NAROTAM SEKHSARIA TANVI TRUST,MUMBAI vs. ITO, WARD 42(2)(1), MUMBAI, MUMBAI

This appeal by the assessee is directed against the order dated 12.12.2025 passed by the Ld. Addl./JCIT(A), Gwalior (hereinafter referred as the Ld. CIT(A) for the assessment year 2021-22.

The assessee has raised the grievance that though the Ld. CIT(A) allowed the appeal by holding that surcharge at the rate of 37% levied by CPC in the rectification order was incorrect and that surcharge was chargeable only at 15%, the operative direction contained in para 5.6 of the appellate order is restrictive inasmuch as it confines the rate of surcharge of 15% only to dividend income and long-term capital gains taxable under section 112A, instead of clarifying that the surcharge applicable on the total income of the assessee is 15% in terms of clause (e) of Paragraph A of Part I of the First Schedule to the Finance Act, 2021.

The brief facts are that the assessee is a private discretionary trust. It filed its return of income declaring total income of ₹6,40,34,630/- comprising long-term capital gains taxable under section 112A, dividend income and interest income. While filing the return, the assessee computed surcharge at 15% on the total tax liability in accordance with clause (e) of Paragraph A of Part I of the First Schedule to the Finance Act, 2021. The return was processed under section 143(1) accepting the returned computation. Subsequently, the assessee filed an application under section 154 for rectification of excess levy of interest under section 234C. However, while disposing of the rectification application, CPC passed an order under section 154 wherein surcharge was enhanced from 15% to 37%, resulting in enhancement of tax liability. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A).

During the appellate proceedings, the assessee also raised an additional ground contending that surcharge at the rate of 15% was applicable even in respect of income other than long-term capital gains under section 112A and dividend income, since the assessee's case squarely fell within clause (e) of Paragraph A of Part I of the First

The Ld. CIT(A), after considering the submissions of the assessee and following the decision of the Special Bench of the Mumbai Tribunal in the case of Aaradhya Jain Trust vs. ITO, held that levy of surcharge at 37% by CPC was unsustainable and that surcharge was chargeable only at 15%. Accordingly, the appeal of the assessee was allowed. However, while issuing the operative direction in para 5.6, the Ld. CIT(A) observed that dividend income and capital gains under section 112A were subject to surcharge at the rate of 15% and directed the Assessing Officer/CPC to recompute surcharge accordingly.

Before us, the Ld. Authorised Representative submitted that there is no dispute regarding the ratio laid down by the Special Bench or the conclusion reached by the Ld. CIT(A). The only grievance of the assessee is that the operative direction contained in para 5.6 may give an impression that the surcharge at 15% is confined only to dividend income and income chargeable under section 112A, whereas in terms of clause (e) of Paragraph A of Part I of the First Schedule to the Finance Act, 2021, the surcharge applicable in the assessee's case on the tax payable with reference to the total income is 15%. It was therefore prayed that the finding of the Ld. CIT(A) be suitably clarified to avoid any ambiguity while giving effect to the appellate order. The Ld. Departmental Representative relied upon the orders of the lower authorities.

We have heard the rival submissions and perused the material available on record. There is no dispute that the Ld. CIT(A) has accepted the contention of the assessee that levy of surcharge at the rate of 37% by CPC in the order passed under section 154 was contrary to the provisions of the Finance Act, 2021 and accordingly allowed the appeal. Thus, the controversy before us is not with regard to the allowability of the claim, but only with respect to the manner in which the operative direction contained in para 5.6 of the appellate order has been worded.

On a careful reading of clause (e) of Paragraph A of Part I of the First Schedule to the Finance Act, 2021, we find that where the total income of the assessee exceeds ₹2 crores but the case is not covered by clauses (c) and (d), surcharge is leviable at the rate of 15% on the income-tax. The assessee has demonstrated that its case falls under clause (e), since although its total income exceeds ₹2 crores, the income excluding dividend income and income chargeable under sections 111A and 112A does not exceed the monetary threshold contemplated in clauses (c) and (d). The Ld. CIT(A) has also accepted this legal position while allowing the appeal.

In our considered view, the operative portion of para 5.6 of the order of the Ld. CIT(A) requires suitable clarification so that no ambiguity remains while giving effect to the appellate order. We, therefore, clarify that in the facts of the present case, the rate of surcharge applicable to the assessee for the assessment year under consideration is 15% on the income-tax computed on the total income, in accordance with clause (e) of Paragraph A of Part I of the First Schedule to the Finance Act, 2021. The observations made in para 5.6 of the order of the Ld. CIT(A) shall be read accordingly. The Assessing Officer/CPC is directed to give effect to this clarification while recomputing the tax liability of the assessee.

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