provide details of registration under section 12AA. The Tribunal referred to a decision of ITAT Ahmedabad Bench, which held that if a trust is not entitled to exemption under section 11 or 12 due to certain provisions, its income should be taxed at rates specified for an AOP under section 164(2) and not at the Maximum Marginal Rate. The Tribunal concluded that in the absence of registration under section 12AA, the income of the appellant trust should be subject to normal tax rates as per the proviso to section 164(2), overturning the decision of the lower authorities.

Issue 2: Levy of Interest U/s 234 A, B, C & D
The appellant also challenged the levy of interest under sections 234A, 234B, 234C, and 234D of the Act. The Tribunal noted that the appellant denied the liability for charging any such interest, claiming it to be contrary to the provisions of law and facts. However, the Tribunal's decision to set aside the order taxing the income at the Maximum Marginal Rate and directing the application of normal tax rates on the return income of the appellant trust rendered the issue of interest levy moot. As a result, the appeal was allowed, and the impugned order was deemed infirm and set aside, with directions to apply the normal tax rate on the return income of the appellant trust.

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