ANIL GALA NAVNEET TRUST,MUMBAI V. INCOME TAX OFFICER WARD 22(1)(6), MUMBAI

ITA 2951/MUM/2025

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The case involves Anil Gala Navneet Trust appealing against the order of the Commissioner of Income-tax, which upheld the adjustments made in the intimation under section 143(1) of the Income Tax Act, 1961. The primary contention was regarding the incorrect levy of surcharge and additional interest on the trust's income. The tribunal examined whether the surcharge for private discretionary trusts, whose income is chargeable to tax at the maximum marginal rate, should be applied at the highest rate or according to slab rates specified in the Finance Act. The tribunal found that the surcharge should be computed based on the slab rates, as per the decision of the Special Bench in the case of Araadhya Jain Trust.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705672 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: Araadhya Jain Trust v. Income-tax Officer, Lotus Family Trust vs DDIT EXEM, Ward 1(4), Mumbai, Anant Bajaj Trust vs. DDIT, Kapur Family Trust vs. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN SALUNKHE
• Assessee Lawyers: SANJAY PARIKH
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Maximum Marginal Rate

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC”, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI OM PRAKSH KANT, ACCOUNTANT MEMBER ITA No.2951/Mum/2025 (Assessment Year : 2022-23) Anil Gala Navneet Trust Navneet Bhavan, Bhavani Shankar Road, Nr. Shardashram Society, Dadar (West), Mumbai-400 028 PAN : AADA5826D vs Income Tax CPC, Bengaluru APPELLANT RESPONDENT Assessee by : Shri Sanjay Parikh Respondent by : Shri Pravin Salunkhe – (SR. DR.) Date of hearing : 25/06/2025 Date of pronouncement : 02/07/2025 O R D E R PER : SANDEEP GOSAIN, JM This appeal filed by the assesse is arising out of the order of the Commissioner of Income-tax, Appeal ADDL / JCIT (A)-1, Kolkata [hereafter, Ld.CIT(A)], dated 19/03/2025 for the assessment year 2022-23. 2. The following are the grounds raised by the assesse:- “Based on the facts and circumstances of the case and in law, the Appellant respectfully submits that the Learned Commissioner of Income Tax (Appeals) erred in passing the order under section 250 of the Income-tax Act, 1961 (Act), on the following grounds, which may be considered without prejudice to one another: 2 ITA 2951/Mum/2025 Anil Gala Navneet Trust Ground No. 1: Validity of the adjustments made in the Intimation u/s 143(1) 1. The learned CIT(A) erred in not quashing the impugned intimation order passed under section 143(1) of the Income Tax Act, 1961 as no opportunity of being heard was provided to the Appellant before levying surcharge and additional interest. Ground No. 2: Incorrect levy of surcharge amounting to Rs.20,613/- 1. The learned CIT(A) erred in facts and law by imposing surcharge at the rate of 37% on the Appellant's total tax of Rs.55,710/- on the interest income earned instead of surcharge applicable at the Nil rate in accordance with the provisions of First Schedule to Finance Act, 2020 as the appellant's total income does not exceed Rs.50 Lakhs for the year under consideration. 2. Your Appellant prays that the surcharge on tax on interest income should be deleted. Ground No.3: Incorrect levy of additional interest u/s 2348 amounting to Rs.1,491/- 1. The learned CIT(A) consequently erred in not deleting the excess interest levied in the intimation order u/s 2348 of Rs.1,491/-. Your Appellant prays that the excess interest levied in the intimation order may please be deleted. Ground No.4: General Grounds of appeal 1. Your Appellant craves leave to file additional evidences during the course of appeal proceedings in terms of Rule 46A r.w.s. 250. 2. Your Appellant craves leave to add, amend, alter, modify or delete all or any of the above grounds of appeal.” 3. The substantive issue raised in the appeal pertains to “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?\" We find that the issue is squarely covered by the judgement of the Mumbai Bench ‘K(SMC)’ (SPECIAL BENCH) in the case of Araadhya Jain Trust v. Income-tax Officer 3 ITA 2951/Mum/2025 Anil Gala Navneet Trust reported in (2025) 173 taxmann.com 343 (Mumbai- Trib)(SB). Further we find that the above Special Bench was duly followed by the co-ordinate bench, Mumbai Bench “A” in Lotus Family Trust vs DDIT EXEM, Ward 1(4), Mumbai in ITA Nos.3607 & 3608/Mum/2024, order dated 04.06.2025, by holding as under:- 10.On the above factual matrix of the case, it is observed that the surcharge applicable of tax computed at Maximum Marginal Rate (MMR) in accordance with Section 164 of the Act along with Section 2(29C) of the Act is as per the relevant Finance Act. It is observed that for private discretionary trust which are governed by the provisions of Section 164 or 167B, the rate of surcharge is calculated as per the relevant Finance Act. The Maximum Marginal Rate (MMR) which is defined u/s. 2(29C) of the Act means rate of income tax which includes surcharge on income tax which is applicable at the highest slab, were the assessee is an individual, association of person, body of individual which are specified in the Finance Act of the relevant year. Pertinently, the provisions of Section 164 or 167B of the act does not expressly provide for levy of surcharge and it is only in Section 2(29C) of the Act surcharge has been specified. The rates at which such surcharge has to be levied are specifically mentioned in the Finance Act of each year. It is observed that the rates of surcharge are provided under clause (a) to (e) applicable to the different slabs of income. As there was persistent ambiguity in case of the determination of the rate of surcharge, this issue was addressed by the Special Bench in the case of Aaradhya Jain Trust (supra), where the issue reached its finality. It was held that the rate of surcharge would be determined depending upon the slab rate prescribed in the finance and not at the highest rate while computing tax at Maximum Marginal Rate (MMR). The relevant extract of the said decision is cited herein under for ease of reference: “28. Under the head ‘Surcharge on income-tax’ appearing in Paragraph A, Part (1), First Schedule it has been provided that the amount of income-tax computed as per the rate of income-tax under Item (1), (2) and (3) or under the provisions of section 111A or section 112 or section 112A or the provision of section 115BAC of the Income Tax Act, shall be increased by a surcharge, for the purposes of the Union, calculated in the case of particular class of assessees in the manner provided 4 ITA 2951/Mum/2025 Anil Gala Navneet Trust therein. As could be seen from items (a) to (e), provided under the head ‘Surcharge on income-tax’, there are different rates of surcharge on income tax, depending upon the categories of income. The rate of surcharge starts from minimum of 10% to the maximum of 37% on income-tax. The maximum rate of surcharge at 37% on income-tax is applicable in case of assessees having total income, exceeding Rs.5 crores. It further emanates that the minimum rate of surcharge @ 10% on the incometax is applicable only when the income of the assessee is above Rs.50 lacs, but less than Rs.1 crore. Thus, as per Paragraph A, Part (I) of First Schedule to the Finance Act-2023, the threshold limit for applicability of surcharge is when total income is Rs.50 lacs and above. In other words, if the total income is below the threshold limit of Rs.50 lacs, there would be no surcharge. Even the first proviso under the heading ‘Surcharge on incometax’ carves out an exception regarding the rate of surcharge by stating that in case where assessee’s total income includes dividend income or income under the provisions of section 111A, 112A and section 112A of the Act, the rate of surcharge on the amount of incometax computed on that part of income shall not exceed 15%. In other words, if the total income of an assessee includes any income by way of dividend or income under certain provisions of the Act, the rate of surcharge on tax computed on such part of income under no circumstances would exceed 15%. 29. If we accept the contention of the Revenue that, irrespective of the nature or quantum of income, as per the definition of maximum marginal rate u/s.2(29C) of the Act, surcharge has to be computed at the highest rate of 37% applicable to the highest income bracket of Rs.5 crores and above, then the exception provided under the first proviso under the heading ‘Surcharge on income-tax’ would become otiose. Even, the different rates of surcharge on income-tax provided under clause (a) to (e) applicable to the different slabs of income would become meaningless so far as discretionary trusts are concerned. In our view, such an interpretation would lead to absurdity, hence, is unworkable. In our view, once the definition of ‘maximum marginal rate’ refers to the rate of income-tax and surcharge provided under the Finance Act of the relevant year, then the rates of incometax and applicable rate of surcharge as provided under Paragraph A, Part (I) of First Schedule to the Finance Act-2023, would apply. Any other interpretation, in our view, would lead to 5 ITA 2951/Mum/2025 Anil Gala Navneet Trust undesirable consequences and would be discriminatory. In our view, the expression ‘including Surcharge on income-tax, if any’, within the bracketed portion of section 2(29C) of the Act, would mean the surcharge as provided in the computation mechanism under the heading ‘surcharge on income tax’ finding place in Paragraph A, Part (I) of First Schedule to the Finance Act-2023. 30. The Revenue has taken a line of argument that the words ‘if any’ succeeding the words ‘including surcharge on income tax’ appearing in the definition of maximum marginal rate u/s. 2(29C) of the Act are only for the purpose that when levy of surcharge is specifically provided under the Finance Act of the relevant year, it would be included in income-tax computed at the highest rate, otherwise, not. Though, at first blush this argument of the department sounds attractive, however, on deeper analysis it is found to be superfluous, for the following reasons. As discussed earlier, Article 271 of the Constitution of India, empowers the Union to impose surcharge for the purposes of Union. Whereas, Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. Therefore, levy of surcharge has to be preceded by a law enacted by the parliament authorizing such levy. Thus, in absence of any law authorising levy of surcharge, it cannot be collected. This legal position is as clear as daylight, hence, does not require further clarification with the use of words ‘if any’ to mean whether the Finance Act of a particular year, if at all, provides for levy of surcharge or not. Though, in our view, there is no conflict between provisions contained u/s. 164/167B, 2(29C) of the Income Tax Act and section 2 of the Finance Act, however, even assuming that there are some conflicts, a harmonious construction has to be made to avoid absurdity and make the provisions workable. Thus, in our view, the expression ‘if any’ used in section 2(29C) has to be read not de hors but in conjunction with the computation mechanism provided under the heading ‘surcharge on income tax’ provided in section 2 of Finance Act. This view of ours is further fortified by the object for which levy of surcharge was introduced to the Finance Act - to augment the Revenue of the Union for developmental work by asking persons in the highest income bracket to contribute little more than the other citizens, for nation building. 31. As we find, the Revenue has placed strong reliance upon the decision of the coordinate bench in case of Araadhya Jain Trust (supra) and couple of other 6 ITA 2951/Mum/2025 Anil Gala Navneet Trust decisions, which are on similar line. Pertinently, the decision rendered in case of Anant Bajaj Trust vs. DDIT (in ITA No. 199/Mum/2024 vide order dated 26.08.2024) was subsequently recalled. Whereas, the bench has followed the decision of Anant Bajaj Trust (supra) while deciding the appeal of Kapur Family Trust vs. ITO (in ITA Nos. 3834 & 3835/Mum/2024 vide order dated 30.10.2024). Therefore, the decision rendered in case of Kapur Family Trust (supra) has lost its relevance. Insofar as the decision of the co-ordinate bench in the case of Araadhya Jain Trust (supra) is concerned, in our view, the bench has drawing its conclusion, primarily relying upon certain decisions of Hon’ble Kerala High Court and Hon'ble High Court of Bombay. As discussed elsewhere in the order. 32. However, upon carefully going through these decisions, we are of the considered view that the issue arising in the present case never fell for consideration before the Hon’ble Courts. The issue in dispute in those cases was primarily concerning what should be the maximum marginal rate and its applicability. The issue ‘whether the rate of surcharge would also be at the highest rate while computing tax at maximum marginal rate’ was never the issue before the Hon’ble Courts. Thus, in our view, the view expressed by the coordinate benches in decisions referred to in Paragraph 10(supra) lay down the correct proposition of law. Thus, in the ultimate analysis, we hold, in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading ‘surcharge on income tax’ appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back to the respective benches for deciding the appeals accordingly” 11. As it is now a settled proposition of law, we find no dispute in determining the rate of surcharge as per the slab rate prescribed in the Finance Act for the relevant year. As this issue is squarely covered in favour of the assessee, we direct the ld. AO to determine the surcharge in accordance with the slab rate prescribed as per the Finance Act. Here in this case, since the assessee’s income exceeds Rs. 50 lacs but does not exceed Rs. 1 Crores, the rate of surcharge applicable would be 10% which is the applicable rate in the present case in hand. We therefore, direct the ld. AO to recompute the surcharge accordingly. 7 ITA 2951/Mum/2025 Anil Gala Navneet Trust 12.In the result, the appeal filed by the assessee is hereby allowed.” 4. 4. Respectfully following the judgment of Special Bench as also the co-ordinate bench cited supra, we do not find any merit in the findings of the learned Addl./Joint CIT(A) in upholding the levy of the surcharge at the highest slab rate. Accordingly, the impugned order is set aside and the jurisdictional Assessing Officer is directed to levy the surcharge, in light of the decision of the Special Bench of the Tribunal, i.e., having reference to the slab rates prescribed in the Finance Act for the relevant year under the heading “surcharge on income tax”. 5. Since we decided the substantive ground itself, the other grounds in the appeal left open. 5. In the result, the appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the open court on 02nd day of July, 2025. Sd/- sd/- (OM PRAKASH KANT) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 02/06/2025 Pavanan Copy of the Order forwarded to: 1. अपीलाथ /The Appellant , 2. ितवादी/ The Respondent. 3. आयकर आयु\u0014 CIT 4. िवभागीय ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 5. गाड फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai "