Discretionary Trust created under Deceased’s Will Not Liable to Income Tax at Maximum Marginal Rate u/s 164: ITAT [Read Order]
ITAT holds that a Discretionary Trust created by will is not taxable at the maximum marginal rate under section 164 and is directed to be taxed at the AOP rate for all three years.
![Discretionary Trust created under Deceased’s Will Not Liable to Income Tax at Maximum Marginal Rate u/s 164: ITAT [Read Order]](https://images.taxscan.in/h-upload/2025/07/22/2067556-itat-ahmedabad-discretionary-trust-case.webp "Discretionary Trust created under Deceased’s Will Not Liable to Income Tax at Maximum Marginal Rate u/s 164: ITAT [Read Order]")
The Ahmedabad Benchof the Income Tax Appellate Tribunal (ITAT) has held that a discretionary trust which is created under the Will of a deceased individual is not liable to income tax at the maximum marginal rate, as it falls under the exception provided in the first proviso to Section 164(1) of the Income Tax Act, 1961. The appellant filed appeals against orders passed by...
The Ahmedabad Benchof the Income Tax Appellate Tribunal (ITAT) has held that a discretionary trust which is created under the Will of a deceased individual is not liable to income tax at the maximum marginal rate, as it falls under the exception provided in the first proviso to Section 164(1) of the Income Tax Act, 1961.
The appellant filed appeals against orders passed by the Commissioner of Income Tax (Appeals) ( CIT(A) ) for Assessment Year (AY) 2021–22, 2022–23, and 2023–24. All appeals arose from assessments under Section 143(1), and the application of tax at the maximum marginal rate instead of the rate applicable to an Association of Persons (AOP) under the relevant proviso of Section 164(1) of the Act.
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The assessee-appellant, Shakuntala Balvantray Trust, was created by the Will of Shakuntala Balvantray for the benefit of her daughter and her daughter’s children. The only income of the trust was interest, which was distributed to the beneficiaries.
The Assessing Officer (AO) applied Section 164 of the Act and taxed the trust’s income at the maximum marginal rate, because the individual shares of the beneficiaries were unknown. The CIT(A) upheld this view and confirmed the demand raised.
The assessee contended that the case fell squarely within clause (ii) of the first proviso to Section 164(1), which covers a trust declared by Will, where such trust is the only trust so declared. It was argued that the proviso requires income to be charged at the rate applicable to an AOP, not at the maximum marginal rate.
The assessee also referred to the Central Board of Direct Taxes (CBDT) Circular, which clarified that trusts declared by Will, being the only trust so declared, should not be taxed at the maximum marginal rate but rather at the rate ordinarily applicable to the total income of an AOP.
The Bench, comprising Shri Sanjay Garg (Judicial Member) and Ms. Annapurna Gupta (Accountant Member), agreed with the assessee’s submissions and held that the AO is directed to charge the tax on the trust at the rate ordinarily applicable to the total income of an AOP and not at the maximum marginal rate.
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Accordingly, the ITAT allowed the assessee’s appeal and applied the same decision mutatis mutandis to all three assessment years under consideration
The assessee was represented by S.N. Divetia along with Samir Shah, while Ashok Kumar Suthar represented the revenue.
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