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Facts
The assessee, estate of a deceased person with three executors, challenged the order that taxed its income at the maximum marginal rate instead of the slab rate. The CPC initially computed tax at the maximum marginal rate, which was upheld by the Ld.CIT(A) by invoking Section 167B.
Held
The Tribunal held that Section 167B is not applicable as the beneficiaries' shares are determinate. It also held that while the status of the estate can be 'Individual' or 'AOP' based on the number of executors, the applicable tax rate should remain the normal slab rate for individuals, HUF, and AOP, not the maximum marginal rate.
Key Issues
Whether the income of the estate of a deceased person with multiple executors should be taxed at the maximum marginal rate or the normal slab rate applicable to individuals/HUF/AOP, and if Section 167B is applicable.
Sections Cited
168, 167B
AI-generated summary — verify with the full judgment below
The assessee has filed this appeal challenging the order dt.26-02-2024 passed by the Ld.Addl./JCIT-(A)-4, Kolkata and it relates to AY. 2021-22. The only issue urged in this appeal is whether the assessee is liable to pay income tax as per the slab rate prescribed for Individuals, HUF and AOP (Association of Persons) or at the maximum marginal rate?
As per the Will created by Late Nalini Atul Bhagwati, who expired on 3rd June, 2018, three executors were appointed. The said Will was probated before Hon’ble High Court of Bombay. As per the provisions of sec.168 of the Act, the Executors are liable to pay income tax on the income arising on the “estate of the deceased person”, till the will is fully executed. The provisions of sec.168(1) of the Act further states that the status of the Executor shall be “Individual”, if there is only one Executor. If there are more than one executor of the will, then the status of the Executors shall be considered as “AOP”.
Since there are three executors in this case, the assessee declared itself as an AOP in the Income tax return and computed income tax on its income at the slab rate applicable to individual, HUF and AOP, which is prescribed in Para A of Part I of First Schedule of The Finance Act, 2020. However, while processing the return of income, the CPC computed the income tax on the income of the assessee at the maximum marginal rate.
The assessee challenged the income tax so computed by the CPC by filing appeal before the Ld.CIT(A). However, the Ld.Addl./JCIT-(A) took the view that the provisions of section 167B of the Act would apply to the facts of the present case and accordingly held that the tax shall be charged on the income of the assessee at the maximum marginal rate. Hence the assessee has filed this appeal.
The Ld.AR submitted that the Ld Addl/JCIT(A) has applied the provisions of section 167B of the Act to the facts of the present case. However, the said provisions are applicable to the AOP, only if the shares of beneficiaries are indeterminate or unknown. In the instant case, the shares of the beneficiaries are determinate and known.
The Ld A.R further submitted that there are three Executors in this case. Since the assessment is done in the name of the executors, the provisions of Section 168(1) of the Act have to be referred to in order to determine the status of the Executors. As noticed earlier, sec. 168(1) states the status of the Executor shall be Individual, if there is only one Executor and it will be AOP, if there is more than one executor. The Ld A.R submitted that in both the situations, the tax should be levied at the slab rates prescribed for individuals/HUF/AOP. In support of these propositions, the Ld.AR placed reliance on the decision rendered by the Co-ordinate Bench of the Tribunal in the case of Estate of Late Harkishin Bhojraj Chanrai vs. DCIT in dt. 29-06-2022.
The Ld.DR, on the contrary, supported the order passed by the Ld.Addl./JCIT-(A).
We heard the parties and perused the record. We notice that the shares of beneficiaries in the instant case are determinate and known. Accordingly, as rightly submitted by the Ld A.R, the provisions of sec.167B of the Act are not applicable in the facts of the present case. Accordingly, we are of the view that the ld CIT(A) was not justified in taking support of sec.167B of the Act.
Since more than one Executor was appointed under the Will, the assessment is required to be made in the status of AOP in terms of sec.168(1) of the Act. What is important to note is that the income that is subjected to tax is the income of the “estate of the deceased person”. The status of the “estate of deceased person” would depend upon the number of executors, as noticed earlier. Accordingly, when the status is taken either as “individual” or “AOP” as per sec.168(1) of the Act, we are of the view that the tax rate applicable on the income of “estate of deceased person” cannot change in both the situation. Accordingly, we are of the view that the Ld.Addl./JCIT-(A) was not justified in upholding the taxing of the assessee’s income on maximum of the rate. We notice that the identical view has been expressed by the Co-ordinate Bench of the Tribunal in the case of Estate of Late Harkishin Bhojraj Chanrai vs. DCIT (supra). Accordingly, we set aside the order passed by the Ld.Addl./JCIT- (A) and direct the AO to levy tax at normal slab rate applicable to individuals for the year under consideration.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 16-01-2025