DELOITTE EMPLOYEES WELFARE TRUST,MUMBAI vs. INCOME TAX OFFICER - WARD 22(1)(6), MUMBAI

Brief Facts: Assessee is a private trust created for welfare of the employees of Deloitte Touche Tohmatsu India Private Limited (now known as Deloitte Touche Tohmatsu India LLP), the employees do not have any right to share in the income of the said of the trust.

The assessee filed its return of income under the status of “AOP”, for AY 2022-23 on 29th July 2022. The total income of assessee consists of interest from fixed deposits. Assessee computed tax at normal rates, whereas the learned AO, CPC had completed the case of assessee @42.74% on maximum marginal rate (30% + 4% cess) including surcharge @37%, vide intimation u/s 143(1) dated 16th March 2023. Accordingly, a demand of Rs. 1,89,880/- has been raised, as against the refund of Rs. 60,580/-.

Being aggrieved with the aforesaid demand, assessee preferred an appeal before the first appellate authority, stating that the provisions of clause (iv) of the 1st proviso to section 164 (1) would apply in the assessee’s case instead of 3 Deloitte Employees Welfare Trust provisions of section 167B of the act. However, Ld. CIT(A) decided the matter by affirming the levy of additional tax under intimation by the CPC.

Before us Ld AR representing the assessee submitted that the case of assessee falls under the exception carved out in cause (iv) of the proviso to section 164(1) of the Act, according to which the income received by the trustees on behalf of the provident fund, superannuation 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 person (AOP). It is submitted, that the assessee trust is created for the benefit of its employees, the trustees receive income on behalf of the trust in the capacity of representative assessee and as such income to be utilized for the benefit of its employees. Accordingly, the assessee trust is covered by the provisions of clause (iv) of the 1st proviso to section 164(1) of the Act and its income is subject to tax at normal rates applicable to AOP and not at maximum marginal rates.

Ld. AR placed his reliance on CBDT’s circular number 577 dated 04.09.1990, clarifying that the cases covered by the first proviso to section164(1) shall not attract the provisions of section 167B. The relevant portion of the said circular furnished before us is extracted as under:

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.

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.

Reliance was place on the decision of ITAT Ahmedabad in the case of ITO Vs. Shakuntala Balvantray Trust (2025) 174 Taxmann.com 75 (Ahmedabad - Trib), where in the Tribunal had accept the claim of assessee, in terms of clarification issued by CBDT qua provisions clause (ii) of the proviso to section 164(1).

Further regarding applicability of surcharge irrespective of the quantum of income while application of MMR is attracted, Ld. AR submitted that the issued is decided by Hon’ble Special bench of ITAT, Mumbai in the case of Araadhya Jain trust vs. Income Tax Officer, (2025) 173 Taxmann.com 343 (Mumbai-trib.), wherein the relevant finding of the Tribunal are as under: 32. However, upon carefully going through these decisions, we are of the considered view that the issue arising in the present case never fell for consideration before the Hon'ble Courts. The issue in dispute in those cases was primarily concerning what should be the maximum marginal rate and its applicability. The issue 'whether the rate of surcharge would also be at the highest rate while computing tax at maximum marginal rate' was never the issue before the Hon'ble Courts. Thus, in our view, the view expressed by the coordinate benches in decisions referred to in Paragraph 10(supra) lay down the correct proposition of law. Thus, in the ultimate analysis, we hold, in case of Private Discretionary Deloitte Employees Welfare Trust Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading 'surcharge on income tax' appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back to the respective benches for deciding the appeals accordingly. Similar findings are accorded by ITAT Mumbai in the case of Lintas 9. Employees Recreation Trust (2025) 174 taxmann.com 694 (Mumbai- tribunal), following the decision in the case of Araadhya Jain trust vs. Income Tax Officer (supra), which reads as under: 5. Thus, the Hon'ble Special Bench has clearly clarified that in case of Private Discretionary Trust' whose income is chargeable to tax at marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the "surcharge of Income Tax", accordingly, we hold that even if rate tax is applicable at maximum marginal rate however, if the slab rates are below Rs. 50,00,000/- for levy of surcharge, no surcharge can be levied. Here in this case, it is not in dispute that slab rate of income of the assessee trust is much below of Rs.50,00,000/- and therefore, surcharge cannot be levied.

Based on aforesaid submissions, Ld AR prayed that direct for computing the tax liability at rate of tax applicable to an AOP and delete the surcharge.

Per contra Ld. Sr. DR, the respondent supported the orders of revenue authorities.

in view of aforesaid facts, circumstances, observations and judicial pronouncements, The Ld. AO is directed to re-compute the tax liability of the assessee, in accordance with our observations herein above, after factual verification.

In result the appeal of assessee stands allowed, in terms of our aforesaid observations.