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Facts
The appellant, Aryaman Family Trust, was aggrieved by the levy of surcharge @ 37% on its interest income, contending that the applicable surcharge should be 15%. This issue was previously decided in favour of discretionary trusts by a Special Bench of the Mumbai Tribunal.
Held
The Tribunal held that for private discretionary trusts whose income is chargeable at the maximum marginal rate, the surcharge must be computed with reference to the slab rates prescribed under the 'surcharge on income tax' heading in the Finance Act, not at the highest applicable rate.
Key Issues
Whether the surcharge on income-tax for private discretionary trusts is leviable at the highest applicable rate or at the slab rates prescribed in the Finance Act for the relevant assessment year.
Sections Cited
143(1), 2(29C), 164, 167B
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Income Tax Appellate Tribunal, Mumbai “A” Bench, Mumbai.
Before: Shri Pawan Singh (JM) & Shri Omkareshwar Chidara (AM)
Per Omkareshwar Chidara (AM) :- In the above cited appeal, the appellant is aggrieved by the levy of surcharge @ 37% while processing the Return of Income by the Ld. DCIT/CPC, under section 143(1) of the I.T. Act. This surcharge @ 37% was levied on the “interest income” earned by the appellant Trust and its main grievance is that the applicable surcharge to the Trust is only 15%.
The Ld. AR of the appellant Trust has argued that this issue of levy of surcharge @ 15% in case of discretionary trust was decided in their favour by the Hon'ble Special Bench of Mumbai and hence heavy reliance was placed on this decision. A copy of the decision of Special Bench was filed by the Ld. AR of appellant. Subsequent to the decision of Hon'ble Special Bench, it was argued that Hon'ble Mumbai Tribunal followed the Special Bench decision in the case of their group concern, Sanjiv Trust (ITA No. 1375/Mum/2025 dated 22.4.2025) and held that surcharge @ 15% only is to be levied as against 37% on their income. A copy of this decision was also filed by the Ld. AR of the appellant Trust during the course of hearing.
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The Ld. DR relied on the orders of the lower authorities.
After hearing both sides and perusing the copies of orders submitted by Ld. AR of the appellant, in the cases of Aaradhya Jain Trust and others, the Special Bench decision of Mumbai has decided that in cases of private discretionary trusts, whose income is chargeable at maximum marginal rate, surcharge is chargeable at respective slab rates and not at the highest applicable rate. The Special Bench of Tribunal in the case of Anant Bajaj Trust Vs. DCIT (ITA No. 1995/Mum/2025 dated 26.8.2024) has observed as follows :- "29. ......... 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 income tax 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 ITAs No.1375 & 1376/Mum/2025 (A.Ys. 2022-23 & 2023- 24) 5 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
3 Aryaman Family Trust 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 decisions, which are on similar line. Pertinently, the decision rendered in case of Anant Bajaj Trust (supra) was subsequently recalled. Whereas, the bench has followed the decision of Anant Bajaj Trust (supra) while deciding the appeal of Kapur Family Trust (supra). 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 ITAs No.1375 & 1376/Mum/2025 (A.Ys. 2022-23 & 2023-24) 6 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."
Respectfully following the decision of Hon'ble Special Bench, the order of CPC/ CIT(A) is set aside and jurisdictional AO is directed to levy the surcharge having reference to the slab rates prescribed under Finance Act for the relevant year under the heading “surcharge on income tax”, as held by Special Bench in this regard.
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The appeal of appellant is allowed. Order pronounced in the open Court on 13/05/2025.