TaxTMI 
TaxTMI 
2024 (8) TMI 972
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....rginal rate at 42.17 percent without knowing that above trust is the only trust declared by WILL assessed to second provision to section 164(1) of IT Act at Individual at Normal rate with Basic exemption limit of Individual and further allowed deduction under Chapter VI-A of IT act So, in past years appellant trust was assessed at normal rate but due to change in ITR CONSOL ITR-2 was not selected due to wrong PAN Number allotted by the Income Tax department mentioned 4th Character as "T" instead of "A" therefore, appellant trust compelled to file return in ITR-5 or in ITR-7 instead of ITR-2 due, this tax was charged at maximum marginal rate or say higher rate instead of at normal rate. Appellant AOP therefore compelled to file return in new Income Tax Portal on https://eportal.incometax. gov.in your appellant AOP trust therefore prays that tax may be levied as per the second provision to section 164(1) of IT Act and further appellant AOP trust was prevented for claiming eligible deduction under Section 80-C of Rs. 1,50,000 under chapter VI-A which may be allowed in the interest of justice and return income may be accepted. 2. Both Lower Authorities has erred in law and on facts w....
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....he appellant could not filed return in Form No. ITR-2. The assessee trust was dissolved on 31.03.2021, and notorized deed of dissolution was made. The corpus was distributed in amongst the beneficiaries and therefore there is no income of the trust after 01.04.2021. There was change in ITR CONSOL and the assessee could file return of income in Form No. ITR- 5, and the assessee was taxed at maximum marginal rate @42.17% without getting deduction under Chapter VI-A . The assessee must be assessed to tax under second proviso to section 164(1) of the Act on individual basis with allowability of basic exemption and deduction under chapter VI-A of the Act and tax should be charged at normal rate. The Ld.CIT(A) dismissed the appeal of the assessee by holding as under: "...4.1 The appeal is decided on merits after due consideration of facts of the case and submissions filed by the appellant along with appeal memo in statement of facts and grounds of appeal as discussed here under. 4.2 The appellant trust was declared by Smt. Pashiben Shambhubhai Prajapati through her notarized Will made on 21-07- 2006 which came into operation on her death on 02-10-2006, for the benefit of Shri. Dhulab....
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....emption as is available to an individual. 5.1 A plain reading of the provisions of section 164 of the Income Tax is that- "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 whose 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", tax shall be charged on 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 [....
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....ant income at the maximum marginal rate.]]" "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 ....
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....marginal rate. Further it was submitted that the assessee has been denied the benefit of TDS and my attention was drawn to Form No. 26AS which is placed in Paper Book at Pages 17 to 20. It was also submitted that the assessee filed ITR in Form No.5 which is placed at page no.21-23 of the paper book. It was submitted that for the earlier year, the return of income was filed and the Department has granted benefit of second proviso to section 164(1) of the Act. The said return of income for the AY 2020- 21 is placed in paper book at pages 24 to 27. the Ld.Counsel for the assessee relied on the Judgment of Hon'ble Gujarat High Court in the case of CIT v. Deepak Family Trust No.1 and others, reported in (1995) 119 CTR (GUJ)150, [1995]211 ITR 575(Guj) , and prayers were made to grant the relief by not bring to tax income on the maximum marginal rate and also to allow the deduction u/s. 80C of the Act as it is claimed that the assessee is eligible for deduction under Chapter VI-A. The Ld.Counsel for the assessee relied upon the second proviso to Section 164(1) of the Act. Further it is submitted that the TDS deducted should be allowed as credit against the liability of the assessee to pay....
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.... Section 164(1) read with Section 167(B)(2)(i) of the 1961 Act are applicable , and hence the same is to be brought to tax at the maximum marginal rate of tax keeping in view aforesaid provisions , and further no deduction under Chapter VI-A can be allowed to the assessee. The assessee on its part is contending that this trust declared by Smt. Pashiben Shambhubhai Prajapati is the only trust declared by WILL by Smt. Pashiben Shambhubhai Prajapati for the benefit of her sons Shri Dhulabhai Shambhubhai Prajapati and Shri Ashokbhai Shambhu Prajapati, their wives, their children and his family. 6.2 Before , I proceed further, it will be relevant and useful to refer to the relevant provisions of the 1961 Act: "Chapter XV Liability in Special Cases A*** B-Representative assesses-General provisions Section 160. Representative assessee (1) For the purposes of this Act, "representative assessee" means- (i) to (iii).... (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise(including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913(6 of 1913), receives or ....
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....f the Court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed.] 167B. [ Charge of tax where shares of members in association of persons or body of individuals unknown, etc. (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 1960), 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 subsection (1),- (i) the total income of any member thereof for th....
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....e in Union Bank Dr. S.R. Marg Branch, Flexi A/c. 111 and (4) any other properties and be held in a trust in accordance with the subject with the subject to the provisions contained in Part "A" of this WILL and schedule here under written. It further states that the proposed Trust shall be create in the name of Smt. Pashiben Prajapati Family Trust(Disc.) for the benefit of & Shri Dhulabhai Shambhubhai Prajapati , Shri Ashokbhai Shambhubhai Prajapati , their wife , their childrens and his family. Her sons Shri Dhulabhai Shambhubhai Prajapati & Shri Ashokbhai Shambhubhai Prajapati were appointed as first trustee of the trust , and right is vested in the trustees to appoint one or more other trustees. It further states that until the vesting day, the Trustee shall stand and possessed of the assets received in accordance with the provisions of Part III(a)(sic.III(d)) , and which assets and other assets may be added or substituted in the execution of this trust designated as Trust Fund. The Trust shall receive annual or other income thereof and there out in the first place shall reimburse or pay and discharge all the costs and expenses incurred in or about the administration of all Trust....
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.... her aforesaid sons as executors and Trustees of her WILL. Thus, both the sons were the joint executors as well trustees of her properties. The Properties are defined in Para III (a) to (d) of the aforesaid WILL. As executors of the WILL, both the sons were required to distribute the immovable as well movable properties listed at III(a) to III(c), to the wives of both the son as well to the three daughters, in the manner listed therein in the WILL by Smt. Pashiben Shambhubhai Prajapati, on the death of Smt. Pashiben Shambhubhai Prajapati, as the said movable as well immovable properties were bequeathed on her death as stipulated in the WILL. The assets listed at III(d) vide S.No. 1 and 4, became part of the assets/corpus of the Trust Fund vide the aforesaid WILL. The beneficiaries under the Trust , are the two sons and their families. The trustees were given absolute discretion to deal with the assets/corpus of the Trust Fund as well the income arising therein, to be used for the benefit of the beneficiaries. No doubt, the beneficiaries are defined i.e. the two family branches/Tree consisting of both the sons of Smt. Pashiben Shambhubhai Prajapati (including sons, their wives and c....
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....nt of benefits under the Trust by Trustees , but that 'interest' or 'right' does not stretch to claiming a particular and specific share in the income and the corpus of the Trust in the absence of determinate and known share specified in the WILL, and thus, each beneficiary does not have specific enforceable right to claim any part of the income or the corpus of the trust , but rather it is a 'right' to be considered by the Trustees, and hence it is merely an hope that the discretion shall be exercised by Trustee in his favour . But at the same time, it could not be said that the Trustees can use their discretion in an arbitrary manner , rather it has to be used by Trustees in the fair and judicious manner , otherwise the beneficiaries have other recourses under the Indian Trust Act, 1882 and under the court of equity, if the discretion is used by Trustee maliciously or capriciously, but it will not militate against the Trust being a discretionary trust liable and chargeable to tax under the Income-tax Act, 1961 to be taxed u/s 164(1) read with clause (ii) to first proviso to Section 164(1) , keeping in view the fact situation in the instant case. At this stage it will be relevant ....