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Facts
The assessee, a private discretionary trust, filed appeals against orders confirming the levy of surcharge at 37%. The assessee argued that the surcharge should be levied based on the total income slab rates, not the highest applicable rate, especially after a Special Bench decision in a similar case.
Held
The Tribunal held that for private discretionary trusts, surcharge must be computed based on the income tax slab rates as prescribed in the Finance Act, not the highest applicable rate. The AO/CPC's levy of 37% surcharge was found to be erroneous.
Key Issues
Whether surcharge on income of a private discretionary trust chargeable at Maximum Marginal Rate (MMR) should be levied at the highest applicable rate or as per income slab rates.
Sections Cited
143(1), 111A, 112, 112A
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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आयकर अपील सं. / & 1885/PUN/2024 धििाारण वर्ा / Assessment Years : 2021-22 & 2022-23 ADPR & Associates, ITO, Ward-1(1), Nashik Shree Tirumala Ashirwad Appt., Pethe Nagar Road, Indira Nagar, Vs. Nashik – 422009 PAN : AADAA6714F अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Smt. Payal R. Dedhia Department by : Shri Ramnath P. Murkunde Date of hearing : 18-06-2025 Date of 26-06-2025 Pronouncement : आदेश / ORDER PER ASTHA CHANDRA, JM : Two appeals filed by the assessee are directed against the separate order(s) both dated 10.07.2024 of the Ld. Additional/Joint Commissioner of Income Tax (Appeals)-3, Ahmedabad [“Addl./JCIT(A)”] pertaining to Assessment Years (“AYs”) 2021-22 and 2022-23. As the identical issues are involved in both the appeals, these were heard together and are being disposed of by this common order.
Both the appeals of the assessee are filed with a delay of 02 days. The assessee has filed an application for condonation of delay stating therein the reasons for delay in filing of the appeal. On perusal of the same, we are satisfied that the delay in filing of both the appeals is not intentional or deliberate but has occurred for the reasons mentioned in the application. After hearing both the sides, we are of the view that the delay is attributable to the sufficient cause. We, therefore, condone the said delay and proceed to decide both the appeals. AYs 2021-22 & 2022-23
The common issue raised in both these appeals 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?
ITA No. 1884/PUN/2024, A.Y. 2021-22
The assessee has raised the following solitary ground of appeal : “
1. The learned Addl./JCIT(A) erred in upholding the levy of surcharge at 37% by considering the Maximum Marginal Rate (MMR) to include tax rate of 30%, applicable to the highest income slab, plus a surcharge of 37%, which is applicable only for Individuals/HUF/AOP/BOI whose total income exceed Rs.5 crores, without regard to the total income of the Appellant. Therefore, it is respectfully prayed that the MMR be held at 30%, plus the surcharge based on the total income of the appellant & the applicable Education Cess (decisions of the Hyderabad ITAT in the cases of Sriram Trust, Hyderabad (ITA Nos.439 to 441/Hyd/2024 decided on 19.06.2024 & Tayal Sales Corporation (1 SOT 579) relied).
2. Appellant craves leave to add / amend / alter any grounds of appeal and / or prayers before or at the time of hearing.”
5. At the outset, the Ld. AR submitted that the Ld. Centralized Processing Centre, Bengaluru/Assessing Officer (“AO/CPC”) erred in levying surcharge of 37% as against the rate of surcharge applicable at the rate of 15% on the tax calculated on the income of assessee trust at MMR. He submitted that this issue stands squarely covered in favour of the assessee by the decision of the Special Bench of the Mumbai Tribunal 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) as well the decision(s) of the Hyderabad Tribunal relied upon by the assessee. The facts of the case are not in dispute. For AY 2021-22, the assessee trust AYs 2021-22 & 2022-23 declared the total income of Rs.1,32,84,230/- in its return of income which has been accepted by the Ld. AO/CPC. The applicable tax has been paid by the assessee after adding surcharge of 15%. However, the Ld. AO/ CPC while processing the return under section 143(1) of the Income Tax Act, 1961 (the “Act”) has levied surcharge at the maximum rate of 37% on the entire amount of tax. On appeal, Ld. Addl./JCIT(A) upheld the intimation order of the Ld. AO/CPC for the reasons recorded in para 7.1 of his appellate order. Aggrieved, the assessee is in appeal before us against such order of the Ld. Addl./JCIT(A). We find that the impugned issue is no more re-integra. 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 pronounced on 09.04.2025 was not available when the impugned order was passed by the Ld. Addl./JCIT(A)on 10.07.2024. 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.”
As per the relevant provisions of the Act, the levy of surcharge depends on the amount of income of the assessee. For the relevant 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 (supra) of the Special Bench of Mumbai Tribunal and the relevant provisions of the Act, we find that the total income offered the assessee and accepted by the Ld. AO/CPC for the relevant AY 2020-21 is Rs.1,32,84,230/-. Since, the AYs 2021-22 & 2022-23 total income of the assessee fell within the bracket of income exceeding Rs.1 crore but not Rs. exceeding Rs. 2 crores, in terms of Part III of the First Schedule to the Finance Act, 2020, in the return of income surcharge is computed and paid @ 15 per cent by the assessee. Thus, in light of the ratio laid down by the Mumbai ITAT Special Bench in the case of Araadhya Jain Trust (supra), in our considered view, the Ld. AO/CPC erred in levying surcharge @ 37% on the assessee which was confirmed by the Ld. Addl./JCIT(A).
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 by restricting the levy of surcharge @ 15% of the tax computed on the assessed total income. The solitary ground of appeal
raised by the assessee is accordingly allowed.
11. In the result, the appeal of the assessee is allowed.
The assessee has raised the following solitary ground of appeal: “
1. The learned Addl./JCIT(A) erred in upholding the levy of surcharge at 37% by considering the Maximum Marginal Rate (MMR) to include tax rate of 30%, applicable to the highest income slab, plus a surcharge of 37%, which is applicable only for Individuals/HUF/AOP/BOI whose total income exceed ₹25 crores, without regard to the total income of the Appellant. Therefore, it is respectfully prayed that the MMR be held at 30%, plus the surcharge based on the total income of the appellant & the applicable Education Cess (decisions of the Hyderabad ITAT in the cases of Sriram Trust, Hyderabad (ITA Nos 439 to 441/Hyd/2024 decided on 19.06.2024 & Tayal Sales Corporation (1 SOT 579) relied).
2. Appellant craves leave to add / amend / alter any grounds of appeal and / or prayers before or at the time of hearing.”
Both the sides are unanimous in stating that the facts and the ground of appeal
in A.Y. 2022-23 is identical to the ground raised in for AY 2021-22 except for the variance in amount. Since the total income declared by the assessee in its return is Rs.10,62,700/- which is not exceeding the threshold limit of Rs, 50,00,000/-, the surcharge was not computed and paid in terms of AYs 2021-22 & 2022
23. Part III of the First Schedule to the Finance Act, 2021. Thus, applying the decision of the Special Bench of the Mumbai Tribunal in Araadhya Jain Trust’s case (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. The solitary ground of appeal raised by the assessee is accordingly allowed.
To sum up, both the appeals of the assessee for AY 2021-22 (ITA No. 1884/PUN/2024) and AY 2022-23 ( ) are allowed.