Trust's Income Tax Rate Determined; Appeal Granted for 2016-17 & 2017-18

The Tribunal ruled in favor of the trust, concluding that the normal rate applicable to individuals, considering the basic exemption limit, should be applied to the trust's income. Despite not being registered under section 12A of the Act, the trust's structure as a public charitable trust, with no entitlement of members or trustees to any income share, led to the decision. The appeal for both assessment years, 2016-17 and 2017-18, was allowed, overturning the application of the maximum marginal rate of tax.

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Issues:
1. Application of maximum marginal rate of tax on income below taxable limit for a trust registered under public charitable trust Act.

Analysis:

Issue 1: Application of Maximum Marginal Rate of Tax
The primary issue in this case revolved around the application of the maximum marginal rate of tax on the income of a trust below the taxable limit. The assessee contended that as a registered public charitable trust, it should be taxed at the normal rate rather than the maximum marginal rate. The dispute arose when the intimation under section 143(1) applied the maximum marginal rate without considering the exemption applicable to individuals. The assessee argued that since it did not extend benefits to specific individuals, it should be considered an artificial judicial person and taxed at the normal slab rate. Reference was made to a CBDT circular from 1982 stating that trusts where members and trustees do not receive any share of income should be taxed at the normal rate. However, the CIT (A) disregarded these arguments, noting that the assessee was not registered under section 12A of the Act, thus liable to be taxed at the maximum marginal rate under section 164(1) of the Act.

Analysis Continued:
Upon further examination, it was established that the trust, although registered under the Bombay Public Trust Act 1950, did not possess registration under section 12A of the Act. This absence of registration under section 12A implied that the trust was ineligible for the exemptions provided under section 11 of the Act. The crux of the matter lay in determining whether the rate applicable to an individual or the maximum marginal rate should be applied as per section 164 of the Act. It was acknowledged that the trust filed its income tax return in a representative capacity under section 160(iv) of the Act, and being a non-discretionary trust, the beneficiaries were unknown, aligning with the purpose of carrying out charitable activities. The CBDT circular No. 320 of 1982 was cited to support the argument that trusts where members or trustees do not receive any income share should be taxed at the ordinary rate applicable to associations of persons, not the maximum marginal rate.

Final Decision:
After thorough deliberation, the Tribunal ruled in favor of the assessee, allowing the appeal. It was concluded that the rate applicable to an individual for income tax, after considering the basic exemption limit, should be applied to the trust. The decision was based on the trust's structure as a public charitable trust and the absence of entitlement of members or trustees to any share in the income. Therefore, the grounds of appeal were upheld, and the appeal of the assessee for both assessment years, 2016-17 and 2017-18, was allowed, setting aside the application of the maximum marginal rate of tax.

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