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Facts
The assessee, Anu Aga Family Discretionary Trust, liable to pay tax at the Maximum Marginal Rate (MMR), filed returns for A.Y. 2022-23 and 2023-24. The CPC processed the returns and computed surcharge at 37% on the entire income. The assessee contended that for specific income types (STCG under Section 111A, LTCG under Section 112A, and dividend income), the surcharge should be 15%, not 37%. The Ld. CIT(A) partially allowed the appeal, directing a 15% surcharge on specified incomes and 37% on other incomes.
Held
The Tribunal, respectfully following the ITAT Mumbai Special Bench decision (in which the assessee was an intervener), held that surcharge for Private Discretionary Trusts whose income is chargeable at MMR should not be applied at MMR. Instead, surcharge must be computed having reference to the slab rates prescribed in the Finance Act under the heading 'Surcharge on Income Tax'. The Assessing Officer was directed to recompute the surcharge accordingly.
Key Issues
Whether the surcharge on income of a private discretionary trust, taxable at the Maximum Marginal Rate (MMR), should be applied at the MMR rate (37%) or at a lower slab rate (15%) for specific income types such as STCG, LTCG, and dividend income, as prescribed by the Finance Act.
Sections Cited
250, 143(1), 111A, 112A, 2(29C), Finance Act, 2021
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER PER DR. DIPAK P. RIPOTE, AM: These two appeals filed by the assessee are directed against the separate orders of ld.Add./Joint Commissioner of Income Tax(Appeal)-1, Gurugram under section 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 17.05.2024 for A.Y.2022-23 and 26.08.2024 for A.Y.2023-24 respectively. For the sake of convenience, these two appeals were heard together and are being disposed of by this common order. “In the fact and the circumstances of the case, and in law, the learned Addl/Joint Commissioner of Income-tax (Appeals) - Gurugram, erred in partially confirming the variance in the intimation u/s 143(1) made by CPC in respect of the rate of surcharge and erred:
1. 1. In confirming that the AO CPC has power to vary the rate of surcharge while processing the return u/s 143(1).
2. In confirming that the since the appellant is liable to pay tax at maximum marginal rate, the applicable rate of surcharge is 15% only for income covered u/s 111A, 112A and dividend income and for all other income the applicable rate of surcharge is 37%i.e. the maximum rate of surcharge.
3. In concluding that the benefit of clause (e) will be available to such assessee only who are taxed at slab rate and not at MMR as per the provisions of section 2(29C).
4. In not appreciating that the total income of the appellant of Rs.16,20,15,480/- includes income of Rs.15,79,10,947/- 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. 41,04,533/-, 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, 2021, the applicable rate of surcharge on such total income of Rs.41,04,533/- ought to be 15 per cent.
5. In not appreciating that the words "rate of income-tax (including surcharge on income-tax, if any)" in section 2(29C) denotes two separate levies and hence MMR does not automatically include higher rate of surcharge.
6. The Appellant craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing.” Brief facts of the case :
2. The Assessee is private Discretionary Trust liable to pay Tax at Maximum Marginal Rate. The assessee has filed its Return of Income for A.Y.2022-23 electronically. The Return of Income was processed u/s.143(1) of the Act by Centralized Processing Center(CPC) of the Income Tax Department. The CPC computed surcharge at 37% on the entire amount of Rs.2,21,70,443/-. Aggrieved by the order of the CPC, assessee filed appeal before the ld.CIT(A). Assessee’s main contention before ld.CIT(A) was that the surcharge should be charged @15% and not @37%. Assessee relied on various case laws. Ld.CIT(A) held as under : “4.2.7 Accordingly, for A.Y.2022-23, it is only that part of income, which is covered u/s 111A, 112A and dividend income, in the case of the appellant, that will be liable for surcharge @15% and for all other income the applicable rate of surcharge will be the maximum rate i.e.37%. 4.2.8 Considering the legal position, facts and circumstances and the above discussion, the AO is directed to charge the surcharge @15% on income declared as STCG u/s 1111A amount to Rs.89,09,044/-, LTCG u/s 112A amounting to Rs.12,54,39,223/- and dividend income amounting to Rs.2,35,62,680/-. The surcharge on other incomes will remain same at the rate of 37% as computed by CPC while processing the Income Tax Return under section 143(1). Hence, these grounds of appeal taken by the appellant are allowed accordingly.” 2.1 Aggrieved by the order of the ld.CIT(A), assessee filed appeal before this Tribunal.
Submission of ld.AR :
Ld.AR at the outset submitted that the impugned issue whether surcharge is to be charged @37 % or @15% has been decided by Special Bench of ITAT Mumbai vide order dated 09.04.2025. Assessee is intervener in the said appeal decided by Hon’ble ITAT. Ld.AR read out the relevant paragraph of the ITAT Special Bench Mumbai.
Submission of ld.DR : 4. The ld.DR accepted that the issued has been decided by Special Bench of ITAT Mumbai in favour of assessee. However, ld.DR submitted that Department is contesting the issue.
Findings & Analysis : 5. We have heard both the parties and perused the records. The impugned issued is decided by Special Bench of ITAT Mumbai in favour of assessee in ITA No.4272/Mum/2024. We have also observed that assessee is one of the interveners.
5.1 The ITAT Mumbai Special Bench held as under : “32. 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 lO(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.” 5.2 Respectfully following the decision of Special Bench of ITAT Mumbai (supra), we hold that surcharge is not to be charged at Maximum Marginal Rate, but 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”. Accordingly, we direct the Assessing Officer to recomputed surcharge in above terms. Accordingly, Ground Nos.4 and 5 are allowed in above terms. Ground No.1, 2 and 3 becomes academic and hence dismissed as unadjudicated.
In the result, appeal of the assessee is partly allowed.
Since we have already decided the appeal of the Assessee for A.Y.2022-23 in at length. The facts of A.Y.2023-24 are identical to ITA No.1259/PUN/2024, the grounds of appeal raised by the Assessee are also identical. Therefore, the decision of A.Y.2022-23 shall apply mutatis-mutandis to this appeal also. Accordingly, grounds of appeal raised by the Assessee in are partly allowed.
In the result, appeal of the assessee partly allowed.
To sum up, both appeals of the assessee are partly allowed. Order pronounced in the open Court on 25th April, 2025.