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Facts
The assessee, a private family trust, filed its return in ITR-7. The CPC processed the return calculating tax on Maximum Marginal Rate (MMR). The assessee's appeal before the CIT(A) was dismissed as the return was not filed in the appropriate form (ITR-5). The assessee argued that the tax should be calculated at the normal rate as beneficiaries have no taxable income.
Held
The Tribunal held that since the trust was created for the benefit of specified beneficiaries, who are relatives and do not have taxable income, and considering the proviso to section 164(1) of the Act, the income should be taxed at the normal rate, not MMR.
Key Issues
Whether the income of a private family trust, whose beneficiaries do not have taxable income, should be taxed at the Maximum Marginal Rate (MMR) or the normal rate of tax.
Sections Cited
164(1)
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Income Tax Appellate Tribunal, AGRA BENCH ‘SMC’: AGRA
(ASSESSMENT YEAR: 2016-17) Income Tax Officer Lipi Jain Family Trust, (Exemption), Ward No.18, Subhash Vs. Ward Gwalior, Ganj, Gawalior-473331 Madhya Pradesh. Madhaya Pradesh PAN-AABTL3606J (Appellant) (Respondent) Assessee by Shri Subhash Jain, CA Department by Shri Shailendra Srivastava, Sr. DR Date of Hearing 20/05/2025 Date of Pronouncement 29/05/2025 O R D E R [ PER MANISH AGARWAL, AM: This is an appeal filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals), Faridabad [CIT(A) in short] in Appeal No. Addl./JCIT(A), Faridabad/10001/2015-16 dated 23.01.2025 passed u/s 250 of the Income Tax Act, 1961 (the Act, in short) for Assessment Year 2016-17.
The sole issue involved in this appeal with respect to the taxability of the income of the assessee as per maximum marginal rate(“MMR”) as against the normal rate of the tax. The CPC has Lipi Jain Family Trust vs. ITO processed the return in terms of the order dated 19.10.2017 wherein the tax is calculated on MMR by ignoring the fact that the assessee is a private family trust where the beneficiary is not having any taxable income. The assessee against such order filed an appeal before the Ld. CIT(A) who vide impugned order dismissed the appeal of the assessee by observing that the assessee has filed the return of income in form ITR-7 and not in form ITR-5 though the same was filed at a later stage along with the application u/s 154 of the Act and, therefore, there is no error in the order of CPC and dismissed the appeal of the assessee.
Before us, the Ld. AR submit that the assessee has filed the revised return along with rectification application and, therefore, the tax has to be calculated on the normal rate of taxes. He further submit that inadvertently return of income was filed in ITR-7. The assesse is private discretionary trust where beneficiary is not having taxable income, due to inadvertent error, tax should not be charged on MMR.
On the other hand, the Ld. CIT-DR supports the order of the lower authorities and requested for the confirmation of the same.
We have heard the rival submissions and perused the material available on record. In the instant case, it is seen that at first occasion, the assessee has filed the return in form i.e. ITR-7 which is not meant for private trust, however, along with rectification application, the assessee has filed the ITR-5 and submit that where Lipi Jain Family Trust vs. ITO the trust is created solely for the benefit of specified beneficiaries, tax should not be charged at MMR, more particularly when the beneficiary is not having any taxable income. As the assessee trust was created by will of Shri Babulal Jain exclusively for the benefit of relatives dependent for their support and maintenance, therefore, it is private family trust. Assesse since beginning claimed that it had no beneficiary who is having taxable income. In view of the fact and in view of the proviso to section 164(1) of the Act, income of the assessee is to be taxed at the normal rate. Therefore, we direct the AO to charge tax at normal rate of tax as against MMR charge on the income declared by the assessee.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 29.05.2025.