ANIL GALA NAVNEET TRUST,MUMBAI vs. INCOME TAX OFFICER WARD 22(1)(6), MUMBAI

This appeal filed by the assesse is arising out of the order of the Commissioner of Income-tax, Appeal ADDL / JCIT (A)-1, Kolkata [hereafter, Ld.CIT(A)], dated 19/03/2025 for the assessment year 2022-23.

The following are the grounds raised by the assesse:- “Based on the facts and circumstances of the case and in law, the Appellant respectfully submits that the Learned Commissioner of Income Tax (Appeals) erred in passing the order under section 250 of the Income-tax Act, 1961 (Act), on the following grounds, which may be considered without prejudice to one another:

The substantive issue raised in the appeal pertains to “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?" We find that the issue is squarely covered by the judgement of the Mumbai Bench ‘K(SMC)’ (SPECIAL BENCH) in the case of Araadhya Jain Trust v. Income-tax Officer

If we accept the contention of the Revenue that, irrespective of the nature or quantum of income, as per the definition of maximum marginal rate u/s.2(29C) of the Act, surcharge has to be computed at the highest rate of 37% applicable to the highest income bracket of Rs.5 crores and above, then the exception provided under the first proviso under the heading ‘Surcharge on income-tax’ would become otiose. Even, the different rates of surcharge on income-tax provided under clause (a) to (e) applicable to the different slabs of income would become meaningless so far as discretionary trusts are concerned. In our view, such an interpretation would lead to absurdity, hence, is unworkable. 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 incometax and applicable rate of surcharge as provided under Paragraph A, Part (I) of First Schedule to the Finance Act-2023, would apply. Any other interpretation, in our view, would lead to 5 ITA 2951/Mum/2025 Anil Gala Navneet Trust 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 Act-2023.

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 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.

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

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”

As it is now a settled proposition of law, we find no dispute in determining the rate of surcharge as per the slab rate prescribed in the Finance Act for the relevant year. As this issue is squarely covered in favour of the assessee, we direct the ld. AO to determine the surcharge in accordance with the slab rate prescribed as per the Finance Act. Here in this case, since the assessee’s income exceeds Rs. 50 lacs but does not exceed Rs. 1 Crores, the rate of surcharge applicable would be 10% which is the applicable rate in the present case in hand. We therefore, direct the ld. AO to recompute the surcharge accordingly.