SRI SIVA RAMA TRUST, HYDERABAD vs. ITO, WARD-4(1), HYDERABAD

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ITA 1356/HYD/2026Status: DisposedITAT Hyderabad02 September 2026AY 2024-2512 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the proviso to Section 164(1) of the Income Tax Act allows for taxation at individual slab rates if none of the beneficiaries have taxable income exceeding the basic exemption limit. Therefore, applying MMR was incorrect.

What were the facts?

The assessee, a private discretionary trust for two minor beneficiaries, declared income and paid tax at slab rates. However, the CPC processed the return and applied the Maximum Marginal Rate (MMR) of tax. The CIT(A) upheld this decision.

What were the issues?

Whether a private discretionary trust with minor beneficiaries having no taxable income is liable to be taxed at Maximum Marginal Rate or individual slab rates as per the proviso to Section 164(1).

Which sections of the Income-tax Act were involved?

Section 164(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD

Pronounced: 02.09.2026

आदेश / ORDER

PER VIJAY PAL RAO, VICE PRESIDENT :

This appeal by the Assessee is directed against the Order dated 11.03.2026 of the ld. Addl./JCIT(A)-1, Nashik, for the Assessment Year 2024-2025.

2.

The Assessee has raised the following grounds of appeal:

1.

“The order of the learned Commissioner of Income-tax (Appeals), NFAC dated 11.03.2026 is contrary to law, facts, and circumstances of the case.

2.

a) The learned CIT(A) erred in upholding the action of Ld. CPC in taxing the appellant trust at the Maximum Marginal Rate, without appreciating that the appellant, with none of the beneficiaries having taxable income, being a private discretionary trust, is liable to be assessed at individual slab rates in the facts of the case.

b) The Learned CIT(A) is not justified in denying the claim of the appellant that, as per the proviso to section 164(1), the income is liable to be taxed at individual slab rates and not at the maximum marginal rate.

3.

Without prejudice to the above ground, the learned CIT(A) erred in confirming the levy of 25% surcharge of Rs. 80,045/- on an income of Rs.10,67,260/-, which is below the threshold of Rs.50,00,000/- rendering the levy contrary to law and the consequent enhancement of tax liability unsustainable.

4.

The appellant craves leave to add, amend, modify, rescind, supplement or alter any or more grounds of appeal stated herein above either before or at the time of hearing of this appeal.”

3.

The learned Authorised Representative of the Assessee has submitted that the assessee is a Registered Private Discretionary Trust created by Trust Deed dated 03.09.2019 for the benefit of two minors aged 13 years and 10 years respectively. The assessee filed it's return of income for the year under consideration declaring total income of Rs.10,67,260/- which was processed by the CPC under section 143(1) vide Order dated 28.12.2024 whereby a demand was raised by applying the maximum marginal rate of tax instead of normal rate of tax as applied by the assessee while filing the return of income. The learned Authorised Representative of the Assessee has submitted that since the beneficiaries were not having any income liable to tax therefore, the income in the hand of the trust is assessable at normal rate of tax as provided under section 164(1) read with 1st proviso. The learned Authorised Representative of the Assessee has thus submitted that when the beneficiaries were minors and still minors for the year under consideration and have no income assessable to tax then, as per the 1st proviso to section 164(1) the Trust is liable for ordinary tax rate instead of maximum marginal rate. The learned CIT(A) has confirmed the Order of the CPC without considering the relevant provisions of the Act and particularly the 1st proviso to section 164(1) of the Act and therefore, the Order of the learned CIT(A) as well as the CPC are not sustainable in law and liable to be set aside. In support of his contention, he has relied upon the Order of Agra Bench of the Tribunal dated 29.05.2025 in ITA.No.78/AGR/2025 in the case of Lipi Jain Family Trust, Gwalior vs. ITO-(Exemption) Ward, Gwalior, Madhya Pradesh.

4.

On the other hand, the learned DR has relied upon the Order of the learned CIT(A) and submitted that the assessee has not produced any evidence before the learned CIT(A) to show that the beneficiaries have no taxable income for getting the benefit of proviso to section 164(1) of the Act.

5.

I have considered the rival submissions as well as relevant material on record. The assessee trust was created by registered Trust Deed dated 03.09.2019. The Trust has been created for the benefit of two minor sons of the Author of the Trust whose details are as under:

6.

The assessee filed its return of income for the year under consideration declaring total income of Rs.10,67,260/- on which tax of Rs.72,900/- was paid by the assessee while calculated by applying slab rate of tax. The CPC while processing the return under section 143(1) of the Act vide Order dated 28.12.2024 has calculated the tax on the returned income at the maximum marginal rate, resulting a demand of Rs.3,88,460/-. The assessee has challenged the Order of the CPC before the learned CIT(A) and specifically raised this plea in the statement of facts as recorded by the learned CIT(A) in para no.4 of the Order as under:

“04. Grounds of Appeal and Statements of facts The grounds of appeal raised by the appellant and Statement of Facts are reproduced as under for convenience: Statements of facts:-

The Assessee herein is a Registered Private Discretionary Trust and is being regularly assessed to tax. The Trust represented by the Trustee filed its Return of income for the Assessment year 2024-25 declaring an income of Rs. 10,67,260/-. Return of income was prepared by using the utility provided in the e filing portal of the Income Tax Department. The Tax of an amount of Rs 72900/- was calculated by the return preparation utility adopting the slab rates and the same was duly paid before filing the Return of income. The income of the Trust consisted of Income from House property only. The return of income was processed under section 143 (1) vide DIN CPC/2425/A5/ 521275086 dated 28.12.2024 and a demand of Rs.3,88,460/-was raised by calculating tax at the Maximum Marginal Rate. Subsequently a request for rectification of the 143 (1) Intimation was made under section 154 by the Trust. Rectification was sought stating that as per Circular 6/2012 dated 03.08.2012, the status of the Private discretionary trust has been held in law as that of an individual. It is also held by the Hon'ble Supreme court where persons do not combine in a joint enterprise to produce income, they cannot be assessed as AOP in CIT v. Indira Balkrishna (1960) 39 ITR 546 (SC) and as Private trust is not an AOP in CWT v. Trustees of H. E. H. Nizams Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC). In the following cases the Trust is eligible for slab rates applicable to Individuals. 1. where none of the beneficiaries has taxable income exceeding the basic exempted limit for the relevant Asst. Year, or is a beneficiary under any other private trust, the Trust satisfies the above conditions and is eligible to be taxed at slab rates, and hence it is humbly requested that the return may be re-processed, and the demand dropped. However, the rectification request was not considered by the CPC unit and amount of demand of Rs.3,91,920/ was confirmed in the Rectification order vide DIN CPC/2425/U5/ 536867983 dated 14.03.2025. Hence this Appeal.”

7.

Thus, the assessee has specifically stated that normal rate of tax is applicable to the assessee trust as none of the beneficiaries has taxable income for the year under consideration. The learned CIT(A) has dismissed the appeal of the assessee by giving much emphasis on the provisions of section 164 and 167 of the Act, without considering the exception carved out in 1st proviso to section 164(1) of the Act. For ready reference, the provisions of section 164(1) and the 1st proviso is reproduced as under

“164(1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate :

Provided that in a case where—

(i) None of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons : Provided further that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him.”

8.

Thus, it is clear that as per the 1st proviso to section 164(1) the maximum marginal rate is not applicable where none of the beneficiary has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax. Therefore, the rate of tax in cases of a Trust where none of the beneficiary is having any other income chargeable to tax shall be as applicable in the case of association of persons and not at the rate of maximum marginal rate. The Agra Bench of this Tribunal in the case of Lipi Jain Family Trust, Gwalior vs. ITO-(Exemption)

Ward, Gwalior (supra), has considered an identical issue in Para-5 as under:

“5. We have heard the rival submissions and perused the material available on record. In the instant case, it is seen that at first occasion, the assessee has filed the return in form i.e. ITR-7 which is not meant for private trust, however, along with rectification application, the assessee has filed the ITR-5 and submit that where the trust is created solely for the benefit of specified beneficiaries, tax should not be charged at MMR, more particularly when the beneficiary is not having any taxable income. As the assessee trust was created by will of Shri Babulal Jain exclusively for the benefit of relatives dependent for their support and maintenance, therefore, it is private family trust. Assessee since beginning claimed that it had no beneficiary who is having taxable income. In view of the fact and in view of the proviso to section 164(1) of the Act, income of the assessee is to be taxed at the normal rate. Therefore, we direct the AO to charge tax at normal rate of tax as against MMR charge on the income declared by the assessee.”

9.

Accordingly, in the facts and circumstances of the case, the Order of the learned CIT(A) as well as CPC applying the maximum marginal rate of tax on the assessee are set aside.

10.

Ground no.3 is regarding of surcharge which is consequential to the application of maximum marginal rate.

In view of the finding that the assessees income shall be charged to tax at normal rate and not maximum marginal rate of tax then, the question of levy of surcharge does not arise.

11.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 02.09.2026

Sd/- VIJAY PAL RAO VICE PRESIDENT Hyderabad, Dated 02nd day of September, 2026 VBP Copy to: SRI SIVA RAMA TRUST, C/O KATRAPATI & ASSOCIATES, 1-1-298/2/B/3, SOWBHAGYA 1 AVENUE APTS, 1ST FLOOR, FLAT NO.105, ASHOK NAGAR, STREET NO.1, HYDERABAD-500020, TELANGANA ITO, WARD-4(1), O/O ITO, WARD-4(1), I.T.TOWERS, 2 MASAB TANK, A C GUARDS,, HYDERABAD-500028, TELANGANA 3 THE PR.CIT, HYDERABAD. 4 THE D.R., ITAT, HYDERABAD SMC-BENCH, HYDERABAD. 5 GUARD FILE TRUE COPY Digitally signed VADREVU by VADREVU PRASADA RAO PRASADA Date: ASSISTANT REGISTRAR / RAO I.T.A.T., HYDERABAD 2026.09.02 11:10:13 +05'30'

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