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Trust Income

Dhiraj Bagri (Manager - Finance & Accounts) (174 Points)

07 September 2010

Hi,

Need view as to the income earned by private trust created for the welfare of child. If any of the following income is earned by trust then what will be the tax liability of trust: -

1 Interest Income.or

2 STCG or

3 Commodity Speculation profit.

For reference one can refer section 161

Thanks in advance

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4 Replies

Vicky (CA, LCS,MCOM,) (136 Points)
Replied 08 September 2010

A)if shares of beneficiaries are determinate or known:

1.income does not includes business profits-the trustee/beneficiary is assessable at the rates applicable to each beneficiary for his share.

2.income includes business profits-entire income taxable at MMR(30.9%) in the hands of each beneficiary for their respecive shares.

3.income includes profits from business but trust is declared by a person by will exclusively for the benefit of any relative dependent on him for support and maintenance-same as 1 above.

if shares are indetrminate

1.income includes business profits-entire income taxable at MMR in the hands of trust

2.income doesnt includes business profits-trust will be taxable at MMR

3.in any other case-taxable as an AOP

Interest Income.=refer A(1)

2 STCG =referA(1)

3 Commodity Speculation profit=referA(3)

Dhiraj Bagri (Manager - Finance & Accounts) (174 Points)
Replied 08 September 2010

Thanks for the reply.

But on what basis an income would be considered as Business income.

Further, there is a case in which High court had declared

that interest income would be considered as business income and same would be charged at the

maximum marginal rate.

Extract of the case is given below: -

Income Tax - 2008 TMI - 10978 - BOMBAY High Court - Commissioner of Income-Tax Versus J. K. Holdings.
"Whether the Tribunal was right in holding that interest income earned by the assessee was taxable under the head 'Other sources of income' and not under the head 'Business income' and, therefore, the Assessing Officer was not justified in charging maximum marginal rate under section 161(1A)?" - we hold that the income earned by the assessees was taxable at the maximum marginal rate under section 161(1A) of the Act. That, the said section was applicable as in this case the assessee has earned income which was assessable under the head "Business income". We, accordingly, answer the above question in the negative, i.e., in favour of the Department and against the assessee.

Thanks

Vicky (CA, LCS,MCOM,) (136 Points)
Replied 08 September 2010

even if interest is considered as business income in ur case still as the trust is declared by a person by will exclusively for the benefit of any relative dependent(child in ur case) on him for support and maintenance, it will not be charged at MMR .... even in this case .the trustee/beneficiary is assessable at the rates applicable to each beneficiary for his share as eained above

also wheter the interst will be considered as business income/income from other sources depends on main purpose of the trust......