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Facts
The assessee, a beneficiary trust for two minor daughters, filed its return of income. The CPC processed the return and charged tax at the maximum marginal rate, considering the beneficiaries' shares indeterminate. The assessee's rectification application and subsequent appeal to NFAC were dismissed.
Held
The Tribunal held that the shares of the beneficiaries were discernible from the return of income, despite the Trust Deed being silent. Therefore, the CPC could not have made a prima-facie adjustment and charged tax at the maximum marginal rate.
Key Issues
Whether the CPC was justified in charging tax at the maximum marginal rate when the beneficiaries' shares were indicated in the return of income, despite the Trust Deed being silent on the matter.
Sections Cited
143(1), 164, 154, 143(1)(a)
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Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
Assessment Year: 2017-18 Gauri Ananya Marriage v. The DCIT Beneficiary Trust Circle 1(1)(1) 133/185, M Block Kanpur Kidwai Nagar, Kanpur TAN/PAN:AACTG6467D (Appellant) (Respondent) Appellant by: Shri P. K. Kapoor, C.A. Respondent by: Shri Saurabh Dubey, D.R. O R D E R This appeal has been preferred by the Assessee against order dated 10.10.2023, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2017-18.
2.0 The brief facts of the case are that the assessee is a beneficiary Trust created vide Trust Deed dated 04.01.2016 for the benefit of two minor daughters of Shri Sharad Kumar Agarwal, namely Kumari Gauri and Kumari Ananya. The assessee filed its return of income for the year under consideration on 15.07.2017, declaring a total income of Rs.4,86,279/-. As per Computation of Income of the assessee- trust, the tax payable was Rs.24,337/-. However, while processing the return of income under section 143(1) of the Income Tax Act, 1961 (hereinafter called “the Act’), the Centralized Processing Centre (CPC), Bangalore charged tax at maximum marginal rate under section 164 of the Act and worked out the same at Rs.1,50,261/-. Against this, the assessee filed a rectification application, dated 11.06.2018, under section 154 of the Act, which was dismissed by the CPC, vide its order dated 24.07.2018 and determined the total income as determined in the order passed under section 143(1) of the Act.
3.0 Aggrieved by the order dated 24.07.2018 passed by the CPC under section 154 of the Act, the assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee by holding that since the shares of the beneficiaries were indeterminate, the tax had to be charged at the maximum marginal rate.
4.0 Now, the assessee has approached this Tribunal challenging impugned order of the NFAC by raising the following grounds of appeal:
1. BECAUSE the Id. CIT(A) has erred in law and on facts in dismissing the appeal of the assessee by upholding order u/s 154 of the Act dated 24.07.2018 passed by Dy. CIT, CPC and thereby sustaining the tax determined u/s 143(1) and endorsed in the order under section 154 of the Act passed by Dy. Commissioner of Income-tax, CPC.
2. BECAUSE while upholding the order dated 24.07.2018 passed by Dy. CIT, CPC, the Id. CIT(A) overlooked the vital mistake as had crept in the intimation u/s 43(1) dated 23.04.2018, wherein the CPC had made adjustment in the computation of tax even though the said adjustment was not covered within the permissible adjustments specified in clause (a) of sub-section (1) of section 143 of the Act.
3. BECAUSE in the return of income the assesse had clearly indicated the definite share of the two beneficiaries and there being no contrary information available in the ITR, the tax charged by the Dy. CIT, CPC in the intimation u/s 143(1) at maximum marginal rate was a mistake apparent from record which was liable to be rectified in the order u/s 154 of the Act and this having not been done, the Ld. CIT(A) should have directed the Dy. CIT, CPC to charge tax at normal rate as per return furnished by the assessee.
4. BECAUSE on the facts and in the circumstances of the case, the Ld. CIT(A) should have held that the computation of tax at maximum marginal rate made in the intimation u/s 143(1) was a mistake apparent from record which ought to have been rectified by the Dy. CIT, CPC in the order passed u/s 154 of the Act.
5. BECAUSE in any case before making adjustment in the computation of tax in the intimation u/s 143(1) the Dy. CIT, CPC did not issue mandatory notice u/s 143(1)(a), as such the adjustment in the tax computation made by Dy. CIT, CPC in the intimation u/s 143(1) was a mistake apparent from record which was liable to be rectified by Dy. CIT, CPC in the order u/s 154 and this having not been done the Ld. CIT(A) should have allowed the appeal and directed the Dy. CIT,
CPC to accept the tax computation made in the return of income.
BECAUSE the order appealed against is contrary to facts, law and principles of natural justice.
BECAUSE the assessee craves leave to add, amend or alter any of the aforesaid grounds of appeal before or at the time of hearing of appeal.
5.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that the observation of the NFAC that the shares of the beneficiaries were indeterminate was factually incorrect, inasmuch as page six of the paper book (relevant page of the Income Tax Return) would show that the shares of beneficiaries had been specifically mentioned @ 50% each for both the beneficiaries, i.e., Kumari Gauri and Kumari Ananya. The Ld. A.R. further submitted that although the income has been charged to tax at the maximum marginal rate, the income tax has been computed on the same income as shown in the returned income and, therefore, this would also show that there was no requirement to make any prima-facie adjustment while processing the return of income and further that there was no incorrect claim made by the assessee-trust in the return of income. It was submitted that no notice under section 143(1) of the Act was given to the assessee prior to making the variation and, therefore, the adjustment could not have been legally made by the Income Tax Department. The Ld. A.R. submitted that the maximum marginal rate for taxation can be applied only when shares are indeterminate, but where the records would show that the shares were determinate (as in the case of the present assessee), the provision for charging tax at the maximum marginal rate would not apply even though the Trust Deed did not specifically mention share percentage of the beneficiaries because the intent was very much discernible from the return of income filed by the assessee. It was prayed that the assessee’s appeal be allowed.
6.0 Per contra, the Ld. Sr. D.R. placed extensive reliance on the order of the NFAC and submitted that the fact remained that the shares of the beneficiaries had been determined @ 50% was just an assumption and mere mentioning of the same in the return of income would not be sufficient for the purpose of tax because the Trust Deed was silent on the issue. The Ld. Sr. D.R. prayed that the appeal of the assessee be dismissed.
7.0 I have heard the rival submissions and have also perused the material on record. There is no dispute on the facts of the case. The assessee is a beneficiary trust created vide Trust Deed dated 04.01.2016 for the benefit of two minor daughters of Shri Sharad Kumar Agarwal, namely Kumari Gauri and Kumari Ananya. It is a fact on record that the return of income for the captioned assessment year was filed, wherein the shares of two beneficiaries were specifically mentioned @ 50% each (page 3 of the copy of the return of income appearing at page 6 of the paper book filed by the assessee). Therefore, it cannot be said that the shares of the beneficiaries of the Trust were indeterminate. I agree with the contention of the Ld. A.R. that the CPC, Bangalore could not have made the impugned prima-facie adjustment under section 143(1) of the Act. The CPC, Bangalore had access only to the return of income at the time of processing of the Return and there was no occasion for the CPC, Bangalore to have any reason to make the impugned prima-facie adjustment. I also agree with the contention of the Ld. A.R. that the intent of the assessee was very much clear from the percentage of shares of the beneficiaries having been mentioned in the return of income even though the Trust Deed might have been silent on the issue. The conduct of the assessee in mentioning the percentage of shares of the beneficiaries, while filling the return of income, is a proof enough of the share percentages having been determined. Even in absence of specific mention of percentage of shares in the Trust Deed, there being equal percentage of 50% each in case of two beneficiaries is a natural assumption. Accordingly, I allow the grounds raised by the assessee and allow the appeal filed by the assessee.