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Facts
The assessee, an estate, had declared a total income of Rs. 54,99,430 for AY 2021-22. The CPC processed the return and calculated tax and surcharge at the Maximum Marginal Rate (MMR), resulting in a higher tax liability than initially declared. The CIT(A) upheld the CPC's decision.
Held
The Tribunal held that the surcharge should be levied based on the slab rates and not the MMR. The applicability of MMR for tax calculation does not automatically imply the highest slab rate for surcharge.
Key Issues
Whether the surcharge on tax, when an assessee's total income is between Rs. 50 lakhs and Rs. 1 crore, should be calculated at the highest slab rate (37%) or the applicable slab rate (10%) as per the Finance Act.
Sections Cited
143(1), 164, 2(29C)
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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI OM PRAKASH KANT
This appeal by the Revenue is directed against order dated 25.03.2025 passed by the Ld. Commissioner of Income- tax(Appeals)-National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2021-22, raising following grounds:
In the fact and the circumstances of the case, and in law, the learned Addi/Joint Commissioner of Income-tax (Appeals) -(A)1 Kolkata, erred in confirming the variation in the intimation u/s 143(1) made by CPC in confirming the variation in the intimation u/s 143(1) made by CPC in confirming the variation in the intimation u/s 143(1) made by CPC in respect of the rate of surcharge and erred: respect of the rate of surcharge and erred:
1.
In confirming that the since the appellant is liable to pay tax at 1. In confirming that the since the appellant is liable to pay tax at 1. In confirming that the since the appellant is liable to pay tax at maximum marginal rate, the applicable rate of surcharge is 37% viz. the maximum marginal rate, the applicable rate of surcharge is 37% viz. the maximum marginal rate, the applicable rate of surcharge is 37% viz. the maximum rate of surcharge and hence the maximum marginal rate in maximum rate of surcharge and hence the maximum marginal rate in maximum rate of surcharge and hence the maximum marginal rate in this case is 42.74%. this case is 42.74%.
2. In not appreciating that 2. In not appreciating that since the total income of the appellant is Rs. since the total income of the appellant is Rs. 54,99,430/- viz. more than Rs. fifty lakhs but less than Rs. one crore, viz. more than Rs. fifty lakhs but less than Rs. one crore, viz. more than Rs. fifty lakhs but less than Rs. one crore, the applicable rate of surcharge ought to be 10 per cent the applicable rate of surcharge ought to be 10 per cent as per clause (a) in Paragraph A of Part I to the First Schedule of the as per clause (a) in Paragraph A of Part I to the First Schedule of the as per clause (a) in Paragraph A of Part I to the First Schedule of the relevant Finance Act. Finance Act.
3. In concluding that 3. In concluding that a) The MMR always constitutes highest slab tax rates & highest slab a) The MMR always constitutes highest slab tax rates & highest slab a) The MMR always constitutes highest slab tax rates & highest slab surcharge, if any, prescribed in Finance Act surcharge, if any, prescribed in Finance Act b) Part applicability of MMR is not permissible Part applicability of MMR is not permissible c) Once the appellant is subject to MMR, surcharge c) Once the appellant is subject to MMR, surcharge applicable will be applicable will be surcharge for highest surcharge for highest slab only 2. Briefly stated the facts of the case are that the appellant is Briefly stated the facts of the case are that the appellant is Briefly stated the facts of the case are that the appellant is an Estate of the deceased Mr. Sobhagmal Patni and is the legal Estate of the deceased Mr. Sobhagmal Patni and is the legal Estate of the deceased Mr. Sobhagmal Patni and is the legal representative of the deceased assessee. The appellant filed the representative of the deceased assessee. The appellant filed the representative of the deceased assessee. The appellant filed the return of income for A.Y. 2021 ncome for A.Y. 2021-22 declaring total income of Rs. 22 declaring total income of Rs. 54,99,430/- and calculated tax and calculated tax (including surcharge) (including surcharge) of Rs. 12,19,419/- on such total income at the normal rate of tax. on such total income at the normal rate of tax. on such total income at the normal rate of tax. However, the CPC while processing the return u/s. 143(1) of the Act However, the CPC while processing the return u/s. 143(1) of the Act However, the CPC while processing the return u/s. 143(1) of the Act has calculated the tax and surcharge on such total income at the tax and surcharge on such total income at the tax and surcharge on such total income at Maximum Marginal Rate (M aximum Marginal Rate (MMR) whereby the tax payable whereby the tax payable (including surcharge) was worked out to Rs. 15,18,733/ was worked out to Rs. 15,18,733/-.
Aggrieved by this adjustment made by the CPC, the assessee Aggrieved by this adjustment made by the CPC, the assessee Aggrieved by this adjustment made by the CPC, the assessee challenged it before the CIT(A) who challenged it before the CIT(A) who held that once the appellant is d that once the appellant is subject to MMR, the levy of surcharge the levy of surcharge is to be at the the highest slab @37% for which the assessee is in appeal before us. The relevant @37% for which the assessee is in appeal before us. The relevant @37% for which the assessee is in appeal before us. The relevant extract of the CIT(A)’s order is as under: extract of the CIT(A)’s order is as under:-
“F 7] The submission of the appellant that MMR is f F 7] The submission of the appellant that MMR is for Tax only F 7] The submission of the appellant that MMR is for Tax only and not surcharge, is not correct. The MMR for this A.Y. 2021 and not surcharge, is not correct. The MMR for this A.Y. 2021 and not surcharge, is not correct. The MMR for this A.Y. 2021-22 is 42.74%. The rates of taxation provided in the first schedule is 42.74%. The rates of taxation provided in the first schedule is 42.74%. The rates of taxation provided in the first schedule- part-l of Finance Act, 2020 are applicable to the appellant only to l of Finance Act, 2020 are applicable to the appellant only to l of Finance Act, 2020 are applicable to the appellant only to the extent of rates of highest slab of tax and the extent of rates of highest slab of tax and surcharge. It is clear surcharge. It is clear the MMR is applicable to the appellant. There is no dispute on it. the MMR is applicable to the appellant. There is no dispute on it. the MMR is applicable to the appellant. There is no dispute on it. Here it is necessary to refer the Finance Act, 2020, chapter Here it is necessary to refer the Finance Act, 2020, chapter Here it is necessary to refer the Finance Act, 2020, chapter-Il, which determines/specifies the rates of income tax to be which determines/specifies the rates of income tax to be which determines/specifies the rates of income tax to be applicable. The section 2 starts with non applicable. The section 2 starts with non-obstante words such as stante words such as subject to provision of sub subject to provision of sub-section 2 & 3 for A.Y. 2021 section 2 & 3 for A.Y. 2021-22. Therefore, where sub Therefore, where sub-section 2 & 3 are applicable, the rates section 2 & 3 are applicable, the rates specified in Part specified in Part-l of first schedule required to be adopted for l of first schedule required to be adopted for MMR purpose. The relevant part of sub MMR purpose. The relevant part of sub-section 3 of section 2 of f section 2 of Finance Act is as under: Finance Act is as under: "In cases to which the provisions of Chapter XII or Chapter XII "In cases to which the provisions of Chapter XII or Chapter XII "In cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or section 115JB or section 115JC or Chapter XII-FA or Chapter FA or Chapter XII-FB or sub- -section (1A) of section 161 or section 164 or section section (1A) of section 161 or section 164 or section 164A or section 167 164A or section 167B of the Income-tax Act, 1961 (43 of 1961) tax Act, 1961 (43 of 1961) (hereinafter referred to as the Income (hereinafter referred to as the Income-tax Act) apply, the tax tax Act) apply, the tax chargeable shall be determined as provided in that Chapter or chargeable shall be determined as provided in that Chapter or chargeable shall be determined as provided in that Chapter or that section, and with reference to the rates imposed by sub that section, and with reference to the rates imposed by sub that section, and with reference to the rates imposed by sub- section (1) or the rates as section (1) or the rates as specified in that Chapter or section, as specified in that Chapter or section, as the case may be:" (Emphasis supplied) the case may be:" (Emphasis supplied) Hence it is clear that, where MMR is applicable the rates Hence it is clear that, where MMR is applicable the rates Hence it is clear that, where MMR is applicable the rates specified in part specified in part-l of schedule are only relevant to the extent of l of schedule are only relevant to the extent of calculating MMR and MMR will be charged in the calculating MMR and MMR will be charged in the calculating MMR and MMR will be charged in the applicable cases by virtue of sub cases by virtue of sub-section 3 of section 2 of Finance Act, section 3 of section 2 of Finance Act, 2020. The rate rate of MMR has to be calculated as per the provisions MMR has to be calculated as per the provisions of section 2(29C) of IT Act r.w.s. 164 of the of section 2(29C) of IT Act r.w.s. 164 of the IT Act. The Finance Act of every year is only relevant to know the IT Act. The Finance Act of every year is only relevant to know the IT Act. The Finance Act of every year is only relevant to know the highest slab of rate of tax & surcharge. After considering both the st slab of rate of tax & surcharge. After considering both the st slab of rate of tax & surcharge. After considering both the rates of tax of highest slab as well as surcharge of highest slab rates of tax of highest slab as well as surcharge of highest slab rates of tax of highest slab as well as surcharge of highest slab mentioned in the Finance Act MMR is to be calculated & charged. mentioned in the Finance Act MMR is to be calculated & charged. mentioned in the Finance Act MMR is to be calculated & charged. The word "if any" in the section 2(29C) is relevant if the The word "if any" in the section 2(29C) is relevant if the The word "if any" in the section 2(29C) is relevant if the surcharge to the highest slab of income is mentioned in the harge to the highest slab of income is mentioned in the harge to the highest slab of income is mentioned in the relevant Finance Act and it will be applicable for a particular A.Y. relevant Finance Act and it will be applicable for a particular A.Y. relevant Finance Act and it will be applicable for a particular A.Y. For Ex. no surcharge was applicable for A.Y. 2010 For Ex. no surcharge was applicable for A.Y. 2010-11 & 2011 11 & 2011-12 to slab of income of individual and AOP. Therefore, the word "if to slab of income of individual and AOP. Therefore, the word "if to slab of income of individual and AOP. Therefore, the word "if any" is relevant. Here the word surcharge "if any" has relevance " is relevant. Here the word surcharge "if any" has relevance " is relevant. Here the word surcharge "if any" has relevance to levy of surcharge if mentioned in the Finance Act. The word "if to levy of surcharge if mentioned in the Finance Act. The word "if to levy of surcharge if mentioned in the Finance Act. The word "if any" is related to the specification/mandate of surcharge mention any" is related to the specification/mandate of surcharge mention any" is related to the specification/mandate of surcharge mention in the schedule of Finance Act. If surcharge of highest slab in the schedule of Finance Act. If surcharge of highest slab in the schedule of Finance Act. If surcharge of highest slab is mentioned in the Finance Act then this surcharge will be included mentioned in the Finance Act then this surcharge will be included mentioned in the Finance Act then this surcharge will be included in the tax and MMR will be calculated accordingly. If no in the tax and MMR will be calculated accordingly. If no in the tax and MMR will be calculated accordingly. If no surcharge for highest slab is mentioned in the schedule of surcharge for highest slab is mentioned in the schedule of surcharge for highest slab is mentioned in the schedule of Finance Act then no surcharge will be included in the tax Finance Act then no surcharge will be included in the tax Finance Act then no surcharge will be included in the tax quantum for c quantum for calculating the MMR. This word does not remotely alculating the MMR. This word does not remotely suggest to include surcharge in MMR as per different slab rates suggest to include surcharge in MMR as per different slab rates suggest to include surcharge in MMR as per different slab rates of of of income/different income/different income/different income income income like like like dividend dividend dividend income. income. income. Rates Rates Rates mentioned in para mentioned in para -A, part-I, 1st schedule for dividend income I, 1st schedule for dividend income are not applicable to the are not applicable to the appellant. Provisions of section 164 of IT appellant. Provisions of section 164 of IT Act charging the tax at MMR are applicable to the appellant. Act charging the tax at MMR are applicable to the appellant. Act charging the tax at MMR are applicable to the appellant. Nature of income is not relevant as appellant is liable for taxation Nature of income is not relevant as appellant is liable for taxation Nature of income is not relevant as appellant is liable for taxation at MMR calculated as per provisions of section 2(29C) of IT Act. at MMR calculated as per provisions of section 2(29C) of IT Act. at MMR calculated as per provisions of section 2(29C) of IT Act. The provision clai The provision claimed is applicable for Fils only and not in the med is applicable for Fils only and not in the case of this Appellant. case of this Appellant. Therefore, it is crystal clear that MMR is required to be computed Therefore, it is crystal clear that MMR is required to be computed Therefore, it is crystal clear that MMR is required to be computed as under on the basis of provisions of section 2(29C) of IT Act: as under on the basis of provisions of section 2(29C) of IT Act: as under on the basis of provisions of section 2(29C) of IT Act: Tax rates for highest slab Tax rates for highest slab - 30% - 30 Surcharge for h Surcharge for highest slab -37% - 11.11 Education Cess Education Cess -4% -1.63 Therefore MMR for this A.Y.2023 Therefore MMR for this A.Y.2023-24 will be 42.74%. The MMR is also calculated by this method only in the The MMR is also calculated by this method only in the The MMR is also calculated by this method only in the commentary of Sampath commentary of Sampath lyengar. The year wise details lyengar. The year wise details mentioned are as under: (Here Surcharge is not mentioned are as under: (Here Surcharge is not on Tax but on on Tax but on Income - hence 20% of tax => hence 20% of tax => 12% of Income) Assessment year Assessment year Maximum rate of tax Surcharge Surcharge 1980-81 60% 12% 12% 1981-82 60% 6% 1982-83 60% 6% 1983-84 60% 6% 1984-85 60% 7% 1985-86 55% 6.88% 6.88% 1986-87 50% nil 1987-88 50% nil 1988-89 50% 5% Assessment year Assessment year Maximum rate of tax Surcharge Surcharge 1989-90 50% 5% 1990-91 50% 8% 1991-92 50% 12% 1992-93 50% 12% 1993-94 40% 12% 1994-95 40% 12.00% 12.00% 1995-96 40% nil 1996-97 40% nil 1997-98 40% nil 1998-99 30% -- 1999-2000 30% -- 2000-2001 30% 10% 2001-2002 30% 17% 2002-2003 30% 2% 2003-2004 30% 5% 2004-2005 30% 10% 2005-2006 30% 10% 2006-2007 30% 10% 2007-2008 30% 10% 2008-2009 30% 10% 2009-2010 30% 10% 2010-2011 30% -- 2011-2012 30% -- Extracts of commentary on Income Extracts of commentary on Income-tax by Sampath Iyengar: Iyengar: 30.3 It was felt that the provisions of section 164, even after 30.3 It was felt that the provisions of section 164, even after 30.3 It was felt that the provisions of section 164, even after amendment in 1970, had not been fully effective in curbing the amendment in 1970, had not been fully effective in curbing the amendment in 1970, had not been fully effective in curbing the use of private trusts for avoiding proper tax liability. The Finance use of private trusts for avoiding proper tax liability. The Finance use of private trusts for avoiding proper tax liability. The Finance (No. 2) Act, 1980, has, therefore, made the followi (No. 2) Act, 1980, has, therefore, made the following amendments ng amendments to section 164 with a view to curbing tax avoidance through the to section 164 with a view to curbing tax avoidance through the to section 164 with a view to curbing tax avoidance through the medium of such trusts: medium of such trusts: (i) A discretionary trust will be liable to tax at the maximum A discretionary trust will be liable to tax at the maximum A discretionary trust will be liable to tax at the maximum marginal rate of income marginal rate of income-tax on their entire income. As a result, tax on their entire income. As a result, the entire income of a dis the entire income of a discretionary trust will be liable to tax at cretionary trust will be liable to tax at the maximum marginal rate of income the maximum marginal rate of income-tax including surcharge) tax including surcharge) applicable to the Finance Act of the relevant year to the highest applicable to the Finance Act of the relevant year to the highest applicable to the Finance Act of the relevant year to the highest slab of income in the case of an association of persons. Thus, for slab of income in the case of an association of persons. Thus, for slab of income in the case of an association of persons. Thus, for the the assessment assessment year year 1980-81, 81, the entire income of a the entire income of a discretionary trust will be charged to tax at the rate of 72 per discretionary trust will be charged to tax at the rate of 72 per discretionary trust will be charged to tax at the rate of 72 per cent (income-tax 60 per cent plus surcharge 12 per cent) and for tax 60 per cent plus surcharge 12 per cent) and for tax 60 per cent plus surcharge 12 per cent) and for the assessment year 1981 the assessment year 1981-82, at the rate of 66 per cent (income 82, at the rate of 66 per cent (income- tax 60 per cent plus surcharge tax 60 per cent plus surcharge 6 per cent). For example surcharge for highest slab is 20% for A.Y. 1980 For example surcharge for highest slab is 20% for A.Y. 1980 For example surcharge for highest slab is 20% for A.Y. 1980-81 and highest slab tax rate of and highest slab tax rate of IT was 60%, then the MMR will be IT was 60%, then the MMR will be calculated as under: calculated as under: Tax rates for highest slab 60% Tax rates for highest slab 60% - 60 Surcharge for highest slab Surcharge for highest slab - 20% - 12 Therefore MMR for this Therefore MMR for this A.Y. 1980-81 will be 72%. Similarly the MMR for 1981 Similarly the MMR for 1981-82 will be as under: Tax rates for highest slab Tax rates for highest slab - 60% - 60 Surcharge for highest slab Surcharge for highest slab - 10% - 6 PARTMEN Y Therefore MMR for this A.Y. 1981 Therefore MMR for this A.Y. 1981-82 will be 66%. In the book of Vinod Singhania also calculation In the book of Vinod Singhania also calculation the MMR is given the MMR is given which also supports the AO which also supports the AO CPC's reason that surcharge @ 37% CPC's reason that surcharge @ 37% will have to be be charged.
Here, there is no mention of any head or sources of Income. Here, there is no mention of any head or sources of Income. Here, there is no mention of any head or sources of Income. Moreover, the MMR Moreover, the MMR will not be applicable in parts like in one part will not be applicable in parts like in one part of highest slab rate fo of highest slab rate for basic tax i.e. 30% is levied & in one part r basic tax i.e. 30% is levied & in one part surcharge is levied at a particular rate of 15% of LTCG. This is surcharge is levied at a particular rate of 15% of LTCG. This is surcharge is levied at a particular rate of 15% of LTCG. This is not correct. The MMR always constitutes highest slab tax rates & not correct. The MMR always constitutes highest slab tax rates & not correct. The MMR always constitutes highest slab tax rates & highest slab surcharge if any prescribed in Finance Act. There is highest slab surcharge if any prescribed in Finance Act. There is highest slab surcharge if any prescribed in Finance Act. There is no doubt in it. no doubt in it. Part applicability of MMR is not permissible i.e. the Part applicability of MMR is not permissible i.e. the tax 30% & surcharge @15% as per schedules of relevant Finance tax 30% & surcharge @15% as per schedules of relevant Finance tax 30% & surcharge @15% as per schedules of relevant Finance Act on it is not permissible. Once the appellant is subject to MMR, Act on it is not permissible. Once the appellant is subject to MMR, Act on it is not permissible. Once the appellant is subject to MMR, surcharge applicable will be surcharge for highest slab only. surcharge applicable will be surcharge for highest slab only. surcharge applicable will be surcharge for highest slab only. Surcharge @37% is integral part of MMR and therefore MMR will @37% is integral part of MMR and therefore MMR will @37% is integral part of MMR and therefore MMR will be 42.74% for A.Y. 2021 be 42.74% for A.Y. 2021-22. Hence, there is no ground to allow 22. Hence, there is no ground to allow this ground of Appeal
. this ground of Appeal. The Appellant has informed that by an Order u/s 154, the CPC The Appellant has informed that by an Order u/s 154, the CPC The Appellant has informed that by an Order u/s 154, the CPC has reduced the S C on STCG & LTCG from 37% to 15% and t has reduced the S C on STCG & LTCG from 37% to 15% and t has reduced the S C on STCG & LTCG from 37% to 15% and the Surcharge charged u/s 143(1)(a) of Rs 1,62,265/ Surcharge charged u/s 143(1)(a) of Rs 1,62,265/ Surcharge charged u/s 143(1)(a) of Rs 1,62,265/-has been reduced to Rs 1,06,593/ reduced to Rs 1,06,593/-. The Disputed Demand has been . The Disputed Demand has been reduced from Rs 3,72,430/ reduced from Rs 3,72,430/- u/s 143(1)(a) to Rs 73,908/ u/s 143(1)(a) to Rs 73,908/- u/s 154 dated 09/06/2023, without any Reason. 154 dated 09/06/2023, without any Reason. Hence, the Ground No.2 is DISMISSED. Ho Hence, the Ground No.2 is DISMISSED. However, this order will wever, this order will have no effect on the Rectification Order passed by the CPC on have no effect on the Rectification Order passed by the CPC on have no effect on the Rectification Order passed by the CPC on 09/06/2023 after filing of this Appeal 09/06/2023 after filing of this Appeal on 13/12/2022. 13/12/2022.”
4. We have carefully perused the orders passed by the lower We have carefully perused the orders passed by the lower We have carefully perused the orders passed by the lower authorities, material on record and the arguments made by authorities, material on record and the arguments made authorities, material on record and the arguments made appellant and revenue. The total income of Rs. 54,99,340/- offered appellant and revenue. The total income of Rs. 54,99,340/ appellant and revenue. The total income of Rs. 54,99,340/ by the assessee comprises of STCG, LTCG and other income and by the assessee comprises of STCG, LTCG and other income and by the assessee comprises of STCG, LTCG and other income and there is no dispute on the applicability of Maximum Marginal Rate there is no dispute on the applicability of Maximum Marginal Rate there is no dispute on the applicability of Maximum Marginal Rate on the tax payable. The only issue is whether surcharge on such tax on the tax payable. The only issue is whether surcharge on on the tax payable. The only issue is whether surcharge on payable should be @37% and therefore the MMR should be 42.74% payable should be @37% and therefore the MMR should be 42.74% payable should be @37% and therefore the MMR should be 42.74% or not. The appellant argues that since the total income of the or not. The appellant argues that since the total income of the or not. The appellant argues that since the total income of the appellant is Rs. 54,99,430/ appellant is Rs. 54,99,430/- viz. more than Rs. 50 lakhs but less viz. more than Rs. 50 lakhs but less than Rs. 1 crore, the applicable surcharge ought to be 10% as per than Rs. 1 crore, the applicable surcharge ought to be than Rs. 1 crore, the applicable surcharge ought to be clause (a) in Paragraph A of Part I to the First Schedule of the clause (a) in Paragraph A of Part I to the First Schedule of the clause (a) in Paragraph A of Part I to the First Schedule of the relevant Finance Act. relevant Finance Act. This issue has been recently addressed by the This issue has been recently addressed by the Hon’ble Special Bench of this Tribunal in the case of Araadhya Jain Hon’ble Special Bench of this Tribunal in the case of Hon’ble Special Bench of this Tribunal in the case of Trust v. ITO (ITA no. 4272/Mum/2024) Trust v. ITO (ITA no. 4272/Mum/2024) wherein it is held that in wherein it is held that in the ultimate analysis, in case of Private Discretionary Trusts, whose the ultimate analysis, in case of Private Discretionary Trusts, whose the ultimate analysis, in case of Private Discretionary Trusts, whose income is chargeable to tax at MMR, surcharge has to be computed income is chargeable to tax at MMR, surcharge has to be computed income is chargeable to tax at MMR, surcharge has to be computed on the income tax having reference to the slab rates prescribed in on the income tax having reference to the slab rates prescribed in on the income tax having reference to the slab rates prescribed in the Finance Act under the h the Finance Act under the heading ‘surcharge on income tax’ eading ‘surcharge on income tax’ appearing in Paragraph A, Part 1, First Schedule, applicable to the appearing in Paragraph A, Part 1, First Schedule, applicable to the appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. The relevant portion of this decision is relevant assessment year. The relevant portion of this decision is relevant assessment year. The relevant portion of this decision is reproduced as under: reproduced as under:-
“26. On going through Paragraph A, Part (I) of First Schedule to the On going through Paragraph A, Part (I) of First Schedule to the On going through Paragraph A, Part (I) of First Schedule to the Finance Act-2023, it becomes very much clear that under Item (1), 2023, it becomes very much clear that under Item (1), 2023, it becomes very much clear that under Item (1), the rates of income tax applicable to individuals, Hindu undivided the rates of income tax applicable to individuals, Hindu undivided the rates of income tax applicable to individuals, Hindu undivided family or association of persons or body of individuals hav family or association of persons or body of individuals hav family or association of persons or body of individuals have been provided. As could be seen from the rates of income provided. As could be seen from the rates of income-tax for different tax for different income brackets, if the total income does not exceed Rs.2,50,000/ income brackets, if the total income does not exceed Rs.2,50,000/ income brackets, if the total income does not exceed Rs.2,50,000/-, the rate of income tax is Nil. If the total income exceeds the rate of income tax is Nil. If the total income exceeds the rate of income tax is Nil. If the total income exceeds Rs.2,50,000/-, but does not exceed Rs.5,00,000/ , but does not exceed Rs.5,00,000/-, the rate of income e rate of income tax is 5% of the amount by which the total income exceeds tax is 5% of the amount by which the total income exceeds tax is 5% of the amount by which the total income exceeds Rs.2,50,000/-. Where the total income exceeds Rs.5,00,000/ . Where the total income exceeds Rs.5,00,000/- but . Where the total income exceeds Rs.5,00,000/ des not exceed Rs.10,00,000/ des not exceed Rs.10,00,000/-, the rate of income tax is Rs.12,500 , the rate of income tax is Rs.12,500 plus 20% of the amount by which the total income e plus 20% of the amount by which the total income e plus 20% of the amount by which the total income exceeds Rs.5,00,000/- and and lastly, lastly, where where the the total total income income exceeds exceeds Rs.10,00,000/- -, then the rate of tax is Rs.1,12,500/-plus 30% of the plus 30% of the amount by which the total income exceeds Rs.10,00,000/ amount by which the total income exceeds Rs.10,00,000/-. Thus, as . Thus, as per the rates of income tax prescribed in Item (1), the h per the rates of income tax prescribed in Item (1), the highest slab of ighest slab of income is Rs.10 lacs and above and the applicable rate of income tax income is Rs.10 lacs and above and the applicable rate of income tax income is Rs.10 lacs and above and the applicable rate of income tax is 30%. Thus, in terms with section 2(29C) of the Act, the maximum is 30%. Thus, in terms with section 2(29C) of the Act, the maximum is 30%. Thus, in terms with section 2(29C) of the Act, the maximum marginal rate of tax will be 30% as applicable to the highest slab of marginal rate of tax will be 30% as applicable to the highest slab of marginal rate of tax will be 30% as applicable to the highest slab of income.
The expression 'slab' 27. The expression 'slab' is not mentioned either in sub-section (1) of section (1) of section 2 or even under Paragraph A, Part (I) of First Schedule to the section 2 or even under Paragraph A, Part (I) of First Schedule to the section 2 or even under Paragraph A, Part (I) of First Schedule to the Finance Act-2023. However, as per the materials placed before us, it 2023. However, as per the materials placed before us, it 2023. However, as per the materials placed before us, it is observed that in Press Note dated 01.12.1965 issued by is observed that in Press Note dated 01.12.1965 issued by is observed that in Press Note dated 01.12.1965 issued by Government of India, copy of which is placed at pg. no. 45 of the f India, copy of which is placed at pg. no. 45 of the f India, copy of which is placed at pg. no. 45 of the Paper Book, submitted in case of NIK Family Trust, the expression Paper Book, submitted in case of NIK Family Trust, the expression Paper Book, submitted in case of NIK Family Trust, the expression 'slab' refers to 'income' and not the tax. In fact, even section 2(29C) of 'slab' refers to 'income' and not the tax. In fact, even section 2(29C) of 'slab' refers to 'income' and not the tax. In fact, even section 2(29C) of the Act refers to highest slab of income. Even Circular No. 2 the Act refers to highest slab of income. Even Circular No. 2 the Act refers to highest slab of income. Even Circular No. 2/2018 (F.No. 370142/15/2017 (F.No. 370142/15/2017-TPL] containing Explanatory Notes to TPL] containing Explanatory Notes to Provisions of Finance Act, 2017, a copy of which is placed at pg. no. Provisions of Finance Act, 2017, a copy of which is placed at pg. no. Provisions of Finance Act, 2017, a copy of which is placed at pg. no. 47 of the Paper Book filed by the NIK Family Trust, refers the 47 of the Paper Book filed by the NIK Family Trust, refers the 47 of the Paper Book filed by the NIK Family Trust, refers the expression 'slab' to the various categories of income. Thu expression 'slab' to the various categories of income. Thus, in terms s, in terms with sections 164/167B r.w.s. 2(29C) of the Act, tax as per with sections 164/167B r.w.s. 2(29C) of the Act, tax as per with sections 164/167B r.w.s. 2(29C) of the Act, tax as per maximum marginal rate would mean 'the rate of tax applicable to the maximum marginal rate would mean 'the rate of tax applicable to the maximum marginal rate would mean 'the rate of tax applicable to the highest slab of income' under Item (1) of Paragraph A, Part (I) of First highest slab of income' under Item (1) of Paragraph A, Part (I) of First highest slab of income' under Item (1) of Paragraph A, Part (I) of First Schedule to the Finance Act Schedule to the Finance Act-2023.
Under the head 'Surcharge on income r the head 'Surcharge on income-tax' appearing in tax' appearing in Paragraph A, Part (1), First Schedule it has been provided that the Paragraph A, Part (1), First Schedule it has been provided that the Paragraph A, Part (1), First Schedule it has been provided that the amount of income amount of income-tax computed as per the rate of income-tax under tax under Item (1), (2) and (3) or under the provisions of section 111A or section Item (1), (2) and (3) or under the provisions of section 111A or section Item (1), (2) and (3) or under the provisions of section 111A or section 112 or section 112A or the provision of section 115BAC of the Income 112 or section 112A or the provision of section 115BAC of the Income 112 or section 112A or the provision of section 115BAC of the Income Tax Act, shall be increased by a surcharge, for the purposes of the Tax Act, shall be increased by a surcharge, for the purposes of the Tax Act, shall be increased by a surcharge, for the purposes of the Union, calculated in the case of particular class of assessees in the Union, calculated in the case of particular class of assessees in the Union, calculated in the case of particular class of assessees in the manner provided therein. As could be seen from i manner provided therein. As could be seen from items (a) to (e), tems (a) to (e), provided under the head 'Surcharge on income provided under the head 'Surcharge on income-tax', there are tax', there are different rates of surcharge on income tax, depending upon the different rates of surcharge on income tax, depending upon the different rates of surcharge on income tax, depending upon the categories of income. The rate of surcharge starts from minimum of categories of income. The rate of surcharge starts from minimum of categories of income. The rate of surcharge starts from minimum of 10% to the maximum of 37% on income 10% to the maximum of 37% on income-tax. The maximum rate of imum rate of surcharge at 37% on income surcharge at 37% on income-tax is applicable in case of assessees tax is applicable in case of assessees having total income, exceeding Rs.5 crores. It further emanates that having total income, exceeding Rs.5 crores. It further emanates that having total income, exceeding Rs.5 crores. It further emanates that the minimum rate of surcharge @ 10% on the incometax is applicable the minimum rate of surcharge @ 10% on the incometax is applicable the minimum rate of surcharge @ 10% on the incometax is applicable only when the income of the assessee is a only when the income of the assessee is above Rs.50 lacs, but less bove Rs.50 lacs, but less than Rs.1 crore. Thus, as per Paragraph A, Part (I) of First Schedule than Rs.1 crore. Thus, as per Paragraph A, Part (I) of First Schedule than Rs.1 crore. Thus, as per Paragraph A, Part (I) of First Schedule to the Finance Act to the Finance Act-2023, the threshold limit for applicability of 2023, the threshold limit for applicability of surcharge is when total income is Rs.50 lacs and above. In other surcharge is when total income is Rs.50 lacs and above. In other surcharge is when total income is Rs.50 lacs and above. In other words, if the total income is words, if the total income is below the threshold limit of Rs.50 lacs, below the threshold limit of Rs.50 lacs, there would be no surcharge. Even the first proviso under the there would be no surcharge. Even the first proviso under the there would be no surcharge. Even the first proviso under the heading 'Surcharge on incometax' carves out an exception regarding heading 'Surcharge on incometax' carves out an exception regarding heading 'Surcharge on incometax' carves out an exception regarding the rate of surcharge by stating that in case where assessee's total the rate of surcharge by stating that in case where assessee's total the rate of surcharge by stating that in case where assessee's total income includes income includes dividend income or income under the provisions of dividend income or income under the provisions of section 111A, 112A and section 112A of the Act, the rate of section 111A, 112A and section 112A of the Act, the rate of section 111A, 112A and section 112A of the Act, the rate of surcharge on the amount of incometax computed on that part of surcharge on the amount of incometax computed on that part of surcharge on the amount of incometax computed on that part of income shall not exceed 15%. In other words, if the total income of an income shall not exceed 15%. In other words, if the total income of an income shall not exceed 15%. In other words, if the total income of an assessee includes any income by way of dividend or income under udes any income by way of dividend or income under udes any income by way of dividend or income under certain provisions of the Act, the rate of surcharge on tax computed certain provisions of the Act, the rate of surcharge on tax computed certain provisions of the Act, the rate of surcharge on tax computed on such part of income under no circumstances would exceed 15%. on such part of income under no circumstances would exceed 15%. on such part of income under no circumstances would exceed 15%.
If we accept the contention of the Revenue that, irrespective of 29. If we accept the contention of the Revenue that, irrespective of 29. If we accept the contention of the Revenue that, irrespective of the nature or quantum of income, as per the definition of maximum e nature or quantum of income, as per the definition of maximum e 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 marginal rate u/s.2(29C) of the Act, surcharge has to be computed at 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 the highest rate of 37% applicable to the highest income bracket of the highest rate of 37% applicable to the highest income bracket of Rs.5 crores and above, then the exception provided unde Rs.5 crores and above, then the exception provided under the first r the first proviso under the heading 'Surcharge on income proviso under the heading 'Surcharge on income-tax' would become tax' would become otiose. Even, the different rates of surcharge on income otiose. Even, the different rates of surcharge on income-tax provided tax provided under clause (a) to (e) applicable to the different slabs of income under clause (a) to (e) applicable to the different slabs of income under clause (a) to (e) applicable to the different slabs of income would become meaningless so far as discre would become meaningless so far as discretionary trusts are tionary trusts are concerned. In our view, such an interpretation would lead to concerned. In our view, such an interpretation would lead to concerned. In our view, such an interpretation would lead to absurdity, hence, is unworkable. In our view, once the definition of absurdity, hence, is unworkable. In our view, once the definition of absurdity, hence, is unworkable. In our view, once the definition of 'maximum marginal rate' refers to the rate of income 'maximum marginal rate' refers to the rate of income 'maximum marginal rate' refers to the rate of income-tax and surcharge provided under the Finance Act of th surcharge provided under the Finance Act of the relevant year, then e relevant year, then the rates of incometax and applicable rate of surcharge as provided the rates of incometax and applicable rate of surcharge as provided the rates of incometax and applicable rate of surcharge as provided under Paragraph A, Part (I) of First Schedule to the Finance Act under Paragraph A, Part (I) of First Schedule to the Finance Act under Paragraph A, Part (I) of First Schedule to the Finance Act-2023, would apply. Any other interpretation, in our view, would lead to would apply. Any other interpretation, in our view, would lead to would apply. Any other interpretation, in our view, would lead to undesirable consequences and undesirable consequences and would be discriminatory. In our view, would be discriminatory. In our view, the expression 'including Surcharge on income the expression 'including Surcharge on income-tax, if any', within the tax, if any', within the bracketed portion of section 2(29C) of the Act, would mean the bracketed portion of section 2(29C) of the Act, would mean the bracketed portion of section 2(29C) of the Act, would mean the surcharge as provided in the computation mechanism under the surcharge as provided in the computation mechanism under the surcharge as provided in the computation mechanism under the heading 'surcharge on i heading 'surcharge on income tax' finding place in Paragraph A, Part ncome tax' finding place in Paragraph A, Part (I) of First Schedule to the Finance Act (I) of First Schedule to the Finance Act-2023.
The Revenue has taken a line of argument that the words 'if any' 30. The Revenue has taken a line of argument that the words 'if any' 30. The Revenue has taken a line of argument that the words 'if any' succeeding the words 'including surcharge on income tax' appearing succeeding the words 'including surcharge on income tax' appearing succeeding the words 'including surcharge on income tax' appearing in the definition of maxim in the definition of maximum marginal rate u/s. 2(29C) of the Act are um marginal rate u/s. 2(29C) of the Act are only for the purpose that when levy of surcharge is specifically only for the purpose that when levy of surcharge is specifically only for the purpose that when levy of surcharge is specifically provided under the Finance Act of the relevant year, it would be provided under the Finance Act of the relevant year, it would be provided under the Finance Act of the relevant year, it would be included in income included in income-tax computed at the highest rate, otherwise, not. tax computed at the highest rate, otherwise, not. Though, at first blush this argument of the department sounds rst blush this argument of the department sounds rst blush this argument of the department sounds attractive, however, on deeper analysis it is found to be superfluous, attractive, however, on deeper analysis it is found to be superfluous, attractive, however, on deeper analysis it is found to be superfluous, for the following reasons. As discussed earlier, Article 271 of the for the following reasons. As discussed earlier, Article 271 of the for the following reasons. As discussed earlier, Article 271 of the Constitution of India, empowers the Union to impose surcharge for Constitution of India, empowers the Union to impose surcharge for Constitution of India, empowers the Union to impose surcharge for the purposes of Union. Whereas, Article 265 of the Constitution of e purposes of Union. Whereas, Article 265 of the Constitution of e purposes of Union. Whereas, Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. India mandates that no tax can be collected without authority of law. 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 Therefore, levy of surcharge has to be preceded by a law enacted by Therefore, levy of surcharge has to be preceded by a law enacted by the parliament authorizing such levy. Thus, in absenc the parliament authorizing such levy. Thus, in absence of any law e of any law authorising levy of surcharge, it cannot be collected. This legal authorising levy of surcharge, it cannot be collected. This legal authorising levy of surcharge, it cannot be collected. This legal position is as clear as daylight, hence, does not require further position is as clear as daylight, hence, does not require further position is as clear as daylight, hence, does not require further clarification with the use of words 'if any' to mean whether the clarification with the use of words 'if any' to mean whether the clarification with the use of words 'if any' to mean whether the Finance Act of a particular year, if at all, p Finance Act of a particular year, if at all, provides for levy of rovides for levy of surcharge or not. Though, in our view, there is no conflict between surcharge or not. Though, in our view, there is no conflict between 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 provisions contained u/s. 164/167B, 2(29C) of the Income Tax Act 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 and section 2 of the Finance Act, however, even assuming that there and section 2 of the Finance Act, however, even assuming that there are some conflicts, a harmonious co are some conflicts, a harmonious construction has to be made to nstruction has to be made to avoid absurdity and make the provisions workable. Thus, in our avoid absurdity and make the provisions workable. Thus, in our 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 view, the expression 'if any' used in section 2(29C) has to be read not 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 de hors but in conjunction with the computation mechanism provided de hors but in conjunction with the computation mechanism provided under the heading 'surcha under the heading 'surcharge on income tax' provided in section 2 of rge on income tax' provided in section 2 of Finance Act. This view of ours is further fortified by the object for Finance Act. This view of ours is further fortified by the object for Finance Act. This view of ours is further fortified by the object for which levy of surcharge was introduced to the Finance Act which levy of surcharge was introduced to the Finance Act which levy of surcharge was introduced to the Finance Act - to augment the Revenue of the Union for developmental work by asking augment the Revenue of the Union for developmental work by asking augment the Revenue of the Union for developmental work by asking persons in the highest income bracket to contribute little more than e highest income bracket to contribute little more than e highest income bracket to contribute little more than the other citizens, for nation building. the other citizens, for nation building.
As we find, the Revenue has placed strong reliance upon the 31. As we find, the Revenue has placed strong reliance upon the 31. As we find, the Revenue has placed strong reliance upon the decision of the coordinate bench in case of Araadhya Jain Trust decision of the coordinate bench in case of Araadhya Jain Trust decision of the coordinate bench in case of Araadhya Jain Trust (supra) and couple of other de (supra) and couple of other decisions, which are on similar line. cisions, which are on similar line. Pertinently, the decision rendered in case of Anant Bajaj Trust Pertinently, the decision rendered in case of Anant Bajaj Trust Pertinently, the decision rendered in case of Anant Bajaj Trust (supra) was subsequently recalled. Whereas, the bench has followed (supra) was subsequently recalled. Whereas, the bench has followed (supra) was subsequently recalled. Whereas, the bench has followed the decision of Anant Bajaj Trust (supra) while deciding the appeal of the decision of Anant Bajaj Trust (supra) while deciding the appeal of the decision of Anant Bajaj Trust (supra) while deciding the appeal of Kapur Family Trust Kapur Family Trust (supra). Therefore, the decision rendered in case (supra). Therefore, the decision rendered in case of Kapur Family Trust (supra) has lost its relevance. Insofar as the of Kapur Family Trust (supra) has lost its relevance. Insofar as the of Kapur Family Trust (supra) has lost its relevance. Insofar as the decision of the co decision of the co-ordinate bench in the case of Araadhya Jain Trust ordinate bench in the case of Araadhya Jain Trust (supra) is concerned, in our view, the bench has drawing its (supra) is concerned, in our view, the bench has drawing its (supra) is concerned, in our view, the bench has drawing its conclusion, primarily relying upon certain decisions of Hon'ble Kerala sion, primarily relying upon certain decisions of Hon'ble Kerala sion, primarily relying upon certain decisions of Hon'ble Kerala High Court and Hon'ble High Court of Bombay. As discussed High Court and Hon'ble High Court of Bombay. As discussed High Court and Hon'ble High Court of Bombay. As discussed elsewhere in the order. elsewhere in the order.
However, upon carefully going through these decisions, we are of 32. However, upon carefully going through these decisions, we are of 32. However, upon carefully going through these decisions, we are of the considered view that the issue aris the considered view that the issue arising in the present case never ing in the present case never fell for consideration before the Hon'ble Courts. The issue in dispute fell for consideration before the Hon'ble Courts. The issue in dispute fell for consideration before the Hon'ble Courts. The issue in dispute in those cases was primarily concerning what should be the in those cases was primarily concerning what should be the in those cases was primarily concerning what should be the maximum marginal rate and its applicability. The issue 'whether the maximum marginal rate and its applicability. The issue 'whether the maximum marginal rate and its applicability. The issue 'whether the rate of surcharge would also rate of surcharge would also be at the highest rate while computing be at the highest rate while computing tax at maximum marginal rate' was never the issue before the tax at maximum marginal rate' was never the issue before the tax at maximum marginal rate' was never the issue before the Hon'ble Courts. Thus, in our view, the view expressed by the Hon'ble Courts. Thus, in our view, the view expressed by the Hon'ble Courts. Thus, in our view, the view expressed by the coordinate benches in decisions referred to in Paragraph 10(supra) coordinate benches in decisions referred to in Paragraph 10(supra) coordinate benches in decisions referred to in Paragraph 10(supra) lay down the correct propos lay down the correct proposition of law. Thus, in the ultimate ition of law. Thus, in the ultimate analysis, we hold, in case of Private Discretionary Trusts, whose analysis, we hold, in case of Private Discretionary Trusts, whose analysis, we hold, in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge income is chargeable to tax at maximum marginal rate, surcharge income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab has to be computed on the income tax having reference to the slab has to be computed on the income tax having reference to the slab rates prescribed in the rates prescribed in the Finance Act under the heading 'surcharge on Finance Act under the heading 'surcharge on income tax' appearing in Paragraph A, Part 1, First Schedule, income tax' appearing in Paragraph A, Part 1, First Schedule, income tax' appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Hence, reference is applicable to the relevant assessment year. Hence, reference is applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back decided in favour of the assessee. The records may be returned back decided in favour of the assessee. The records may be returned back to the respective to the respective benches for deciding the appeals accordingly. benches for deciding the appeals accordingly.” 4.1 Respectfully following the decision of the Hon’ble Special Respectfully following the decision of the Hon’ble Special Respectfully following the decision of the Hon’ble Special Bench, we are inclined to hold that the surcharge in the present Bench, we are inclined to hold that the surcharge in the present Bench, we are inclined to hold that the surcharge in the present case ought to have been levied based on the slab rates and not on case ought to have been levied based on the slab rates and not on case ought to have been levied based on the slab rates and not on the MMR. The ground of appeal of the assessee are accordingly round of appeal of the assessee are accordingly round of appeal of the assessee are accordingly allowed.
In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 30/06/2025. /06/2025.