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Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: SHRI ANIKESH BANERJEE & MISS. PADMAVATHY S
Both the appeals of the assessee were filed against the order of the Learned Commissioner of Income-tax (Appeals) / Addl / JCIT(A)-2, Gurugram [in short, ‘Ld.CIT(A)] passed under section 250 of the Income tax Act, 1961 (in short, ‘the Act’)for Assessment years 2021-22 and 2023-24 date of order 14/11/2024 and 28/10/2024, respectively. The impugned ordersemanated from the orders of the CPC, Bengaluru (in short “CPC”), passed under section 143(1), date of 2 ITA 6426 & 6427/Mum/2024 GJ Trust orders27/05/2024 for A.Y. 2023-24 and order passed under section 154, date of order 03/01/2023 for A.Y 2021-22.
Both the appeals have common facts and issue, therefore, both the appeals were heard together and are disposed of by this common order. for A.Y. 2023-24 is taken as the lead case. The grounds raised for this year are as under:- “GROUNDS OF APPEAL NO.
1. On facts and in law, the Learned Addl/CIT (A)-2, Gurugram had erred in not directing the Learned Assessing Officer to levy surcharge on total liability based on the total income of the appellant in appellant's case should be restricted to 10%/15% instead of 37%
GROUNDS OF APPEAL NO. 2
The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble ITAT to decide this appeal according to law.”
3. The brief facts of the case are that the assessee, a Private Discretionary Trust, had filed return of income for A.Y. 2023-24 by declaring total income at Rs. 33,68,30,120/- and paid tax of Rs.65,24,394/- and claimed refund of Rs.19,37,570/-. The return was processed by the CPC and intimation under section 143(1) issued. In the intimation under section 143(1), the CPC modified the refund claimed by the assessee and determined the same short by Rs.5,10,485/- due to surcharge on total income so computed at the maximum marginal rate (MMR) @37% instead of the rate applied by the assessee @10% or @15% on the tax. The taxability of the assessee is governed by the provisions of section 164(1) of the Act as share of beneficiary is not known, therefore, tax was calculated at MMR. Section 2(29C) of the Act defines the MMR as “the rate of 3 ITA 6426 & 6427/Mum/2024 GJ Trust income-tax including surcharge on income-tax, if any applicable in relation to the higher slab of income in case of individuals”. The assessee declared total income of Rs.3,68,90,120/- which includes sum of Rs.2,88,26,273/- capital gains chargeable under section 112, 112A, short term capital gain chargeable to tax as applicable rate of Rs.2,22,395/-, dividend income of Rs.5,66,680/- and interest and other incomes of Rs.72,14,767/-. The surcharge on tax liability of normal income (excluding dividend income) was computed @15% as per Finance Act, 2023. However, the CPC had not considered the applicability of surcharge levied on the total income of the assessee, but charged the surcharge @37%. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld.CIT(A) upheld the view taken by the Ld.AO. Being aggrieved, assessee filed an appeal before us.
The core issue raised before the Bench pertains to whether the maximum marginal rate (MMR) is to be applied at the highest rate of 37%, or at the slab rate applicable to the assessee, i.e., 15%. The Hon’ble Special Bench of the ITAT, Mumbai Bench “K(SMC),” in the case of Aradhya Jain Trust vs Ward 22(1)(6) in pronounced on 09.04.2025, has adjudicated the matter in favour of the assessee. The relevant observations of the Special Bench are reproduced below: — “29. 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’ 4 ITA 6426 & 6427/Mum/2024 GJ Trust 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 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 5 ITA 6426 & 6427/Mum/2024 GJ Trust 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 decisions, which are on similar line. Pertinently, the decision rendered in case of Anant Bajaj Trust vs. DDIT (in vide order dated 26.08.2024) was subsequently recalled. Whereas, the bench has followed the decision of Anant Bajaj Trust (supra) while deciding the appeal of Kapur Family Trust vs. ITO (in & 3835/Mum/2024 vide order dated 30.10.2024). 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.
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, FirstSchedule, 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.”
The Ld. DR supported and relied upon the order passed by the revenue authorities but did not offer any specific rebuttal to the findings and observations of the Hon’ble Special Bench of the Tribunal.
6 ITA 6426 & 6427/Mum/2024 GJ Trust
We have heard the rival submissions and perused the material available on record. The assessee is a “Private Discretionary Trust,” whose income is ordinarily chargeable to tax at the maximum marginal rate. However, the computation of surcharge on the income-tax must be determined with reference to the applicable slab rates as prescribed in the Finance Act under the heading “Surcharge on Income” appearing in Paragraph 11, Part I of the First Schedule, relevant to the concerned assessment year. The view taken aligns with the decision of the Hon’ble Special Bench in Aradhya Jain Trust (supra). The facts of the present case are materially similar to those considered in Aradhya Jain Trust (supra). In light of the binding nature of judicial discipline and the authoritative value of the Special Bench decision, we find that the said ruling is squarely applicable to the assessee's case. Accordingly, the appeal filed by the assessee is allowed.
In the result, the appeal of the assessee bearing is allowed.
The above decision of ours on the appeal bearing shall be applicable mutatis mutandis to appeal in ITA No.6427.Mum/2024. 9. In the result, both the appeals filed by the assessee bearing ITA Nos.6426/Mum/2024 & 6427/Mum/2024 are allowed. Order pronounced in the open court on 21st day of May, 2025. Sd/- sd/- (PADMAVATHY S) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 21/05/2025 Pavanan
7 ITA 6426 & 6427/Mum/2024 GJ Trust