Estate of Deceased Individual Must Be Taxed at Normal Slab Rates, Not Maximum Marginal Rate — ITAT Mumbai

Background and Context

A significant ruling has emerged from the Income Tax Appellate Tribunal (ITAT), Mumbai, in the matter of Estate of Vasant Patki Vs DCIT, concerning the correct tax treatment of the estate of a deceased individual. The central question before the Tribunal was whether the income of such an estate should be subjected to normal slab rates or the maximum marginal rate (MMR). The appeal pertained to Assessment Year 2022-23, and the Tribunal's pronouncement dated 30 March 2026 brings much-needed clarity on this often-misunderstood area of income tax law.

Facts and Background of the Dispute

The assessee — the estate of Late Shri Vasant Janardan Patki — filed its income tax return for AY 2022-23, declaring total income of Rs. 11,05,495/-. When the Centralised Processing Centre (CPC) processed the return under Section 143(1) of the Income-tax Act, 1961, it accepted the declared income but computed the applicable tax treating the estate as an Artificial Juridical Person (AJP), which resulted in a tax demand of Rs. 3,79,957/-.

Aggrieved by this computation, the assessee filed a rectification application under Section 154, asserting that in accordance with Section 168 of the Income-tax Act, 1961, the tax ought to be levied at slab rates applicable to an individual. However, this rectification request was rejected by the Assessing Officer (AO).

Proceedings Before CIT(A)

The assessee then carried the matter to the Commissioner of Income Tax (Appeals) [CIT(A)], Kolkata, challenging the entire basis of tax computation.

The CIT(A) examined the provisions of Section 168(1) and observed that:

  • Where there is only one executor, the estate's income is taxable as if the executor were an individual.
  • Where there are more than one executor, the income is taxable at rates applicable to an Association of Persons (AOP).

Since the CIT(A) found that more than one executor was involved in the present case, it directed that the estate be treated as an AOP and that tax be computed under Section 167B at the maximum marginal rate (MMR) — a rate that applies where the shares of members in the AOP are indeterminate or unknown.

This direction by the CIT(A) significantly worsened the assessee's position compared to what the AO had originally computed.

Grounds of Appeal Before ITAT Mumbai

The assessee challenged the CIT(A)'s order before the ITAT Mumbai on multiple grounds, which can be summarised as follows:

On Status Classification

  1. The CIT(A) committed a serious error by reclassifying the income of the estate of Late Shri Vasant Janardan Patki from "AJP-Estate of Deceased" to "AOP", which was the status correctly adopted by the Assessing Officer in the first place.

  2. The CIT(A) exceeded its jurisdiction under Section 251(1) and Section 251(2) of the Income-tax Act, 1961 by enhancing the assessed status from AJP to AOP without issuing any show-cause notice of enhancement, rendering the order legally untenable.

  3. An AOP, by its very nature, requires volition and common purpose among two or more persons — an element that is fundamentally absent in the case of a deceased individual's estate. Therefore, the classification as AOP is wholly inapplicable.