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Facts
The assessee, a trust, filed an appeal against the order confirming the inclusion of surcharge despite its total income being below Rs. 50 lakhs. The assessee's total income was Rs. 44,690/-, and the demand raised by the department included a surcharge component, resulting in an inflated tax demand.
Held
The Tribunal held that surcharge is leviable only when the total income exceeds Rs. 50 lakhs. The inclusion of surcharge in this case was erroneous as it violated statutory provisions and judicial precedents.
Key Issues
Whether surcharge is leviable on an entity whose total income is below Rs. 50 lakhs, despite the specific provisions and judicial pronouncements to the contrary.
Sections Cited
143(1), 167B, 2(29C), 12A, 139(8A)
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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Suchitra Kamble
आदेश/ORDER This is an appeal filed against the order dated 27-12- 2024 passed by CIT(A)/(Addl/JCIT)-2, Jaipur for assessment year 2021-22.
The grounds of appeal are as under:- “1) The JCIT (A), NFAC, passed the impugned order without affording the appellant a reasonable opportunity of being heard, thereby violating the principles of natural justice. It is a settled principle that an order passed without providing an opportunity of hearing is void ab initio. The Hon'ble Supreme Court, in the case of Maneka Gandhi vs. Union of India (1978 AIR 597), has held that the right to be heard is an essential component of fair procedure. 2) The learned ICIT (A) erroneously confirmed the inclusion of surcharge despite the appellant's total income being significantly below Rs. 50 lakhs. Section 167B of the Income Tax Act categorically prescribes that no surcharge is applicable that on an Association of Persons (ADP) whose income is below
1. Rs. 50 lakhs. The legislative intent behind this provision is to ensure that entities with lower income are not burdened with additional tax liability.
3) The Learned CIT(A) Misinterpreted Definition of Maximum Marginal Rate (MMR) under Section 2(29C) Section 2(29C) of the Income Tax Act defines the term "Maximum Marginal Rate" as the rate of income tax (including surcharge on income tax, if any) applicable to the highest slab of income for an individual, association of persons (AOP), or body of individuals (BOI). The purpose of this provision is to levy the highest applicable rate only when the total income of the entity exceeds a prescribed threshold.
In the present case, the appellant's total income was Rs. 44,690/-, which is far below the statutory threshold of Rs. 50 lakhs required for the imposition of surcharge under Section 167B. By ignoring the clear language of Section 2(29C) and the corresponding provisions of Section 167B, the learned JCIT (A) has misapplied the law. Judicial precedents, such as ITO vs. Tayal Sales Corporation and Sriram Trust, Hyderabad vs. Income Tax Officer (2024), have consistently clarified that surcharge can only be levied when specific statutory conditions are fulfilled. The failure to correctly interpret this provision has resulted in an arbitrary and unsustainable demand of surcharge and eventually increases of additional taxes and interest.
4) The JCIT (A) disregarded well-established judicial precedents that are directly applicable to the appellant's case. Notably, in the case of Ria Zaveri Trust vs. Assistant Commissioner of Income Tax (2024), the Hon'ble ITAT held that surcharge is leviable only when the total income exceeds Rs. 50 lakhs. Similarly, in Ujjwal Business Trust vs. Income Tax Officer (2024), the tribunal emphasized that surcharge inclusion without fulfilling income criteria violates statutory provisions.
5) The computation of tax liability as per the intimation under Section 143(1) is fundamentally flawed. The taxes demanded exceed the declared income, which is contrary to the principle that taxes cannot exceed the total income. This erroneous computation has resulted in an unjustified financial burden on the appellant.
6) The unjustified demand raised by the Department adversely affects the appellant's charitable activities. The appellant has been engaged in bona fide charitable providing relief to work, including the poor and promoting education. The erroneous surcharge demand not only imposes an undue financial burden but also jeopardizes the appellant's ability to continue its public welfare initiatives.
7) The principle of "Nullum Crimen Sine Lege" dictates that no liability can be imposed without express statutory authority. The inclusion of surcharge in the present case is ultra vires the statutory provisions and constitutes an act without legal basis.
8) The appellant craves, leave, to add, to alter and or modify any ground of appeal.
Tax effect is Rs.15,250/-.”
The assessee is a trust duly registered under Bombay Public Trust Act, 1950. The registration was granted by the Charity Commissioner’s Office in Baroda on 31-01-1998. The assessee has been carrying out charitable activities which included providing relief to the poor, offering medical aid, to under privileged individuals, promoting educational awareness, programmes and supporting education related objectives in-line with its chartered purposes. During the assessment year 2021-22, the assessee was not registered u/s. 12A of the Income Tax Act, 1961 and thus classified as an Association of Persons for the purposes of income tax assessment and return filing of income for assessment year 2012-13 on 30-03-2024 u/s. 139(8A) of the Income Tax Act, 1961 thereby declaring income of Rs. 44,690/-. Taxes including interest and penalties amounting to Rs. 36,096/- were paid on 27-11-2024. Deputy Director of Income Tax CPC issued an intimation u/s. 143(1) of the Income Tax Act, 1961 thereby raising a demand of Rs. 15,250/- for assessment year 2021-22. The demand raised by the intimation is related to the addition of surcharge component to the income tax liability. This surcharge inclusion resulted in an inflated tax demand as per the assessee. The assessee filed appeal before the CIT(A) against intimation order dated 27-11-2024. The CIT(A) dismissed the appeal of the assessee.
The A.R. submitted that the CIT(A) mis-interpreted the definition of maximum marginal rate u/s. 229(C) of the Income Tax Act defines the term maximum marginal rate as the rate of income tax (including surcharge of income tax, if any) applicable to the highest slab of income for an 3 individual, association of persons or body of individuals. The purpose of this provision is to levy the highest applicable rate only when the total income of the entity exceeds a prescribed threshold. The ld. A.R. in the present case submitted that, the assessee’s total income was Rs. 44,690/- which is far below the statutory threshold of Rs. 50 lakhs required for the imposition of surcharge u/s. 167B. By ignoring the fact, section 2(29C) and the corresponding provisions of section 167B, the CIT(A) has mis-applied the law. The ld. A.R. relied on the decisions of Ujjwal Business Trust Vs. ITO, CPC in M/s. Lintas Employees Holiday Assistance Trust Vs. CPC in Shriram Trust Vs. ITO in ITA No. 439-441/Hyd/2024 and ITO Vs. Tayal Sales Corporation [2003] 1 SOT 579 (Hyd.).
The ld. D.R. submitted that the CIT(A) has rightly held that if surcharge of highest slab is mentioned the Finance Act, then, surcharge will be included in tax and even in cases of maximum rate will be calculated accordingly. The maximum marginal rate includes surcharge in relation to highest slab of income, even though, income of the assessee is below Rs. 50 lakhs. The ld. D.R. relied upon the order of the CIT(A).
We have heard both the parties and perused all the relevant materials available on record. The Tribunal in case of Ria Zaveri Trust vs. ACIT in order dated 11-12-2024 has allowed the appeal of the 4 assessee therein thereby observing that the surcharge is leviable only when amount of income tax is computed where the total income exceeds Rs. 50 lakhs. The decision of Co- ordinate Bench is applicable in the present assessee’s case and hence the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 02-05-2025