Surcharge to Be Levied on Private Discretionary Trust Shall Be Computed as per Slab Rates | ITAT Special Bench

Case Details: Araadhya Jain Trust vs. Income-tax Officer - [2025] 173 taxmann.com 343 (Mumbai-Trib.)

Judiciary and Counsel Details

• B.R. Baskaran, Accountant Member, Saktijit Dey, Vice President & C.V. Bhadang, President
• Mihir Naniwadekar, Adv. & Rohan Deshpande for the Appellant.
• Kiran Unavekar, Sr. DR for the Respondent.

Facts of the Case

The assessee, Araadhya Jain Trust, a Private Discretionary Trust, filed its return of income for AY 2023–24, declaring income of Rs. 4,85,290. It paid tax at the “maximum marginal rate” as per section 164 read with section 2(29C) of the Income-tax Act.

While processing ITR, the Centralized Processing Centre (CPC) levied a surcharge at the highest rate on the computed tax. The assessee contended that the surcharge should not apply since the total income was below Rs. 50 lakhs. Both the CPC and the CIT(A) rejected this argument, citing that the definition of “maximum marginal rate” includes the highest surcharge, hence applicable regardless of income level.

A Special Bench was constituted by the Hon’ble President of ITAT, in terms of section 255(3) of the Income Tax Act, 1961, to decide the following issue:

“Whether, in the case of private discretionary trusts whose income is chargeable to tax at maximum marginal rate, surcharge is chargeable at the highest applicable rate or at a slab rates?

ITAT Held

The Tribunal held that section 2(29C) of the Act defines the maximum marginal rate as the highest slab rate of income tax in the case of an individual or association of persons, as specified in the Finance Act. The section does not make any reference to the levy of surcharge.

The expression ‘including Surcharge on income-tax, if any’ within the bracketed portion of section 2(29C) of the Income Tax Act, would mean the surcharge as provided in the computation mechanism under the heading ‘surcharge on income tax’ provided in section 2 of the Finance Act.

The different rates of surcharge on income tax provided under the First Schedule to the Finance Act, 2023 for different slabs of income would become meaningless so far as discretionary trusts are concerned if the highest rate of surcharge is applied to the maximum marginal rate of tax.

In other words, the rate of surcharge has to be determined in terms with the rate prescribed under the schedule to section 2(1) of the relevant Finance Act and not at the maximum marginal rate, irrespective of the quantum of income or the rates provided under the schedule.

The Finance Act contains separate provisions for the levy of surcharge, and there is no reference to the maximum marginal rate in those provisions. Therefore, the surcharge must be computed at the rates prescribed in the Finance Act for the relevant assessment year. The levy of surcharge at the maximum marginal rate was not justified.

Accepting Revenue’s view would render the entire slab-based surcharge mechanism meaningless and cause absurd results. Accordingly, it held that a surcharge should be levied based on the slab rates applicable to the total income.

List of Cases Referred to

• CIT v. K. Srinivasan [1972] 83 ITR 346 (SC) (para 9)
• ITO v. Tayal Sales Corporation [2003] 1 SOT 579 (Hyderabad) (para 10)
• Lintas Employees Professional Development Trust v. ITO ITA No. 4791/Mum/2023 (para 10)
• Ujjwal Business Trust v. CPC ITA No. 602/Mum2024 (para 10)
• Lintas Employees Holiday Assistance Trust v. CPC ITA No. 1796/Mum/2024 (para 10)
• Lintas Employees Holiday Assistance Trust v. ITO ITA No. 3949/Mum/2024 (para 10)
• V. Meera Charitable Trust v. ITO ITA No. 2140/Chny/2024 (para 10)
• Fuerst Day Lawson Ltd v. Jindal Exports Ltd 2011 (8) SCC 333 (para 11)
• Anant Bajaj Trust v. Deputy DIT ITA No. 1995/Mum/2024 (para 12)
• Gosar Family Trust v. CIT [1995] 81 Taxman 146/215 ITR 55 (SC) (para 12)
• CIT v. J.K. Holdings [2003] 133 Taxman 443/[2004] 270 ITR 593 (Bombay) (para 12)
• CIT v. J.H. Gotla [1985] 23 Taxman 14 j/156 ITR 323 (SC) (para 17)
• Anant Bajaj Trust v. DDIT ITA No. 199/Mum/2024 (para 20)
• Araadhya Jain Trust v. ITO ITA No. 2197/Mum/2024 (para 20).