Determinate Beneficiaries to be Taxed as “Individual”, Not as “Association Of Persons” at Marginal Rate: ITAT

The Income Tax Appellate Tribunal (ITAT) has ruled that determinate beneficiaries of a trust should be taxed as individuals and not as an association of persons (AOP) at the marginal rate. The case involved a trust with determinate beneficiaries, where the income was distributed among the beneficiaries based on a predetermined ratio. The Assessing Officer had taxed the trust as an AOP, applying the highest marginal rate. However, the ITAT held that since the beneficiaries were determinate and their shares were specific, the income should be taxed in their hands as individuals. This ruling provides clarity on the taxation of trusts with determinate beneficiaries and ensures that such trusts are not unfairly taxed at higher rates. It also emphasizes the importance of clearly defining the beneficiaries and their shares in the trust deed to avoid disputes with tax authorities.