Trust Income to be Taxed at Normal Rate as Sole Beneficiary had No Taxable Income: ITAT [Read Order]
The tribunal referred to its earlier order for AY 2016-17, noting that the trust was a private family trust created solely for the benefit of specified beneficiaries, and no beneficiary had taxable income.
Trust Income - Normal Rate - Sole Beneficiary - No Taxable Income - ITAT - Taxscan
Trust Income - Normal Rate - Sole Beneficiary - No Taxable Income - ITAT - Taxscan
The Agra Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that the income of the trust should be taxed at the normal rate instead of the maximum marginal rate, as the sole beneficiary had no taxable income.
Lipi Jain Family Trust,appellant-assessee, filed its return of income on 18.02.2017. The trust was created by Shri Babulal Jain for the sole beneficiary, Lipi Jain, who had no taxable income.
The return was mistakenly filed in ITR-7 instead of ITR-5 and was processed by the CPC by taxing the income at the maximum marginal rate. The issue in appeal was whether the income should be taxed at the maximum marginal rate or the normal rate of tax.
The assessee counsel submitted that an identical issue had been adjudicated by this tribunal in the assessee’s own case for AY 2016-17 in ITA No. 78/AGR/2025 dated 29.05.2025. The earlier order noted that the assessee had initially filed the return in ITR-7 instead of ITR-5.
The CPC had processed the return by taxing the income at the maximum marginal rate (MMR) without considering that the sole beneficiary had no taxable income.
The tribunal observed that the assessee had filed a revised return along with a rectification application. As the trust was a private family trust created solely for the benefit of specified beneficiaries, the income should be taxed at the normal rate.
The bench held that since no beneficiary had taxable income, the proviso to section 164(1) applied, and the tax had to be calculated at the normal rate.
Accordingly, the tribunal directed the Assessing Officer (AO) to charge tax at the normal rate instead of MMR and allowed the appeal. The Departmental counsel however, relied on the orders of the lower authorities.
A single member bench M Balaganesh (Accountant Member) observed that the issue had already been decided in the assessee’s case for AY 2016-17, where the appeal was allowed, and therefore, the assessee’s grounds for AY 2015-16 were also allowed.
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