ANU AGA FAMILY DISCRETIONARY TRUST,PUNE vs. INCOME TAX OFFICER, WARD 7(1), PUNE

The issue raised in the appeal is - whether, in the case of private discretionary trusts whose income is chargeable to tax at the Maximum Marginal Rate (“MMR”), surcharge is chargeable at the highest applicable rate or as per slab rate?

At the outset, the Ld. AR submitted that the impugned issue stands squarely covered in favour of the assessee by the decision of the Mumbai ITAT Special Bench in the case of Araadhya Jain Trust Vs. ITO (ITA No. 4272/Mum/2024) dated 09.04.2025, where the present assessee was also an intervenor. A copy of the said decision was placed on record.

The Ld. DR, on the other hand, could not controvert the above submission made by the Ld. AR by placing any binding precedent in the favour of Revenue on this issue.

We have heard the Ld. Representatives of the parties and perused the material available on record and the decision of the Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra). The facts of the case are not in dispute. For AY 2021-22, the assessee trust declared the total income of Rs.3,49,22,466/- in its return of income which comprises of – (i) short term capital gains under section 111A of the Income Tax Act, 1961 (the “Act”) taxable @ 15% and maximum surcharge @ 15%; (ii) other short term capital gains taxable at MMR; (iii) dividend income taxable at MMR and maximum surcharge @ 15% and other income taxable at MMR. The total income of Rs.3,49,22,466/- includes income of Rs. 3,13,14,555/- on which maximum surcharge is 15% (viz. short term capital gains under section 111A and dividend income. Thus, the total income of the assessee excluding short term capital gains under section 111A and dividend income comes out to be Rs. 36,07,911/-. The applicable tax has been paid by the assessee accordingly after adding surcharge of 15% in terms of para(e) under the heading surcharge on income-tax in Paragraph A of Part I of the First Schedule to the Finance Act, 2021 read with the proviso contained therein providing for the levy of surcharge @15% for dividend income and short term capital gains under section 111A of the Act. As per the return filed by the assessee, the tax on total income (excluding surcharge and cess) is Rs. 97,20,477/-. The Ld. AO/ CPC while processing the return under section 143(1) of the Act levied surcharge at the maximum rate of 37% on the entire amount of tax as against 15% calculated and paid by the assessee. Subsequently, vide rectification order under section 154 of the Act dated 07.08.20223, the Ld. AO/CPC computed surcharge @ 15% on (a) short term capital gains under section 111A and (b) dividend income. On the balance amount of 10,82,375/- comprising of short term capital gain (other than under section 111A) and interest income, the Ld. AO/CPC continued to levy surcharge @ 37% as against 15% claimed by the assessee. On appeal, the Ld. Addl./JCIT(A) partly allowed the appeal of the assessee observing that on the short term capital gains under section 111A of the Act, the applicable surcharge shall be @ 15% and other income of the assessee including dividend income shall be subjected to MMR with surcharge @ 37% as per the provisions of section 167B r.w.s. 2(29C) of the Act.

We have perused the decision of the Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra) and find that the impugned issue stands decided in favour of the assessee. We also observe that the said decision of the Special Bench was not available when the impugned order was passed by the Ld. CIT(A). The Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra) has held that “in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum chargeable 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 Para A, Part 1, First Schedule, applicable to the relevant assessment year.” It has also been held by the Special Bench that for the income earned by way of dividend including income referred u/s 111A, 112 and 112A of the Act, the rate of surcharge shall not exceed 15%.

As per the relevant provisions of the Act, the levy of surcharge depends on the amount of income of the assessee. For AY 2021-22, the surcharge is leviable only if total income exceeds Rs.50 Lakhs. For income exceeding Rs.50 Lakhs but upto Rs.1 Crore, rate of surcharge is 10%; for the income exceeding Rs.1 Crore but not exceeding Rs.2 Crores, rate of surcharge is 15%; for the income exceeding Rs. 2 Crores but not exceeding Rs.5 Crores, rate of surcharge is 25%; and for the income exceeding Rs.5 Crores, rate of surcharge is 37%. For the income earned by way of dividend, short term capital gains u/s 111A, long term capital gains u/s 112 and 112A of the Act, the rate of surcharge is 15%.

Analyzing the facts of the present case in light of the decision of the Special Bench of Mumbai Tribunal in the case of Araadhya Jain Trust (supra), in our considered view, the Ld. Addl./JCIT(A) has erred in holding that that the entire income of the assessee including dividend income but excluding the income covered under section 111A of the Act, is required to be subjected to MMR with surcharge @ 37% as against 15% which has rightly been claimed by the assessee in its return of income.

Considering the totality of facts of the case and legal position set out above and in the absence of any objection raised and any contrary material brought on record by the Revenue, respectfully following the decision of the Special Bench of Mumbai Tribunal (supra), we set aside the order of the Ld. Addl./JCIT(A) and direct the Ld. AO/CPC to allow the claim of the assessee. Grounds of appeal no. 1 to 5 raised by the assessee are accordingly allowed.

In the result, the appeal of the assessee is allowed.