MARUTI TRUST,KOLKATA vs. I.T.O., WARD - 30(1), KOLKATA

The only common issue involved in various appeals is against the order of ld. CIT (A) dismissing the appeal of the assessee by holding that the maximum marginal rate of tax was correctly computed by CPC taking the rate of income tax + surcharge applicable to highest slab of income in the case of individual/AOP/BOI even when the income is below Rs. 50.00 lacs.

As the income of the assessee is below 50 lacs accordingly, the assessee trust computed the tax at the rate of 30% along with cess of 4% thereon . However, the ld. AO CPC while passing the order u/s 143(1) of the Act for all these three years has applied a rate of tax by taking income tax rate + surcharge + cess and thus raised the demand of income tax against the assessee.

In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee.

After hearing the rival contentions and perusing the materials available on record, we find that the assessee is a private discretionary trust and incomes in all the assessment years are below 50 lacs. Therefore, the issue before us is whether the assessee trust is eligible to be taxed at the rate of 30% + cess or at the rate of 30% + surcharge+cess. We also note that the maximum marginal rate has been defined u/s 2(29C) of the Act, which means the rate of income including the surcharge at income tax, if any, applicable in relation to highest slab of income in case of individual, association of persons or as the case may be, body of individual as specified in the Finance Act of the relevant year. We note that the trust/ association of person / body of individual are covered either u/s 164 or u/s 167B of the Act which provide that income of these entities / body are “21. We have given a thoughtful consideration to the rival submissions and perused materials on record. We have also applied our mind to the judicial precedents cited before us. The short issue arising for consideration before us is, 'whether the definition of maximum marginal rate in terms with section 2(29C) of the Act can be interpreted in a manner to suggest that not only the rate of tax on the total income of assessee would be at the highest rate, but even the surcharge to be computed on such tax would be at the highest rate'.

Before we proceed to deal with the issue, let us understand what is meant by a 'Private Discretionary Trust'. A 'Discretionary Trust' is generally a Trust registered under the Indian Trusts Act, 1882, whereunder, the Trustees hold the power to decide the class of beneficiaries who can receive either capital or income from the Trust at the discretion of the Trustees. However, no one beneficiary has an absolute entitlement either to income or capital. In other words, in a discretionary trust, distribution of all capital and income is completely at the discretion of the Trustees. Generally speaking, in these kind of trusts not only the beneficiaries but even the shares of beneficiaries Order pronounced in the open court on 26.02.2026.