Appeal details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 102823 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-04-2025
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
SMC
Assessment Year
2021-2022
Judgement Text
" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. No. 190/Ahd/2025 (Ǔनधा[रण वष[ / Assessment Year : 2021-22) Nathiben Kalidas Patel Family Trust 18, Mehsana Society, Nava Wadaj, Ahmedabad, Gujarat बनाम/ Vs. The ITO Ward 1(3)(1), Ahmedabad èथायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAATN2569D (Appellant) .. (Respondent) अपीलाथȸ ओर से /Appellant by : Shri S. N. Divatia & Shri Samir Vora, ARs. Ĥ×यथȸ कȧ ओर से/Respondent by : Shri Nitin Kulkarni, Sr. DR Date of Hearing 17/04/2025 Date of Pronouncement 25/04/2025 O R D E R The present appeal has been filed by the assessee against the order passed by the Addl/Joint Commissioner of Income Tax(Appeals), Faridabad (in short ‘the ADDL/JCIT(A)’) under Section 250 of the Income Tax Act, 1961 (in short ‘the Act’) dated 25.11.2024 pertaining to Assessment Year 2021-22. 2. The grounds raised in the appeal by the assessee are as under: “1.1 The order passed by U/s.250 passed on 25.11.2024 by NFAC, [CIT(A)], Delhi (for short CIT(A)\" upholding the adjustment made u/s 143(1)(b) by CPC of charging tax @ maximum Marginal Rate instead of normal rate, though the appellant was the only discretionary Trust under the WILL of Late Nathiben Kalidas Patel is wholly illegal, unlawful and against the principles of natural justice. ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 2 – 2.1 The ld. CILA), has grievously erred in law and or on facts in not appreciating that the appellant Trust was the only discretionary Trust under the WILL of Late Nathiben Kalidas Patel so that charging tax maximum Marginal Rate instead of normal rate was wholly illegal and unlawful. 2.2 That the in the facts and circumstances of the ld. CITIA), ought not to have upheld the charging tax maximum Marginal Rate instead of normal rate on the total income of the appellant Trust was the only discretionary Trust under the WILL of Late Nathiben Kalidas Patel. 3.1 The ld.CIT(A) has grievously erred in law and or on facts in upholding that CPC was justified in making adjustment u/s 143(1)(b) of the Act.” 3. At the outset itself, Ld. Counsel for the assessee stated that the solitary issue/grievance of the assessee is against the levy of tax in the case of the assessee, a trust created by WILL, at the Maximum Marginal Rate (‘MMR’) as opposed to slab rate applicable to it as prescribed by law, in the intimation made u/s.143(1) of the Act. Ld. Counsel for the assessee pointed out that while the assessee had filed return of income declaring income of Rs.1,04,610/- and had determined no tax payable on the same by applying slab rate of taxes applicable to AOP, the intimation made on the assessee by processing of the return by the CPC, Bengaluru u/s.143(1) of the Act, applied the MMR of tax on the return of income determining the tax liability of the assessee at Rs.32,638/-. 4. Ld. Counsel for the assessee pointed out that the assessee went in appeal before the Ld. Addl/JCIT(A) and explained the entire facts and law on the issue pointing out that the assessee was a trust created under WILL filing its return regularly and being assessed at the normal rate of tax as per the provisions of ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 3 – law as contained in the proviso to Section 161(1A) of the Act, providing for such trusts created by Will to be assessed at normal rates of tax and not at MMR. Ld. Counsel for the assessee pointed out that the Ld. Addl/JCIT(A) while adjudicating the issue went on a completely different tangent and held that there was no dispute regarding the applicability of MMR of tax but the only dispute was the applicability of surcharge of highest income slab i.e. 37 % in the case of the appellant. That he went on thereafter to adjudicate the applicability of the rate of surcharge and confirmed the rate applied by CPC in this regard. He drew my attention to para 4.1.1 of the order of the Ld. CIT(A) pointing out the adjudication made by the Ld. Addl/JCIT(A) as above. 5. Ld. Counsel for the assessee, thereafter, drew my attention to the relevant provisions of law in this regard. He contended that there is no dispute with regard to the fact that the assessee is a trust created by WILL which fact was pointed out to the Ld. Addl/JCIT(A) also. He drew my attention to page 2 of the order of Ld. Addl/JCIT(A) reproducing assesses contention before it of the fact that the trust was declared by a WILL dated 03.05.1995. Thereafter, he drew my attention to the provisions of Section 164 of the Act which deals with “charge of tax when share of beneficiary is unknown” as under: “164. (1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub-section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as \"relevant income\", \"part of relevant income\" and ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 4 – \"beneficiaries\", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate : Provided that in a case where— (i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity 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 persons : Provided further that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. 6. He pointed out that while Sub-section (1) provided the levy of tax at the MMR where the shares of beneficiaries of a trust are unknown, he pointed out the Proviso to this Section carved out an exception to the same stating taxed to be charged in exceptional cases on the income as if it were the total income of an AOP. He drew my attention to the exceptions mentioned in the proviso and pointed out that the Second Proviso included trust declared by any person by WILL, being the only trust so ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 5 – declared by him. Ld. Counsel for the assessee, therefore, contended that in terms of the Proviso to Section 164(1) of the Act, trusts which are created by WILL is not to be subject to tax at the MMR but at the rates which are specified for association of persons(AOP). He, thereafter, drew my attention to Section 167B of the Act, which deals with the charge of tax where shares of members in AOP or BOI is unknown as under: “167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate : Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate. (2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],— (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.” 7. He pointed out that the same also provided for tax to be charged at the MMR in case of AOP’s, but he contended that the CBDT had clarified way back in 1990, vide Circular No.577 dated 04.09.1990, that the provisions of Section 167B of the Act would not apply to income of a trust declared by any person by WILL, ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 6 – where such trust is only trust declared by him. Copy of the circular was placed before us and it was pointed out therefrom that the CBDT had clarified that it was never the intention to subject the income of such trust to tax at the MMR. The CBDT, it was pointed out, had clarified that where a specific provision had been made in law in relation to any matter and where that provision is beneficial to the taxpayer, it is to be governed by that special provision and not by any other general provision. 8. The contents of the Circular are as under: “1. A question has been raised whether the provisions of section 1678 of the Income-tax Act, 1961, which generally provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown, would also apply to income under a trust declared by any person by will where such trust is the only trust declared by him. Such trusts, it would be noticed, are referred to at item No. (ii) in the first proviso to section 164(1) of the Act. 2. 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. 3. 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. Accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.” 9. Ld.Counsel for the assessee contended therefore that the CBDT had clarified that trusts created by WILL would be ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 7 – governed for taxation purposes by the proviso to section 164(1) of the Act and would therefore be required to pay taxes on their income as per the normal rates applicable to AOP’s and not at MMR. The assessee accordingly, he contended could not be subjected to tax at MMR but on the slab rate applicable. 10. He further pointed out that this issue had been dealt at length by the ITAT, Ahmedabad in the case of ITO vs. Rajnikant Gulabdas Sheth Family Trust, reported in [1987] 20 ITD 668 (AHD.) holding that trust which qualified to be excluded by virtue of the First Proviso to Section 164(1) of the Act are to be taxed at normal rate and not at MMR. Copy of the judgement was placed before me and attention drawn to the relevant findings of the ITAT as under: “13. We have carefully considered the rival submissions of the parties. At this juncture, it would be necessary to reproduce below the relevant portion of section 164: \"(1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses () and (iv) of sub-section (1) of section 160 are liable as representative aucsaces or any part thereof is not specifically receivatile on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as 'relevant income', 'part of relevant income' and 'beneficiaries', respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate Provided that in a case where (i)none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount no chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 8 – (ii)the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him, or (iii)and (iv)** ** ** tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons.\" 14. On the plain reading of the aforesaid provisions of the Act, we are of the view that the AAC was fully justified in holding that by virtue of proviso (ii) to section 164(1) the assessee would be required to be taxed at normal rate. It is no doubt true that initially under the will two discretionary trusts were created by late Pranlal Thakordas Shah. However, much prior to the introduction of Finance (No. 2) Bill, on 18-6-1980, Shri Pranlal Thakordas Trust was dissolved on 1-5-1979 with the result that during the relevant accounting year, there was only one discretionary trust created under the will. Keeping in mind the aforesaid observations of the Hon'ble Supreme Court, we are of, the view that the provisions of proviso (ii) to section 164(1) have to be construed reasonably and not in the manner, the ITO has construed. Since there was only one discretionary trust created under the will, we are of the view that the AAC was fully justified in holding that maximum marginal rate was not applicable to the assessee. 15. As regards the assessee's submission in respect of the provisions of proviso (1) to section 164(1), it is not necessary for us to express any opinion as the assessee has not preferred any appeal/cross objection against the order of the AAC. 16. In the result, the appeal is dismissed.” 11. The Ld. DR fairly agreed with the fact pointed out by the Ld. Counsel for the assessee that the Ld. Addl/JCIT(A) had failed to adjudicate on this specific grievance raised by the assessee before it of being wrongly taxed at the MMR. He agreed that the Ld. Addl/JCIT(A) had wrongly noted the said issue to be not in dispute. Further, Ld. DR was unable to controvert the legal position on the issue as pointed out by the Ld. Counsel for the assessee before us nor he was able to distinguish the case law relied upon by the Ld. Counsel for the assessee in the case of ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 9 – Rajnikant Gulabdas Sheth Family Trust (supra), in support of his contention that family trust is chargeable to tax at normal rate and not at MMR in terms of First Proviso to Section 164(1) of the Act. 12. I have carefully considered the contentions of both the parties, as also the relevant provisions of law, CBDT Circular and the case law referred to before me. I completely agree with the Ld. Counsel for the assessee that the adjustment made by the CPC while processing the return of the assessee by levying tax at the MMR is not in accordance with law. It is not disputed that the assessee is a family trust created by a WILL as pointed out by the Ld. Counsel for the assessee before me. In terms of the provision of the First Proviso to Section 164(1) of the Act, such trusts are not be subjected to be taxed at MMR, but are to be taxed at rates applicable to AOPs and CBDT in its Circular No.557 dated 04.09.1990 has clarified that while treating such trust as AOPs, they are not to be taxed at MMR as specified in Section 167B of the Act, since the applicability of MMR has been specifically excluded by Section 164(1) First Proviso itself and this specific exclusion would override the general provision of Section 167B of the Act. Thus I agree with the Ld.Counsel for the assessee that as per the applicable provisions of law ,clarified by the CBDT also, the assessee trust was not to be taxed at MMR. Even the coordinate Bench of the ITAT in case of Rajnikant Gulabdas Sheth Family Trust (supra) has categorically held so. ITA No. 190/Ahd/2025 [Nathiben Kalidas Patel Family Trust vs. ITO] A.Y. 2021-22 - 10 – 13. In the light of the above, I hold that the CPC has wrongly applied MMR for taxing the assesses income which should have been taxed at the normal rates applicable to AOP’s. 14. The adjustment, therefore made by CPC in the intimation u/s 143(1) of the Act, by creating a demand of Rs.32,638/- is directed to be deleted. 15. In the result, the appeal filed by the assessee is allowed. This Order pronounced on 25/04/2025 Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad; Dated 25/04/2025 S. K. SINHA True Copy आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. Ĥ×यथȸ / The Respondent. 3. संबंͬधत आयकर आयुÈत / Concerned CIT 4. आयकर आयुÈत(अपील) / The CIT(A)- 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड[ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलȣय अͬधकरण, अहमदाबाद / ITAT, Ahmedabad "
AI Insights
The case involves the Nathiben Kalidas Patel Family Trust, which appealed against the order of the Addl/Joint Commissioner of Income Tax (Appeals), Faridabad, concerning the assessment year 2021-22. The primary grievance was the application of the Maximum Marginal Rate (MMR) on the trust's income instead of the normal slab rates applicable to AOPs. The trust argued that as a discretionary trust created under a will, it should be taxed at normal rates as per the provisions of Section 161(1A) of the Income Tax Act and the specific exemptions provided under Section 164(1) and Section 167B. The Tribunal examined the legal provisions, CBDT Circular No.577, and relevant case law, including the decision in ITO vs. Rajnikant Gulabdas Sheth Family Trust, to conclude that the trust was incorrectly taxed at the MMR.
