ANU AGA FAMILY DISCRETIONARY TRUST,PUNE V. INCOME TAX OFFICER, WARD 7(1), PUNE

ITA 1258/PUN/2024

AI Insights

The case involves the Anu Aga Family Discretionary Trust appealing against the order of the Additional/Joint Commissioner of Income Tax (Appeals)-1, Gurugram, which pertained to the Assessment Year 2021-22. The primary contention was regarding the rate of surcharge applied to the trust's income. The trust argued that the surcharge should be applied at 15% for certain incomes including short term capital gains under section 111A and dividend income, contrary to the 37% surcharge applied by the Assessing Officer/ CPC. The Tribunal's decision was influenced by a similar case, Araadhya Jain Trust Vs. ITO, where it was held that for private discretionary trusts, the surcharge should be computed based on slab rates prescribed in the Finance Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 669573 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2021-2022
• Other Referred Cases: Araadhya Jain Trust Vs. ITO (ITA No. 4272/Mum/2024)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMNATH P. MURKUNDE
• Assessee Lawyers: C. H. NANIWADEKAR
• Keywords: Set aside; Capital Gains; Rectification of order; Maximum Marginal Rate
• Section: 154

Judgement Text

" आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI R.K. PANDA, VICE PRESIDENT AND MS. ASTHA CHANDRA, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1258/PUN/2024 धििाारण वर्ा / Assessment Year : 2021-22 Anu Aga Family Discretionary Trust, 501, Marvel Alina, Lane No. 5, Koregaon Park, Pune-411001 PAN : AAFTA4748N Vs. ITO, Ward-7(1), Pune अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri C.H. Naniwadekar Department by : Shri Ramnath P. Murkunde Date of hearing : 18-06-2025 Date of Pronouncement : 26-06-2025 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 17.05.2024 of the Ld. Additional/Joint Commissioner of Income Tax (Appeals)-1, Gurugram [“Addl./JCIT(A)”] pertaining to Assessment Year (“AY”) 2021-22. 2. The assessee has raised the following grounds of appeal : “In the fact and the circumstances of the case, and in law, the learned Addi/Joint Commissioner of Income-tax (Appeals) Gurugram, erred in partially confirming the variance in the intimation u/s 143(1) made by CPC in respect of the rate of surcharge and erred: 1. In confirming that the AO CPC has power to vary the rate of surcharge while processing the return u/s 143(1). 2. In confirming that the since the appellant is liable to pay tax at maximum marginal rate, the applicable rate of surcharge is 15% only for income covered u/s 111A and for all other income (including dividend), the applicable rate of surcharge is 37% i.e. the maximum rate of surcharge. 2 ITA No. 1258/PUN/2024, AY 2021-22 3. In not appreciating that the total income of the appellant of Rs.3,49,22,466/- includes income of Rs.3,13,14,555/- on which maximum surcharge is 15 per cent (viz. short term capital gains u/s 111A and dividend income) and the balance income is Rs.36,07,911/ and accordingly, as per clause (e) under the heading surcharge on income-tax in Paragraph A of Part I of the First Schedule to the Finance Act, 2021, the applicable rate of surcharge on such total income of Rs.36,07,911/- ought to be 15 per cent. 4. In not appreciating that the words \"rate of income-tax (including surcharge on income-tax, if any)\" in section 2(29C) denotes two separate levies and hence MMR does not automatically include higher rate of surcharge. 5. Without prejudice to above, in holding that the applicable rate of surcharge in the case of dividend income is also 37% on the basis of provisions of the Finance Act, 2020, when in fact, as per the provisions of the Finance Act, 2021, the maximum rate of surcharge in case of dividend is 15%. 6. The Appellant craves leave to add to, withdraw or modify any of the grounds of appeal at the time of hearing.” 3. The issue raised in the appeal is - whether, in the case of private discretionary trusts whose income is chargeable to tax at the Maximum Marginal Rate (“MMR”), surcharge is chargeable at the highest applicable rate or as per slab rate? 4. At the outset, the Ld. AR submitted that the impugned issue stands squarely covered in favour of the assessee by the decision of the Mumbai ITAT Special Bench in the case of Araadhya Jain Trust Vs. ITO (ITA No. 4272/Mum/2024) dated 09.04.2025, where the present assessee was also an intervenor. A copy of the said decision was placed on record. 5. The Ld. DR, on the other hand, could not controvert the above submission made by the Ld. AR by placing any binding precedent in the favour of Revenue on this issue. 6. We have heard the Ld. Representatives of the parties and perused the material available on record and the decision of the Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra). The facts of the case are not in dispute. For AY 2021-22, the assessee trust declared the total income of Rs.3,49,22,466/- in its return of income which comprises of – (i) short term capital gains under section 111A of the Income Tax Act, 1961 (the “Act”) taxable @ 15% and maximum surcharge 3 ITA No. 1258/PUN/2024, AY 2021-22 @ 15%; (ii) other short term capital gains taxable at MMR; (iii) dividend income taxable at MMR and maximum surcharge @ 15% and other income taxable at MMR. The total income of Rs.3,49,22,466/- includes income of Rs. 3,13,14,555/- on which maximum surcharge is 15% (viz. short term capital gains under section 111A and dividend income. Thus, the total income of the assessee excluding short term capital gains under section 111A and dividend income comes out to be Rs. 36,07,911/-. The applicable tax has been paid by the assessee accordingly after adding surcharge of 15% in terms of para(e) under the heading surcharge on income-tax in Paragraph A of Part I of the First Schedule to the Finance Act, 2021 read with the proviso contained therein providing for the levy of surcharge @15% for dividend income and short term capital gains under section 111A of the Act. As per the return filed by the assessee, the tax on total income (excluding surcharge and cess) is Rs. 97,20,477/-. The Ld. AO/ CPC while processing the return under section 143(1) of the Act levied surcharge at the maximum rate of 37% on the entire amount of tax as against 15% calculated and paid by the assessee. Subsequently, vide rectification order under section 154 of the Act dated 07.08.20223, the Ld. AO/CPC computed surcharge @ 15% on (a) short term capital gains under section 111A and (b) dividend income. On the balance amount of 10,82,375/- comprising of short term capital gain (other than under section 111A) and interest income, the Ld. AO/CPC continued to levy surcharge @ 37% as against 15% claimed by the assessee. On appeal, the Ld. Addl./JCIT(A) partly allowed the appeal of the assessee observing that on the short term capital gains under section 111A of the Act, the applicable surcharge shall be @ 15% and other income of the assessee including dividend income shall be subjected to MMR with surcharge @ 37% as per the provisions of section 167B r.w.s. 2(29C) of the Act. 7. We have perused the decision of the Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra) and find that the impugned issue stands decided in favour of the assessee. We also observe that the said decision of the Special Bench was not available when the impugned order was passed by the Ld. CIT(A). The Special Bench of the Mumbai Tribunal in the case of Araadhya Jain Trust (supra) has held that “in case of Private Discretionary Trusts, whose income is chargeable to tax at 4 ITA No. 1258/PUN/2024, AY 2021-22 maximum chargeable 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 Para A, Part 1, First Schedule, applicable to the relevant assessment year.” It has also been held by the Special Bench that for the income earned by way of dividend including income referred u/s 111A, 112 and 112A of the Act, the rate of surcharge shall not exceed 15%. 8. As per the relevant provisions of the Act, the levy of surcharge depends on the amount of income of the assessee. For AY 2021-22, the surcharge is leviable only if total income exceeds Rs.50 Lakhs. For income exceeding Rs.50 Lakhs but upto Rs.1 Crore, rate of surcharge is 10%; for the income exceeding Rs.1 Crore but not exceeding Rs.2 Crores, rate of surcharge is 15%; for the income exceeding Rs. 2 Crores but not exceeding Rs.5 Crores, rate of surcharge is 25%; and for the income exceeding Rs.5 Crores, rate of surcharge is 37%. For the income earned by way of dividend, short term capital gains u/s 111A, long term capital gains u/s 112 and 112A of the Act, the rate of surcharge is 15%. 9. Analyzing the facts of the present case in light of the decision of the Special Bench of Mumbai Tribunal in the case of Araadhya Jain Trust (supra), in our considered view, the Ld. Addl./JCIT(A) has erred in holding that that the entire income of the assessee including dividend income but excluding the income covered under section 111A of the Act, is required to be subjected to MMR with surcharge @ 37% as against 15% which has rightly been claimed by the assessee in its return of income. 10. Considering the totality of facts of the case and legal position set out above and in the absence of any objection raised and any contrary material brought on record by the Revenue, respectfully following the decision of the Special Bench of Mumbai Tribunal (supra), we set aside the order of the Ld. Addl./JCIT(A) and direct the Ld. AO/CPC to allow the claim of the assessee. Grounds of appeal no. 1 to 5 raised by the assessee are accordingly allowed. 5 ITA No. 1258/PUN/2024, AY 2021-22 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 26th June, 2025. Sd/- Sd/- (R.K. Panda) (Astha Chandra) VICE PRESIDENT JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 26th June, 2025. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "