ITAT Holds Estate with Sole Executor Taxable at Individual Slab Rates, Not Maximum Marginal Rate

The Income Tax Appellate Tribunal (ITAT) has ruled that an estate with a single executor should be taxed using individual income tax slab rates, not the higher maximum marginal rate. This decision stems from Section 168(1)(a) of the Income Tax Act, which states that when an estate has only one executor, its income is taxed as if the executor were an individual. The Tribunal emphasised that the estate's status as an Artificial Juridical Person (AJP) does not automatically warrant the maximum marginal rate. However, the case was sent back to the Assessing Officer to verify the executor's status from the deceased's will.

In the case of Estate of Late Rajen Krishnalal Shah v. ITO, the executor filed the income tax return for the estate for the period from the date of death, 24 November 2024, to 31 March 2025. The return was filed under the new tax regime under Section 115BAC.

While processing the return under Section 143(1), the Centralised Processing Centre (CPC) treated the estate as an Artificial Juridical Person (AJP) and computed tax at the maximum marginal rate. This resulted in a tax demand on the total income of Rs. 1.49 lakh.

The assessee contended that the estate was being administered by only one executor. Under Section 168(1)(a), where there is a sole executor, the income of the estate is chargeable to tax as if the executor were an individual. Therefore, the normal slab rates applicable to an individual should have been applied instead of the maximum marginal rate.

The Tribunal noted that Section 168 specifically governs the taxation of an estate administered by an executor. It provides that where there is only one executor, the assessment is to be made as if the executor were an individual. Where there is more than one executor, the executors may be assessed as an Association of Persons (AOP).

The ITAT relied on earlier Mumbai Tribunal decisions, including Estate of Vasant Patki v. DCIT, Estate of Nalini Manilal v. ITO and Estate of Late Harkishin Bhojraj Chanrai v. DCIT. It also referred to the decision in CIT v. G.B.J. Sheth, which supported the application of individual tax rates where the estate is administered by a sole executor.

However, since the will and testament of the deceased had not been examined by the Assessing Officer or the appellate authority, the Tribunal restored the matter to the Assessing Officer for verification. The Assessing Officer was directed to assess the estate’s income at the rates applicable to an individual if the will confirms that there was only one executor.

Accordingly, the appeal was allowed subject to verification.

Key Takeaway: Under Section 168(1)(a), the income of an estate administered by a sole executor is taxable as if the executor were an individual. The maximum marginal rate cannot be applied merely because the estate is assigned an administrative status such as an AJP. However, the number and status of the executors must be verified from the relevant testamentary documents.

Disclaimer: This AI-generated summary is for informational purposes only. Please view the attached original judgment for the complete text and authoritative interpretation.