2024 (7) TMI 1475 - AT - Income Tax

Determination of tax liability for a Trust u/s 164(1) - AO and CIT(A) held that the share of income of the Trust is unknown and in determinative, so relevant income shall be taxed at maximum marginal rates - assessee main contention is that there is a family Trust and at the creation of the family Trust income has been determined as it appears from the last will of the executor Savita Gouri Malani. HELD THAT - There was a Trust namely Savita Gouri Malani Grand Children Trust. From perusal of the order of ld. CIT(A) it appears to us that he took the assistance of Section 164(1) of the Act in calculation of the tax by saying that in the present case share of the income of the Trust is unknown and not determinative. The submission of ld. Counsel for the assessee is that in the present case determination of the tax should be as per the 2nd proviso to Section 164(1) of the Act treating the assessee as an AOP and to tax it in conjunction with Section 160(iv) of the Act. Share and income of the trustees have already been determined in the last will. So, we find substance in the arguments of the ld. Counsel for the assessee that tax should be computed at normal rate and not at the maximum marginal rate in short MMR. Appeals filed by the assessee allowed.

Summary

Issues:
- Appeals filed by the assessee against orders passed under the Income Tax Act for AY 2012-13 & 2013-14.
- Determination of tax liability for a Trust under Section 164(1) of the Act.
- Challenge to the tax calculation method by the assessee.
- Interpretation of the last will of the executor regarding beneficiaries' rights and income distribution.

Analysis:
1. The appeals were filed by the assessee against orders passed under the Income Tax Act for the Assessment Years 2012-13 & 2013-14. The appellant, a Trust named Savita Gouri Malani Grand Children Trust, had its income tax liability determined by the CPC at maximum marginal rates, which the assessee contested through a rectification petition under Section 154 of the Act. The Assessing Officer rejected the petition, leading to an appeal before the ld. CIT(A) and subsequently to the Appellate Tribunal ITAT Kolkata.

2. The main issue revolved around the determination of tax liability for the Trust under Section 164(1) of the Act. The appellant argued that the tax should be calculated as per the 2nd proviso to Section 164(1) treating the assessee as an Association of Persons (AOP) and in conjunction with Section 160(iv) of the Act. The contention was supported by the last will of the executor, which outlined the beneficiaries' rights and income distribution.

3. The ld. Counsel for the assessee challenged the tax calculation method, claiming that the lower authorities' decisions were arbitrary and lacked proper reasoning. The argument focused on the fact that the share and income of the trustees had already been determined in the last will, contrary to the authorities' stance that the income of the Trust was unknown and should be taxed at maximum marginal rates.

4. Upon reviewing the documents, including the last will of the executor, the Appellate Tribunal found merit in the assessee's argument. The last will clearly specified the beneficiaries' rights, titles, and interests in the Trust's corpus and income, indicating that the share and income distribution were determinable. Consequently, the Tribunal allowed both appeals filed by the assessee, ruling that the tax should be computed at normal rates rather than at the maximum marginal rate.

5. In conclusion, the Appellate Tribunal ITAT Kolkata pronounced the order in favor of the assessee, highlighting the importance of interpreting the last will to ascertain the beneficiaries' rights and the appropriate tax treatment for the Trust's income.