Our association's members are fixed and known, so s.167B(1) cannot apply. Does that mean we get the basic exemption and slab rates?
No. Section 167B(2)(i) is a separate limb: where the total income of any member, excluding his share from the association, exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax is charged on the total income of the association at the maximum marginal rate. Determinate shares take you out of s.167B(1) but not out of s.167B(2), and the Tribunal held that the exclusion in s.167B(1) for a society registered under the Societies Registration Act 1860 does not carry into s.167B(2). That last point is not free from doubt: s.167B(2) opens 'Where, in the case of an association of persons or body of individuals as aforesaid', and 'as aforesaid' is capable of importing the sub-section (1) parenthesis. The assessee did not put the argument in that form and no authority was cited either way.
Decided by the ITAT (Shri Bhavnesh Saini, Judicial Member and Shri O.P. Kant, Accountant Member (ITAT Delhi Bench 'SMC-1', hearing through video conferencing)) on 2020-07-16, reported as ITA No. 1992/Del./2019 (assessment year 2013-14). It bears on section 167B, section 2(31) of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
This is the limb the brief calls constantly missed, and it catches ordinary joint ventures, welfare associations and family AOPs where any single member is an ordinary taxpayer. The practical trap is precisely the one the assessee fell into here: it won the argument that its shares were determinate and that it was an excluded society, and still lost the exemption, because s.167B(2) opens with the words 'not being a case falling under sub-section (1)' — it applies to the cases that s.167B(1) does not reach. Note also what the assessee did not dispute: that the income of its member exceeded the basic exemption limit. That is the fact to check first, because it decides the case.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Ninety-nine Air Force and Navy officers constituted an association for the management of farmhouses allotted to them by the Air Force Naval Housing Board, and registered it under the Societies Registration Act 1860. The association claimed to function on the concept of mutuality without any business activity. For assessment year 2013-14 it filed a return on 20 July 2013 declaring total income of Rs 37,080. By an assessment order dated 29 January 2016 the Assessing Officer assessed interest income of Rs 1,39,820 from non-members as taxable, held the status to be association of persons rather than artificial juridical person as claimed, and applied the maximum marginal rate under s.167B. The Commissioner (Appeals) upheld the AOP status by order of 13 June 2016. In the first round the Tribunal, by order dated 12 April 2017, restored the matter to the Assessing Officer to examine whether s.167B applied, the assessee having disputed only that a society registered under the Societies Registration Act 1860 was excluded from s.167B. On remand the Assessing Officer, by order of 9 October 2017, applied the rate applicable to a cooperative society without allowing any basic exemption. The Commissioner (Appeals), by order of 29 October 2018, held s.167B(2) applicable, declined the exemption from tax on the minimum amount and subjected the entire income to the maximum marginal rate. Before the Tribunal the assessee argued that s.167B(2) does not apply to a society registered under the 1860 Act, that its PAN was allotted in the status of artificial juridical person, and that s.167B applies only to an association of persons or body of individuals. The assessee did not dispute the finding that the income of its member for the year exceeded the basic exemption limit.
The appeal was dismissed (paras 5.6 and 6). The order of the Commissioner (Appeals) was upheld: s.167B(2) applied and the whole of the association's total income was chargeable at the maximum marginal rate, with no benefit of the basic exemption.
A society registered under the Societies Registration Act 1860 is excluded from s.167B(1), so a society held to be an association of persons whose members' shares are indeterminate escapes the maximum marginal rate under that sub-section; but s.167B(2) applies to an association of persons or body of individuals 'not being a case falling under sub-section (1)', and the exclusion does not travel to it (para 5.3). The Tribunal set out s.167B(2) and its Explanation and held that on the clear and unambiguous provisions of s.167B(2), if the income of any member other than his share from the association is higher than the basic exemption limit of the relevant year, the income of the association is chargeable at the maximum marginal rate (paras 5.2 to 5.4). The assessee had not disputed the Commissioner (Appeals)'s finding that the member's income for the year exceeded the basic exemption limit (para 5.5), and the limited issue before the Tribunal in this second round was only the applicability of s.167B, the status of AOP not having been disputed in the first round (paras 5 and 5.1).
In view of the clear and unambiguous provisions of 167B(2), if income of any member (other than the share of such Association) is higher than the basic exemption limit of the relevant year, the income of the Association is chargeable at the maximum marginal rate.
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Handle my notice → Ask a CA on WhatsAppNo. Section 167B(2)(i) is a separate limb: where the total income of any member, excluding his share from the association, exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax is charged on the total income of the association at the maximum marginal rate. Determinate shares take you out of s.167B(1) but not out of s.167B(2), and the Tribunal held that the exclusion in s.167B(1) for a society registered under the Societies Registration Act 1860 does not carry into s.167B(2). That last point is not free from doubt: s.167B(2) opens 'Where, in the case of an association of persons or body of individuals as aforesaid', and 'as aforesaid' is capable of importing the sub-section (1) parenthesis. The assessee did not put the argument in that form and no authority was cited either way. This was decided by the ITAT (Shri Bhavnesh Saini, Judicial Member and Shri O.P. Kant, Accountant Member (ITAT Delhi Bench 'SMC-1', hearing through video conferencing)) and bears on section 167B, section 2(31) of the Income Tax Act 1961. It is reported as ITA No. 1992/Del./2019 (assessment year 2013-14). This is the limb the brief calls constantly missed, and it catches ordinary joint ventures, welfare associations and family AOPs where any single member is an ordinary taxpayer. The practical trap is precisely the one the assessee fell into here: it won the argument that its shares were determinate and that it was an excluded society, and still lost the exemption, because s.167B(2) opens with the words 'not being a case falling under sub-section (1)' — it applies to the cases that s.167B(1) does not reach. Note also what the assessee did not dispute: that the income of its member exceeded the basic exemption limit. That is the fact to check first, because it decides the case. If it applies to you, the first step is this: Before arguing determinacy of shares, work out whether any member's own total income, excluding the share from the association, exceeds the maximum amount not chargeable to tax in his own case for that year. If it does, s.167B(2)(i) applies and determinacy will not help.
Ninety-nine Air Force and Navy officers constituted an association for the management of farmhouses allotted to them by the Air Force Naval Housing Board, and registered it under the Societies Registration Act 1860. The association claimed to function on the concept of mutuality without any business activity. For assessment year 2013-14 it filed a return on 20 July 2013 declaring total income of Rs 37,080. By an assessment order dated 29 January 2016 the Assessing Officer assessed interest income of Rs 1,39,820 from non-members as taxable, held the status to be association of persons rather than artificial juridical person as claimed, and applied the maximum marginal rate under s.167B. The Commissioner (Appeals) upheld the AOP status by order of 13 June 2016. In the first round the Tribunal, by order dated 12 April 2017, restored the matter to the Assessing Officer to examine whether s.167B applied, the assessee having disputed only that a society registered under the Societies Registration Act 1860 was excluded from s.167B. On remand the Assessing Officer, by order of 9 October 2017, applied the rate applicable to a cooperative society without allowing any basic exemption. The Commissioner (Appeals), by order of 29 October 2018, held s.167B(2) applicable, declined the exemption from tax on the minimum amount and subjected the entire income to the maximum marginal rate. Before the Tribunal the assessee argued that s.167B(2) does not apply to a society registered under the 1860 Act, that its PAN was allotted in the status of artificial juridical person, and that s.167B applies only to an association of persons or body of individuals. The assessee did not dispute the finding that the income of its member for the year exceeded the basic exemption limit. The matter was decided on 2020-07-16 by the ITAT (Shri Bhavnesh Saini, Judicial Member and Shri O.P. Kant, Accountant Member (ITAT Delhi Bench 'SMC-1', hearing through video conferencing)). On those facts the ITAT held as follows. The appeal was dismissed (paras 5.6 and 6). The order of the Commissioner (Appeals) was upheld: s.167B(2) applied and the whole of the association's total income was chargeable at the maximum marginal rate, with no benefit of the basic exemption.
A society registered under the Societies Registration Act 1860 is excluded from s.167B(1), so a society held to be an association of persons whose members' shares are indeterminate escapes the maximum marginal rate under that sub-section; but s.167B(2) applies to an association of persons or body of individuals 'not being a case falling under sub-section (1)', and the exclusion does not travel to it (para 5.3). The Tribunal set out s.167B(2) and its Explanation and held that on the clear and unambiguous provisions of s.167B(2), if the income of any member other than his share from the association is higher than the basic exemption limit of the relevant year, the income of the association is chargeable at the maximum marginal rate (paras 5.2 to 5.4). The assessee had not disputed the Commissioner (Appeals)'s finding that the member's income for the year exceeded the basic exemption limit (para 5.5), and the limited issue before the Tribunal in this second round was only the applicability of s.167B, the status of AOP not having been disputed in the first round (paras 5 and 5.1). In the words reproduced by the source cited on this page: "In view of the clear and unambiguous provisions of 167B(2), if income of any member (other than the share of such Association) is higher than the basic exemption limit of the relevant year, the income of the Association is chargeable at the maximum marginal rate."
It was decided by the ITAT on 2020-07-16 and is reported as ITA No. 1992/Del./2019 (assessment year 2013-14). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 167B, section 2(31), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed (paras 5.6 and 6). The order of the Commissioner (Appeals) was upheld: s.167B(2) applied and the whole of the association's total income was chargeable at the maximum marginal rate, with no benefit of the basic exemption. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section 167B, section 2(31) of the Income Tax Act 1961, and was decided by Shri Bhavnesh Saini, Judicial Member and Shri O.P. Kant, Accountant Member (ITAT Delhi Bench 'SMC-1', hearing through video conferencing). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not carry the s.167B(1) exclusions — company, cooperative society, society registered under the Societies Registration Act 1860 — into s.167B(2); the Tribunal held they do not travel — but the opening words of s.167B(2), 'an association of persons or body of individuals as aforesaid', leave the point arguable, and it was neither argued in that form nor tested on appeal here. If a member is chargeable at a rate higher than the maximum marginal rate, note that s.167B(2)(ii) taxes that member's relatable portion at the higher rate and the balance at the maximum marginal rate. Where the association claims mutuality, keep that argument separate and prior: it decides whether there is taxable income at all, before any question of rate arises. If the status assigned is disputed, take the status point at the first opportunity — the assessee here had not disputed AOP status in the first round before the Tribunal and was held to the limited issue on remand.
Validity check could not be completed. Validity check could not be completed. No search was made for any appeal against this order or for later Tribunal or High Court decisions on the same point, and none should be assumed. The order is a single-issue application of s.167B(2) on facts the assessee did not contest, so its weight is as an illustration of the sub-section rather than as a contested ruling on its construction. The construction point also deserves flagging on the face of the entry: the Tribunal read the s.167B(1) exclusions as not applying to s.167B(2), notwithstanding the words 'as aforesaid' in the opening of sub-section (2), which are capable of importing them. No authority was cited on the point and it was not argued in that form. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order carries typographical errors that should not be reproduced in argument: para 5.3 reads 'section 167B9(1)' for s.167B(1), and para 5.2 ends with a reference to 'section 167B(ii)' where clause (i) of sub-section (2) is meant. The order reproduces the text of s.167B(2) and its Explanation as they stood for the order's date, 16 July 2020, which is useful as a dated source for that text; sub-section (1) is elided in the reproduction. This was the second round: the Tribunal's earlier order of 12 April 2017 had restored the matter to the Assessing Officer to examine the applicability of s.167B, and the assessee had not, in that first round, disputed its assessment in the status of AOP. Assessment year 2013-14; the assessed interest income from non-members was Rs 1,39,820 against Rs 37,080 returned. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed (paras 5.6 and 6). The order of the Commissioner (Appeals) was upheld: s.167B(2) applied and the whole of the association's total income was chargeable at the maximum marginal rate, with no benefit of the basic exemption.
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