Tax Tribunal Rules on Discretionary Trust Income: Maximum Rate Taxation, Beneficiaries Get Deductions.

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....The Income Tax Appellate Tribunal (ITAT) examined the taxability of income from a discretionary trust u/s 164(1) read with clause (ii) of Explanation 1 to Section 164 of the Income Tax Act, 1961. The key points are: Since the trustees have absolute discretion to apply the trust's income and corpus, and the beneficiaries' shares are not determined, the trust is considered a discretionary trust. The income is taxable at the maximum marginal rate as if it were the total income of an association of persons (AOP). However, the beneficiaries, being individuals, cannot be denied deductions u/ss 80C and 80TTA due to the deeming fiction of AOP. The Assessing Officer must consider allowing credit for TDS and deduction u/s 80C after verification. The .........