ROYAL PALM PRIVATE BENEFICIARY TRUST,MUMBAI vs. INCOME TAX OFFICER, WARD 26(1)(1), KAUTILYA BHAVAN, MUMBAI, KAUTILYA BHAVAN, MUMBAI

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ITA 3047/MUM/2026Status: DisposedITAT Mumbai27 July 2026AY 2022-238 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that surcharge must be levied based on income thresholds and slab rates, not automatically at the highest rate, even for private discretionary trusts. The issue of interest under sections 234B and 234C is consequential.

What were the facts?

The assessee, a private trust, filed its return of income with a 15% surcharge. The CPC processed the return, accepted the income, but levied a 37% surcharge, raising a demand. The CIT(A) upheld the CPC's action.

What were the issues?

Whether surcharge on income tax for a private discretionary trust should be levied at the highest applicable rate or based on income slab rates. The consequential issue of interest under sections 234B and 234C.

Which sections of the Income-tax Act were involved?

Section 154,Section 143(1),Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM

Hearing: 27.07.2026

आयकरअपीलीयअिधकरण�ायपीठमुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM I.T.A. No.3047/Mum/2026 (Assessment Year: 2022-23) Royal Palm Private Beneficiary Income Tax Officer, Ward 26(1)(1), Trust Kautilya Bhavan, Mumbai-400051 Vs. 903, Dalamal House, Nariman Point, S.O., Mumbai-400021 PAN: AABTR5355C Assessee- अपीलाथ� / Appellant Revenue-��थ�/ Respondent :

Assesseeby : None Revenueby : Shri Ashutosh Singh, Sr. DR : 15.07.2026 Date of Hearing : 27.07.2026 Date of Pronouncement

O R D E R Per Arun Khodpia, AM: This appeal is preferred by the assessee, against the order of the Commissioner of Income Tax Appeals, ADDL/JCIT (A)-2 Bengaluru [in short, “the Ld. CIT(A)”], dated 22.01.2026 for the Assessment Year (AY) 2022-23, arises from the order under section 154 of the Income Tax Act, 1961 [in short, “the Act”] dated 04.02.2025, passed by Centralized Processing Center [in short, “the CPC”]. The grounds of appeal raised by the assessee are as under: “1. On the facts and circumstances of the case as well as in Law, the Ld. CIT(A) erred in confirming the action of the Centralized Processing Centre ("CPC") in levying surcharge @37% (being the highest rate).

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust 2. On the facts and circumstances of the case as well as in Law, the Ld. CIT(A) erred in confirming the action of the Centralized Processing Centre ("CPC") erred with regard to levy of interest under section 234B and 234C of the Income Tax Act, 1961 ("the Act"). 3. Appellant craves leave to add, alter and/or modify the grounds of appeal on or before the date of hearing of the appeal.” 2. Brief facts of the case are that the assessee is a private trust, engaged in investment of shares in mutual funds. The shares of beneficiaries in the trust are determinate. It had filed its return of income for AY 2022-23 on 19.07.2022 declaring total income at Rs.1,41,91,310/-. The assessee has paid taxes on its income by calculating surcharge at the rate of 15% as per provisions of the Act. Subsequently, the return of assessee was processed by the CPC u/s 143(1) of the Act and accepted the returned income of the assessee. However, levied the surcharge at the rate of 37% and accordingly a demand has been raised.

3.

Against the aforesaid demand raised by the CPC, the assessee filed an application for rectification of error apparent from record u/s 154 of the Act, which was disposed of by the CPC on 04.02.2025 but there was no change in the determination of rate of surcharge and consequently the demand. The assessee being aggrieved has filed an appeal before the Ld. CIT(A).

4.

Before the Ld. CIT(A), the assessee submitted that as per provisions of the Act, surcharge on Income Tax was to be levied progressively, depending on the assessee’s total income and its composition. The Act clearly prescribes a surcharge of 15% for total income exceeding Rs.1 crore but not exceeding 2 crores. Hence, the application of 37% surcharge across the board is not only 2

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust excessive but also in contravention of the statutory provisions of the Act. On this aspect, the assessee submitted to the Ld. CIT(A) that in present case since the assessee’s income does not exceed 2 crores, applying the highest rate of 37% is not supported by law. The surcharge in this case should have been restricted to 15% in line to the statutory framework. The assessee relied on the decision of Jurisdictional ITAT in the case of Araadhya Jain Trust vs. Income Tax Officer (ITA No. 4272/Mum/2024) for AY 2023-24 dated 09.04.2025 and submitted that the assessee has correctly computed the surcharge at 15%. Therefore, levy of 37% surcharge is excessive and not in accordance with the mandate of law. The Ld. CIT(A) was not convinced with the submissions of the assessee, therefore had dismissed the appeal of assessee.

5.

Being aggrieved with the decision of Ld. CIT(A), the assessee is in appeal before us.

6.

At the outset, Ld. Counsel of the assessee submitted that the issue herein regarding levy of surcharge of 37% earned has been decided by the Special Bench of ITAT, Mumbai in the case of Araadhya Jain Trust vs. Income Tax Officer, reported in (2025) 212 ITD 1 Mumbai, wherein a question as to whether in case of a private discretionary trust, whose income is chargeable to tax at maximum marginal rate, surcharge is chargeable at the highest applicable rate or at slab rates? The Special Bench has addressed this issue and held that even in the case of private discretionary trust, the surcharge must be levied based

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust on income thresholds and not at automatically at the highest rate, even when income tax is levied at MMR.

7.

It was the submission that according to the decision of Hon’ble Special Bench of ITAT, the trust is liable for surcharge at the rate of 15% and not at 37%. It was therefore, the prayer that the demand raised by computing the surcharge at 37% by the AO and confirming the same by the Ld. CIT(A) is liable to be reversed.

8.

Per contra, Ld. DR vehemently supported the order of Revenue Authorities.

9.

We have considered the rival submissions, perused the material available on record and the order of Special Bench rendered in the case of Araadhya Jain Trust vs. Income Tax Officer, reported in (2025) 212 ITD 1 Mumbai. We have further noted that the identical issue has been decided by “K (SMC)” Bench of Mumbai ITAT in ITA No.4272 of 2024 dated 18.06.2025 in the case of Araadhya Jain Trust, wherein the Tribunal has noted the question before the Special Bench and their relevant observations, which reads as under:

“4. From the perusal of the aforesaid decision, we find that the following issue came up for consideration before the Special Bench of the Tribunal: - “Whether, in the case of private discretionary trusts whose income is chargeable to tax at maximum marginal rate, surcharge is chargeable at the highest applicable rate or at a slab rates?"

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust 5. We find that after considering the relevant provisions of the Act and also the divergent views of the coordinate benches of the Tribunal on this issue, the Special Bench of the Tribunal vide its order dated 09/04/2025, observed as follows: - “29. ……… In our view, once the definition of 'maximum marginal rate' refers to the rate of income-tax and surcharge provided under the Finance Act of the relevant year, then the rates of income tax and applicable rate of surcharge as provided under Paragraph A, Part (I) of First Schedule to the Finance Act2023, would apply. Any other interpretation, in our view, would lead to undesirable consequences and would be discriminatory. In our view, the expression 'including Surcharge on income-tax, if any', within the bracketed portion of section 2(29C) of the Act, would mean the surcharge as provided in the computation mechanism under the heading 'surcharge on income tax' finding place in Paragraph A, Part (I) of First Schedule to the Finance Act2023.

30.

The Revenue has taken a line of argument that the words 'if any' succeeding the words 'including surcharge on income tax' appearing in the definition of maximum marginal rate u/s. 2(29C) of the Act are only for the purpose that when levy of surcharge is specifically provided under the Finance Act of the relevant year, it would be included in income-tax computed at the highest rate, otherwise, not. Though, at first blush this argument of the department sounds attractive, however, on deeper analysis it is found to be superfluous, for the following reasons. As discussed earlier, Article 271 of the Constitution of India, empowers the Union to impose surcharge for the purposes of Union. Whereas, Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. Therefore, levy of surcharge has to be preceded by a law enacted by the parliament authorizing such levy. Thus, in absence of any law authorising levy of surcharge, it cannot be collected. This legal position is as clear as daylight, hence, does not require further clarification with the use of words 'if any' to mean whether the Finance Act of a particular year, if at all, provides for levy of surcharge or not. Though, in our view, there is no conflict between provisions contained u/s. 164/167B, 2(29C) of the Income Tax Act and section 2 of the Finance Act, however, even assuming that there are some conflicts, a harmonious construction has to be made to avoid absurdity and make the provisions workable. Thus, in our view, the expression 'if any' used in section 2(29C) has to be read not de hors but in conjunction with the computation mechanism provided under the heading 'surcharge on income tax' provided in section 2 of Finance Act. This view of ours is further 5

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust fortified by the object for which levy of surcharge was introduced to the Finance Act - to augment the Revenue of the Union for developmental work by asking persons in the highest income bracket to contribute little more than the other citizens, for nation building.

31.

As we find, the Revenue has placed strong reliance upon the decision of the coordinate bench in case of Araadhya Jain Trust (supra) and couple of other decisions, which are on similar line. Pertinently, the decision rendered in case of Anant Bajaj Trust (supra) was subsequently recalled. Whereas, the bench has followed the decision of Anant Bajaj Trust (supra) while deciding the appeal of Kapur Family Trust (supra). Therefore, the decision rendered in case of Kapur Family Trust (supra) has lost its relevance. Insofar as the decision of the co-ordinate bench in the case of Araadhya Jain Trust (supra) is concerned, in our view, the bench has drawing its conclusion, primarily relying upon certain decisions of Hon'ble Kerala High Court and Hon'ble High Court of Bombay. As discussed elsewhere in the order.

32.

However, upon carefully going through these decisions, we are of the considered view that the issue arising in the present case never fell for consideration before the Hon'ble Courts. The issue in dispute in those cases was primarily concerning what should be the maximum marginal rate and its applicability. The issue 'whether the rate of surcharge would also be at the highest rate while computing tax at maximum marginal rate' was never the issue before the Hon'ble Courts. Thus, in our view, the view expressed by the coordinate benches in decisions referred to in Paragraph 10(supra) lay down the correct proposition of law. Thus, in the ultimate analysis, we hold, in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading 'surcharge on income tax' appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back to the respective benches for deciding the appeals accordingly.”

10.

Based on aforesaid decision, the Tribunal in the aforesaid case has set aside the order of Ld. CIT(A) and directed the Ld. AO to levy the surcharge in

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust accordance with the decision of Special Bench of Tribunal by charging the surcharge, having reference to slab rates prescribed in the Finance Act for the relevant year under the heading surcharge on income. Accordingly, Ground No. 1 of the assessee’s instant appeal is set aside to the file for AO for fresh adjudication in accordance with the analogy drawn by Hon’ble Special Bench (supra).

11.

Ground No.2 challenges the charging of interest u/s 234B and 234C, which is consequential in nature. Depends upon outcomeof the first ground of appeal, which is restored back to the file of Ld. AO. Consequently, Ground No.2 is also restored to the file of Ld. AO for re-computation of interest, accordingly.Ground No.3 is general in nature thus, no separate adjudication is required.

12.

In result, the appeal of assessee is allowed for statistical purposes, in above terms.

Order pronounced in the open court on 27-07-2026.

Sd/- Sd/- (AMIT SHUKLA) (ARUN KHODPIA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated : 27-07-2026. Ankit K., Sr. PS

ITA No. 3047/Mum/2026 Royal Palm Private Beneficiary Trust

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai

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