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Facts
The assessee, a private discretionary trust, filed its return reporting a total income of Rs.1,80,11,780/-, which included short-term capital gains and interest income. The CPC processed the return under section 143(1) accepting the returned income but raised a demand due to a surcharge levied at 37% instead of the applicable 15%.
Held
The Tribunal held that the surcharge applicable to the assessee should be at 15% and not 37%, as its total income did not exceed Rs. 2 crores. This decision was based on a Special Bench ruling that for private discretionary trusts taxed at the maximum marginal rate, surcharge should be computed based on slab rates.
Key Issues
Whether the surcharge on income tax for a private discretionary trust taxed at maximum marginal rate is applicable at the highest rate or at the slab rate, and whether the CIT(A) erred in not quashing the intimation due to lack of opportunity of being heard.
Sections Cited
143(1), 234B, 234C, 164
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Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of Ld. CIT(A)- 1, Kolkata, vide order no. ITBA/APL/S/250/2024-25/1075357474(1), dated 31.03.2025 passed against the intimation issued by Centralised Processing Centre, Bengaluru, (CPC) u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.05.2024 for Assessment Year 2023-23.
2. Grounds taken by the assessee are reproduced as under: " Ground No. 1: Validity of the adjustments made in the Intimation u/s 143(1) 1. The learned CIT(A) erred in not quashing the impugned intimation order passed u/s.143(1) of the Income Tax Act, 1961 as no opportunity of being heard was provided to the Appellant before levying surcharge and additional interest. Ground No. 2: Incorrect levy of surcharge amounting to Rs. 19,99,307/- Anil Gala Navneet Trust AY 2023-24 1. The learned CIT(A) erred in facts and law by imposing surcharge at the rate of 37% on the Appellant's total tax of Rs.54,03,534/- on the short-term capital gain and interest income instead of surcharge applicable at the rate of 15% in accordance with the provisions of First Schedule to Finance Act, 2020 as the appellant's total income exceed Rs.1 Crore but does not exceed Rs.2 Crore for the year under consideration.
Your Appellant prays that the surcharge on total tax of Rs.54,03,534/- on the short-term capital gain and interest income should be charged at 15% amounting to Rs.8,10,530/- instead of 37%. Ground No.3: Incorrect levy of interest u/s 2348 and 234C aggregating to Rs.1,78,504/-
1. 1. The learned CIT(A) consequently erred in charging interest u/s 2348 of Rs.54,306/-and excess interest u/s 234C of Rs.1,24,198/-.
2. Your Appellant prays that the excess interest levied in the intimation u/s 2348 and u/s 234C of the IT Act may please be deleted. Ground No.4: General Grounds of appeal 1. Your Appellant craves leave to file additional evidences during the course of appeal proceedings in terms of Rule 46A r.w.s. 250."
3. Issue involved in the present appeal is in respect of levy of surcharge which is at the rate of 37%, which according to the assessee ought to have been at the rate of 15% since its total income does not exceed Rs. 2 crores for the year under consideration.
3.1. Facts of the case are that assessee is an irrevocable private discretionary trust formed under the Indian Trust Act, 1882. Tax liability of the assessee is computed at the maximum marginal rate in accordance with the provisions of section 164 of the Act. Return of income was filed on 18.07.2023, reporting total income at Rs.1,80,11,780/- which comprises of short term capital gain on sale of non-agricultural land under the head capital gains amounting to Rs.1,79,07,779/-; interest on saving bank account of Rs.88/- and interest on loan of Rs.1,03,912/- under the head ‘income from other sources’.
3.2. Return of the assessee was processed by CPC u/s.143(1) wherein total income reported by the assessee in its return is accepted as such.
Anil Gala Navneet Trust AY 2023-24 However, despite accepting the returned income, a demand of Rs. 53,420/- has been raised though assessee had claimed a refund of Rs.13,61,410/- in its return. The reason for which the demand has been raised instead of granting of refund is that surcharge has been levied at the time of processing of return at a rate of 37% and also having a consequential effect on levy of interest u/s.234 B and 234C.
It is undisputed and uncontroverted that assessee reported its total income which exceeds Rs.1 crore but is less than Rs. 2 crores as stated above and the same has been accepted by the Revenue while processing the return. First schedule of the Finance Act, 2021 provides that the amount of income shall be increased by surcharge at rates specified therein when the total income exceeds the threshold limits namely Rs. 50 lakhs/1 crore/2 crores/5 crores, as the case may be. In the case of the assessee, the surcharge rate to be considered for calculation of maximum marginal rate is 15% as the total income does not exceed Rs.2 crores. Surcharge at the rate of 37% is applicable only when income exceeds Rs.5 crores.
4.1. The issue in the present appeal is no longer res integra and is settled by the decision of Hon'ble Special Bench, Mumbai in the case of Aradhya Jain Trust vs. ITO in dated 09.04.2025, wherein, the special bench was constituted to decide the issue “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 rate?”. After detailed deliberation, the conclusion was drawn by the Hon'ble Special Bench in para 32, wherein it states that “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 Anil Gala Navneet Trust AY 2023-24 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”.
Accordingly, in the present case, taking into consideration the factual matrix as stated above and the decision of Hon'ble Special Bench (supra) the rate of surcharge applicable in the case of assessee is at 15% instead of 37% taken by the CPC. Ld. Assessing Officer is thus directed to re-compute the surcharge by applying the rate of 15% and delete the demand so raised. This re-calculation of surcharge has a consequential effect on the levy of interest u/s.234B and 234C, which also needs to be reworked by the ld. Assessing Officer to give full effect to the demand which has been raised. Accordingly, grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 31 July, 2025