ARAADHYA JAIN TRUST,MUMBAI vs. INCOME TAX OFFICER, WARD-22(1)(6), MUMBAI

The brief facts of the case are that i. Assessee is a private discretionary trust liable to pay income tax at maximum marginal rate filed its return of income for A.Y. 2022-23 at a total income of ₹NIL. The return of income filed by the assessee on 19.07.2022 as the total income of ₹55,75,700/- which was subsequently revised on 26.12.2022 without their being any change in the returned of income and the return was revised to include certain voluntary disclosures. Return was processed u/s. 143(1) of the Act on 16.03.2023 determining total income of the assessee at ₹55,75,700/- and tax determined on the total income of ₹16,72,710/- is not in dispute.

The assessee challenged intimation before the learned CIT(A). Before the learned CIT(A), the assessee submitted that assessee is liable to pay tax at maximum marginal rate as per provisions of Section 167B of the Act. The assessee has calculated the tax payable applying the maximum marginal rate to calculate the surcharge leviable @10%. According to the assessee, the maximum marginal rate of tax is to be taken for computation of tax only and for computation of surcharge, same shall be levied as per the slab of the income offered by the assessee. Thus, the claim of the assessee is that while applying the maximum marginal rate only tax of highest income tax slab will be considered and surcharge thereon will be considered as applicable to the income offered by the assessee as mentioned in Schedule-Part-I of Finance Act, 2021. The assessee also objected that the Assessing Officer cannot recompute the rate of income tax or the rate of surcharge in an intimation u/s. 143(1) of the Act. Assessee placed reliance on the decision of the Hon'ble Rajasthan High Court in the case of JKS Employees’ Welfare Fund vs. ITO 199 ITR 765.

The learned CIT(A) rejected the contention of the assessee and held that the maximum marginal rate is required to be computed at the highest rate of taxation and surcharge also. The learned CIT (A) further referred to the provisions of Section 2(29C) of the Act read with section 164 of the Act. He held that the provisions of Section 2(29C) of the Act do not remotely suggest to include surcharge in MMR as per different slab rates of income. He, therefore, held that it is clear that maximum marginal rate is required to be computed of the tax rate of highest slab @ 30% and surcharge for highest slab @ 37% alongwith education Cess @ 4%. Therefore, the maximum marginal rate would be 42.74%. It is further held that while passing the intimation u/s. 143(1) of the Act the Central Processing Centre is empowered to levy the correct rate of tax. It was further held that the decision relied upon by the assessee does not apply to the facts of the case. Accordingly, the learned CIT (A) upheld the action of the Assessing Officer charging the surcharge @ 37%. The appellate order was passed on 18.03.2024 by which the assessee is aggrieved and is in appeal before us.

The learned Authorized Representative (A.R.) categorically held that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITO vs. Tayal Sales Corporation [2003] 1 SOT 579 (Hyd.) and decision of ITAT, Hyderabad Bench in the case of Sriram Trust, Hyderabad vs. ITO in dated 19.06.2024. The learned A.R. also referred to the provisions of the Finance Act, 2022,to

The learned Departmental Representative (D.R.) vehemently supported orders of the LD Lower Authorities.

We have carefully considered the rival contention and have also perused the orders of the lower authorities. In the present appeal, there is no dispute between the parties that assessee is a private discretionary trust, therefore, should be taxed at the maximum marginal rate. The issue involved is how to calculate the maximum marginal rate. The assessee has claimed while computing the maximum marginal rate by taking the Income Tax rate applicable in relation to the highest slab of income in case of an individual , this is also not in dispute. But the dispute is what should be the applicable rate of surcharge. The assessee claims that the rate of surcharge applicable to be assessee according to the income slab of the assessee and should not be at the highest rate of surcharge provided in the Finance Act. According to the Revenue, the surcharge rate should also be highest rate of surcharge applicable in case of an individual.

Section 2(29C) of the Act defines maximum marginal rate. It provides that maximum marginal rate means the rate of income tax (including surcharge on income tax, if any) applicable in a relation to the highest slab of income in the case of an individual as specified in the Finance Act of the relevant

The levy of maximum marginal rate on trust is thus specific anti Avoidance rule and therefore should be given a strict interpretation. Law prescribes that tax shall be charged on income in respect of which such person is so liable at the maximum marginal rate. There is no provision in the law to charge specific discretionary trust bit lower than the rates of tax and surcharge applicable to a beneficiary individual. We also draw strength from the decision of the Hon'ble Bombay High Court in the case of CIT vs. JK Holdings [2003] 133 Taxman 443 (Bombay)

The learned A.R. have relied upon the several decisions of the coordinate Benches, however, none of those decisions has considered the decision of the Hon'ble Supreme Court and Hon'ble High Courts as well as the authoritative commentaries, as stated above. We are duty bound to follow those decisions.

In the result, we confirm the order of the learned CIT(A) holding that the maximum marginal rate is correctly computed by the Central Processing Centre by taking the maximum rate of income tax and maximum of rate of surcharge applicable in case of an individual for the assessment year and same is applicable on assessee , a private discretionary trust.

In view of above discussion, the Ground Nos. 1 to 5 of the appeal are dismissed.

The next contention of the assessee is that CPC does not have any power to vary the rate of surcharge by processing the return of income u/s. 143(1) of the Act. For this proposition we find that CPC has power to compute the correct amount of tax and sum payable by the assessee in terms of provisions of Section 143(1)(b) and (c) of the Act. Therefore, on this ground also, we do not find any reason to interfere with the order of the learned CIT(A).

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