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Facts
The assessee is a 'trust at will' created by late Smt. Shakuntala Balvantrai for the benefit of her daughter and grandchildren, with interest income distributed to beneficiaries. The Assessing Officer and CIT(A) taxed the trust's income at the Maximum Marginal Rate (MMR) under Section 164, as the beneficiaries' other income was deemed undetermined.
Held
The Tribunal held that since the trust was created by will and was the only such trust, its income should be taxed at the ordinary rates applicable to an association of persons, as per the first proviso to Section 164(1) of the Income Tax Act and CBDT Circular No. 577. The Assessing Officer was directed to apply the normal rates.
Key Issues
The key issue was whether the income of a discretionary trust created by will, with specified beneficiaries, should be taxed at the Maximum Marginal Rate (MMR) or at the ordinary rates under the first proviso to Section 164(1) of the Income Tax Act.
Sections Cited
143(1), 164, 164(1), 164(3), 167B, 250
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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Sanjay Garg & Ms. Annapurna Gupta
आदेश/ORDER Per Sanjay Garg, Judicial Member:
The present appeals have been preferred by the assessee against the order passed by Commissioner of Income Tax (Appeals)/Additional/Joint Commissioner of Income Tax (Appeals)-5 Mumbai [hereinafter referred to as “CIT(A)”] dated 30-12-2024 arising out of the order passed u/s. 143(1) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Years 2021-22 to 2023-24. Since facts and issues involved in all the captioned appeals are identical, hence the same have been heard together and are being disposed of by the , 2 & 3/Ahd/2025 Shakuntala Balvantrai Trust, A.Y. 2021-22 to 2023-24 A.Y. 2021-22 2. The assessee has taken the following grounds of appeal:- “1.1 The order u/s 250 passed on 30.12.2024 for A.Y. 2021- 22 by NFAC [CIT(A)] Add) 3CIT(A)
5. Mumbai (for short (CIT(A)) confirming the total demand of Rs 1,07,150 by applying maximum rate instead of normal rate under proviso to sec 164(1), though it is the only discretionary trust settled under the WILL of Late Shakuntala Balvantray is wholly illegal, unlawful and against the principles of natural justice.
1.2 The Ld. CIT(A) has grievously erred in law and or on facts in not considering the past records and five written submissions uploaded from time to time before confirming the raising taxes at MMR instead of normal rate under proviso to sec 164(1)
1.3 The Ld CIT(A) has grievously erred in law and or on facts in upholding that the appellant Trust was liable to tax at MMR though it is the only discretionary trust settled under the WILL of Late Shakuntala Balvantray.
1.4 That in the facts and circumstances of the case as well as in law the Ld. CIT(A) has grievously erred in upholding that the appellant Trust was liable to tax at MMR though it is the only discretionary trust settled under the WILL of Late Shakuntala Balvantray.
1.5 That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) ought to have allowed further opportunity of video conference when the hearings were scheduled from time to time thereafter.
The brief facts of the case are that the assessee trust is a ‘trust at will’, which was created by late Smt. Sakuntalla Balvantrai, for the benefit of her daughter and children of her daughter. The only income of the trust is the interest income which is distributed to the beneficiaries. The , 2 & 3/Ahd/2025 Shakuntala Balvantrai Trust, A.Y. 2021-22 to 2023-24 Assessing Officer applied the provisions of section 164 of the Act and held that since the income of the beneficiaries, apart from the aforesaid benefits of the trust, was undetermined, he therefore, applied the tax at the maximum marginal rate on the income of the assessee trust. The ld. CIT(A) upheld the aforesaid action of the Assessing Officer.
Before us, the ld. counsel for the assessee has submitted there are only three beneficiaries of the said trust created by late Sakuntalla Balvantrai. The ld. counsel of the assessee submitted that the case of the assessee trust falls under the exceptions as provided u/s. 164 of the Act. He has invited our attention to first proviso to section 164(1) of the Act which is reproduced as under:-
“Provided that in a case where- xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 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 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 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]:”
The ld. counsel has further drawn our attention to page no. 34 of the paper book which is a copy of the CBDT Circular No. 577 dated 04-09-1990. The contents of which are reproduced as under:- “1. A question has been raised whether the provisions of section 167B of the Income-tax Act, 1961, which generally provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the , 2 & 3/Ahd/2025 Shakuntala Balvantrai Trust, A.Y. 2021-22 to 2023-24
individual shares of members in the income of such association are indeterminate or unknown, would also apply to income under a trust declared by any person by will where such trust is the only trust declared by him. Such trusts, it would be noticed, are referred to at item No. (ii) in the first proviso to section 164(1) of the Act.
This matter has been examined in the Board There was never an intention to subject the income of the aforesaid trusts to income-tax at the maximum marginal rate It is also well-settled that where a specific provision has been made in the law in relation to any matter and where that provision is beneficial to the taxpayer, that matter is to be governed by that special provision and not by any other general provision relating to that subject. Therefore, the income of a trust declared by any person by will, where such trust is the only trust so declared by him, will continue to be charged to tax in the manner prescribed in the first proviso to section 164(1), as hitherto.
3. Similarly, other cases covered by the first proviso to section 164(1) and the first proviso to section 164(3) would also not attract the provisions of section 167B Accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.”
In view of the aforesaid legal position, the Assessing Officer is directed to charge the tax on the trust at the rate ordinarily applicable to total income of association of persons and not at the maximum original rate.
In the result, the appeal of the assessee is treated as allowed.
Since the facts and issue involved in all the captioned appeals are identical, hence our findings given above will mutatis mutandis apply to the other two appeals also.
, 2 & 3/Ahd/2025 Shakuntala Balvantrai Trust, A.Y. 2021-22 to 2023-24
In the combined result, all the three appeals of the assessee are treated as allowed.
Order pronounced in the open court on 28-04-2025 Sd/- Sd/- (Annapurna Gupta) (Sanjay Garg) Accountant Member Judicial Member Ahmedabad : Dated 28/04/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद