The Income Tax Appellate Tribunal, Mumbai (“K” SMC Bench), in Araadhya Jain Trust v. Income-tax Officer (ITA No. 4272/Mum/2024), examined the correct rate of surcharge applicable to a private discretionary trust whose income is chargeable to tax at the maximum marginal rate (MMR) for Assessment Year 2023-24.

The assessee-trust filed its return declaring total income of ₹4,85,290. While processing the return under Section 143(1), the Centralised Processing Centre applied surcharge at the highest rate of 37%, treating it as an integral part of the maximum marginal rate, thereby computing tax at an effective rate of 42.744%. The action was upheld by the learned Addl./Joint Commissioner of Income-tax (Appeals).

Before the Tribunal, the assessee contended that although the income of a private discretionary trust is taxable at MMR under Sections 164 and 2(29C) of the Income-tax Act, 1961, surcharge is a separate levy and must be applied strictly in accordance with the slab rates prescribed in the relevant Finance Act. It was submitted that since the total income was below ₹50 lakh, no surcharge was leviable under Paragraph A of Part I of the First Schedule to the Finance Act, 2023.

The Tribunal noted that the identical issue had been referred to and conclusively decided by the Special Bench of the ITAT in Araadhya Jain Trust v. ITO [(2025) 212 ITD 1 (Mumbai)(SB)]. The Special Bench held that the expression “maximum marginal rate” refers to the rate of income-tax together with the surcharge as provided in the Finance Act for the relevant year, and that surcharge must be computed with reference to the slab-wise rates specified under the heading “surcharge on income-tax” in the First Schedule to the Finance Act.

The Special Bench further held that surcharge cannot automatically be applied at the highest rate merely because income is taxable at MMR, and that such an interpretation would be discriminatory and contrary to the scheme of the Finance Act and constitutional principles under Articles 265 and 271 of the Constitution of India.

Following the binding decision of the Special Bench, the Tribunal set aside the order of the learned Addl./Joint CIT(A) and directed the Assessing Officer to levy surcharge strictly in accordance with the slab rates prescribed in the Finance Act, 2023. Accordingly, the appeal of the assessee was allowed for statistical purposes.

Source- https://itat.gov.in/public/files/upload/1750226762-eDjvBj-1-TO.pdf

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