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Facts
The assessee, a private discretionary trust, challenged the levy of 37% surcharge by the AO/CPC on its total income, which was processed under section 143(1). The assessee had paid 15% surcharge, considering specific provisions for certain income types.
Held
The Tribunal held that the surcharge should be computed based on the slab rates prescribed in the Finance Act for overall income, and for specific income types like dividend and capital gains, the surcharge rate shall not exceed 15%. The CIT(A) erred in confirming the 37% surcharge on the entire income.
Key Issues
Whether surcharge for a private discretionary trust is leviable at the highest applicable rate (MMR) or as per slab rates, especially for specific income types like dividend and capital gains.
Sections Cited
143(1), 167B, 2(29C), 234C, 154, 111A, 112A, 112
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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आयकर अपील सं. / & 1795/PUN/2024 धििाारण वर्ा / Assessment Years : 2022-23 & 2023-24 Hreyansh Vasundhara Family Trust, ITO, Ward-7(1), Pune S. No. 1A, F-1, Irani Market Compound, Yerwada, Pune – 411006 Vs. PAN : AABTH8220Q अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Kiran Sanmane Department by : Shri Ramnath P. Murkunde Date of hearing : 29-04-2025 Date of 29-05-2025 Pronouncement : आदेश / ORDER PER ASTHA CHANDRA, JM : Two appeals filed by the assessee are directed against the separate order(s) both dated 25.07.2024 of the Ld. Additional/Joint Commissioner of Income Tax (Appeals)-2, Vadodara [“Addl./JCIT(A)”] pertaining to Assessment Years (“AYs”) 2022-23 and 2023-24. As the identical issues are involved in both the appeals, these were heard together and are being disposed of by this common order.
The assessee has raised the following grounds of appeal : “In the fact and the circumstances of the case, and in law, the learned Addl/Joint Commissioner of Income-tax (Appeals) -(A)2 Vadodara, erred in confirming the variance in the intimation u/s 143(1) made by CPC in respect of the rate of surcharge and erred:
1. In respect of the ground of appeal regarding power of AD CPC to vary the rate of surcharge while processing the return u/s 143(1), in concluding that the contention of the appellant is false and baseless without considering the correct and relevant facts of the case and dismissing the ground of appeal.
2. In holding that in the case of the appellant provisions of section 1678 rws 2(29C) are applicable and therefore the appellant is subjected to taxation at the highest slab of income tax (including surcharge) as applicable for the given AY which is 37% surcharge in the case of the appellant for the given AY. AYs 2022-23 & 2023-24
3. In holding that when the provisions of section 167B rws 2(29C) are applicable, the whole income would be subjected to highest slab of taxation for the given income, irrespective of the nature of income.
4. In not appreciating that the words "rate of income-tax (including surcharge on income-tax, if any)" in section 2(290) denotes two separate levies and hence MMR does not automatically include higher rate of surcharge. 5. In not appreciating that the total income of the appellant of Rs.18,86,13,290/- includes income of Rs.18,52,68,427/-on which maximum surcharge is 15 per cent (viz. short-term capital gains u/s 111A, long-term capital gains u/s 112A and dividend income) and the balance income is Rs. 33,44,863/-, and accordingly, as per clause (e) under the heading surcharge on income-tax in Paragraph A of Part I of the First Schedule to the Finance Act, 2022, the applicable rate of surcharge on such balance income of Rs. 33,44,863/- ought to be 15 per cent. 6. In not appreciating/confirming that the AO CPC has passed rectification order dated 19/10/2023 wherein partial relief is given and surcharge is levied at the rate of 15% on income of Rs. 18,63,72,224/- (viz. short-term capital gains u/s 111A, long-term capital gains u/s 112 and 112A and dividend income). 7. In holding that the above position taken by the AO CPC while passing the rectification order is not a correct proposition. 8. Without prejudice to the fifth ground of appeal
, in observing and holding that the applicable rate of surcharge in the case of short term capital gains u/s 111A, long term capital gains u/s 112A and dividend income is also 37% on the basis of provisions of the relevant Finance Act, when in fact, as per the provisions of the relevant Finance Act, the maximum rate of surcharge in case of short term capital gains u/s 111A, long term capital gains u/s 112A and dividend is 15%.
9. In holding that the interest u/s 234C is mandatory and consequential and recomputing interest by AO CPC u/s 234C at Rs. 4,61,238/- on the basis of assessed income is correct when, in fact, interest u/s 234C is required to be computed on the basis of total income as per return filed.
10. The Appellant craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing.”
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?
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 AYs 2022-23 & 2023-24 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. 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 facts of the case are not in dispute. For AY 2022-23, the assessee trust declared the total income of Rs.18,86,13,290/- in its return of income. 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, the Ld. CIT(A) dismissed the ground of appeal of the assessee on this issue observing that the entire income of the assessee, including the long term and short term capital gains and dividend income, is subjected to MMR under section 167B r.w.s. 2(29C) with surcharge @ 37%.
7. 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%. AYs 2022-23 & 2023-24
8. The levy of surcharge depends on the amount of income of the assessee. 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%.
9. Analyzing the facts of the present case in light of the decision (supra) of the Special Bench of Mumbai Tribunal, we find that the total income of the assessee of Rs.18,86,13,290/- includes income of Rs.18,52,68,427/-on which maximum surcharge is 15 per cent (viz. short-term capital gains u/s 111A, long-term capital gains u/s 112A and dividend income) and the balance income is Rs. 33,44,863/- and accordingly, as per clause (e) under the heading surcharge on income-tax in Paragraph A of Part I of the First Schedule to the Finance Act, 2022, the applicable rate of surcharge on such balance income of Rs. 33,44,863/- ought to be 15 per cent. We also observe that the Ld. AO/CPC has passed rectification order under section 154 of the Act, dated 19.10.2023 wherein partial relief is granted and surcharge is levied at the rate of 15% on income of Rs. 18,63,72,224/- (viz. short-term capital gains u/s 111A, long-term capital gains u/s 112 and 112A and dividend income). However, the Ld. CIT(A) has not accepted this reduced rate of surcharge @ 15% applied by the Ld. AO/ CPC in the said rectification order as against the rate of 37%. 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. CIT(A) has erred in holding that that the entire income of the assessee is required to be subjected to MMR with surcharge @ 37%. The assessee has rightly claimed the levy of surcharge @ 15% in its return of income and the Ld. AO/ CPC has rightly allowed the said claim of the assessee in the rectification order.
10. 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). Ground nos. 1 and 8 of appeal of the assessee are accordingly allowed. Ground no. 9 is consequential in nature. AYs 2022-23 & 2023-24
In the result, the appeal of the assessee is allowed.
ITA No. 1795/PUN/2024, A.Y. 2023-24
Both the sides are unanimous in stating that the facts and the ground of appeal in for A.Y. 2023-24 is identical to the grounds raised in AY 2022-23 except for the variance in amounts. Thus, in view of the fact that the issue(s) raised in both the appeals are identical and arising from the same set of facts, the finding given by us while adjudicating the appeal in ITA No. 1794/PUN/2024 would mutatis mutandis apply to the appeal in ITA No. 1795/PUN/2024 as well. Accordingly, the grounds of appeal raised by the assessee in ITA No. 1795/PUN/2024 are hereby allowed in the same terms.
To sum up, both the appeals of the assessee for AY 2022-23 ( AY 2023-24 (ITA No. 1795/PUN/2024) are allowed.