BRIEF FACTS OF THE CASE1
- The assessee, a private discretionary trust liable to pay income tax at maximum marginal rate ('MMR'), had filed its return of income for A.Y. 2022-23 declaring income at Rs. 55,75,700
- The assessee had computed surcharge of Rs. 1,67,271 @ 10% of tax based on the slab rate of income as per the relevant Finance Act (viz. 10% surcharge where income exceeds Rs. 50,00,000 but does not exceed Rs. 1 crore)
- The assessee's return was processed under Section 143(1) of the Incometax Act, 1961 ('the Act') determining total tax liability of Rs. 16,72,271, wherein surcharge was computed of Rs. 6,18,903 @ 37% on tax by the Central Processing Centre ('CPC')
- According to the assessee, MMR 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
- 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
- On appeal to CIT(A), the learned CIT(A) rejected the contention of the assessee
KEY OBSERVATIONS OF ITAT
- Section 2(29C) of the Act defines MMR to mean the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual as specified in the Finance Act of the relevant year
- Basis the above provisions, the Hon'ble ITAT confirmed the CIT(A) order upholding that MMR is to be arrived at by taking highest slab of incometax and highest rate of surcharge applicable in case of an individual
- If the surcharge was to be levied according to the slab rate of the assessee, it was not required to be mentioned in section 2(29C)
- ITAT also observed that the Policy of Law as suggested in Section 2(29C) of the Act is to discourage discretionary trust by charging the income of such trust in the hands of the trustee at the maximum marginal rate except in certain specified situation.
- Such a policy would be defeated, if it was held that the beneficiary of a trust would be chargeable to tax and also surcharge at the highest slab, but the assessee trust is charged to tax at the highest slab but lower rate of surcharge
- The levy of MMR on trust is a specific anti avoidance rule and thus, should be given a strict interpretation
- In arriving at its decision, the Hon'ble ITAT also relied upon the commentary on Income Tax by Chaturvedi and Pithisaria as well as of the book published by Mr. Vinod Singhania and drew support from the decision of the Hon'ble Supreme Court and Hon'ble High Courts in the case of Gosar Family Trust2 and JK Holdings3
- The said decision is contrary to the decisions of Hyderabad Benches of ITAT in the case of Tayal Sales Corporation4 and Sriram Trust5, however, the ITAT held that these decisions had not considered the decision of the Supreme Court and Hon'ble High Courts and authoritative commentaries
- Further, the ITAT also concluded 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
Footnote
1. Aradhya Jain Trust vs. ITO [ITA No. 2197/Mum/2024]
2. [1995] 81 Taxman 146 (SC)[28-04-1995]
3. [2003] 133 Taxman 443 (Bombay)
4. [2003] 1 SOT 579 (HYD.) 5 ITA 439 / Hyd / 2024
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