ARAADHYA JAIN TRUST,MUMBAI V. INCOME TAX OFFICER, WARD-22(1)(6), MUMBAI

ITA 2197/MUM/2024

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The case involves Aradhya Jain Trust appealing against the surcharge rate applied by the Central Processing Centre (CPC) on their income tax assessment for the assessment year 2022-23. The trust argued that the surcharge should be calculated at 10%, applicable to their income slab, rather than the 37% maximum marginal rate applied by the CPC. The Income Tax Appellate Tribunal examined the definitions and applications of 'maximum marginal rate' and 'surcharge' under the Income Tax Act, 1961, and relevant Finance Acts, ultimately agreeing with the CPC's application of the highest surcharge rate.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473081 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-07-2024
• Assessment Year: 2022-2023
• Appeal Filed On: 25-04-2024
• Other Referred Cases: JKS Employees' Welfare Fund vs. ITO, CIT vs. C.V. Divakaran Family Trust, Gosar Family Trust, Jamnagar etc vs. CIT, CIT vs. JK Holdings
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANOJ KUMAR SINHA
• Assessee Lawyers: MIHIR NANIWADEKAR; SHRIROHAN DESHPANDE
• Keywords: Maximum Marginal Rate
• Section: 143(1)

Judgement Text

" Page | 1 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI ANIKESH BANERJEE, JM ITA No.2197/MUM/2024 Vs. A.Y. 2022-23 Aradhya Jain Trust, 31 Benzer Terraces, Abdul Gaffar Khan,Worli, Mumbai Income Tax Officer, Ward 22(1)(6), Mumbai (Appellant) (Respondent) PAN AAITA 2310B Assessee by Shri Mihir Naniwadekar & ShriRohan Deshpande Revenue by Shri Manoj Kumar Sinha, (Sr. DR) Date of hearing 09th July, 2024 Date of pronouncement 07.10.2024 O R D E R PER PRASHANT MAHARISHI, AM: 1. This appeal is filed by Mr. Aaradhya Jain Trust (the assessee) against the appellate order passed by the Joint Commissioner of Income Tax, Panchkula[The Ld. CIT (A)] for AY 2022-23 dated 18.03.2024 wherein the appeal filed by the assessee Page | 2 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai against Assessment order issued u/s. 143(1) of the Income Tax Act, 1961 (the Act) dated 16.03.2023 passed by the Deputy Director of Income Tax, Central Processing Centre, Bangalore was dismissed. 2. The assessee is in appeal before us raising the following grounds of appeal: “In the fact and the circumstances of the case and in law, the learned Addl/Joint Commissioner of Income Tax (Appeals)-Panchkula erred in 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 appellant is liable to pay tax at maximum marginal rate the applicable rate of surcharge 37% viz. the maximum marginal rate in this case is 42.74%. 2. In not appreciating that once the total income of the appellant is ₹55,75,700/more than ₹Fifty Lacs but less than ₹ one crore, the applicable rate of surcharge ought to be 10 percent as per clause (3) in Paragraph A of Part I to the Fist Schedule of the relevant Finance Act 3. In concluding that surcharge is a part of the rate of tax and not appreciating that the tax is required to be increased by surcharge, as applicable, and hence it is a separate charge other than tax. 4. In concluding that maximum marginal rate in section 2(29) covers not only maximum rate of income-tax but also maximum rate of surcharge also. 5. In not appreciating that the words \"rate of income-tax (including surcharge on income- Page | 3 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai tax, if any in section 2(29) denotes two separate levies. 6. In confirming that the AO CPC has power to vary the rate of surcharge while processing the return u/s. 143(1). 7. The appellant craves leave to add to, withdraw or modify any of the grounds of appeal at the time of heating.” 3. The brief facts of the case are that i. Assessee is a private discretionary trust liable to pay income tax at maximum marginal rate filed its return of income for A.Y. 2022-23 at a total income of ₹NIL. The return of income filed by the assessee on 19.07.2022 as the total income of ₹55,75,700/- which was subsequently revised on 26.12.2022 without their being any change in the returned of income and the return was revised to include certain voluntary disclosures. Return was processed u/s. 143(1) of the Act on 16.03.2023 determining total income of the assessee at ₹55,75,700/- and tax determined on the total income of ₹16,72,710/- is not in dispute. ii. The only dispute is that assessee has computed surcharge on the tax payable amounting to ₹1,67,271/-whereas the surcharge computed by Central Processing Centre is ₹6,18,903/-. Assessee computed surcharge @10% as per return of income filed. However, the Central Processing Centre computed surcharge @37% on the tax payable. iii. According to the assessee as the total income of the assessee as per return of income is ₹55,75,700/-, as per Page | 4 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai Paragraph-A of Part-I of the first Schedule to the Finance Act, 2021 the applicable rate of surcharge on such total income of ₹55,75,700/- is 10%. However, as per the order u/s. 143(1) of the Act tough there is no change in the total income computed by the assessee and no change in the tax at total income at ₹16,72,710/-. However, the surcharge is computed at 37% on the entire amount of tax of ₹16,72,710/- amounting to ₹6,18,903/-. Consequently, there is increase in the amount of CESS and interest u/s.234B ad 234C of the Act. The intimation was passed on 16.03.2023. 4. The assessee challenged intimation before the learned CIT(A). Before the learned CIT(A), the assessee submitted that assessee is liable to pay tax at maximum marginal rate as per provisions of Section 167B of the Act. The assessee has calculated the tax payable applying the maximum marginal rate to calculate the surcharge leviable @10%. According to the assessee, the maximum marginal rate of tax 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. Thus, the claim of the assessee is that while applying the maximum marginal rate only tax of highest income tax slab will be considered and surcharge thereon will be considered as applicable to the income offered by the assessee as mentioned in Schedule-Part-I of Finance Act, 2021. 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. Assessee placed reliance on Page | 5 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai the decision of the Hon'ble Rajasthan High Court in the case of JKS Employees’ Welfare Fund vs. ITO 199 ITR 765. 5. The learned CIT(A) rejected the contention of the assessee and held that the maximum marginal rate is required to be computed at the highest rate of taxation and surcharge also. The learned CIT (A) further referred to the provisions of Section 2(29C) of the Act read with section 164 of the Act. He held that the provisions of Section 2(29C) of the Act do not remotely suggest to include surcharge in MMR as per different slab rates of income. He, therefore, held that it is clear that maximum marginal rate is required to be computed of the tax rate of highest slab @ 30% and surcharge for highest slab @ 37% alongwith education Cess @ 4%. Therefore, the maximum marginal rate would be 42.74%. It is further held that while passing the intimation u/s. 143(1) of the Act the Central Processing Centre is empowered to levy the correct rate of tax. It was further held that the decision relied upon by the assessee does not apply to the facts of the case. Accordingly, the learned CIT (A) upheld the action of the Assessing Officer charging the surcharge @ 37%. The appellate order was passed on 18.03.2024 by which the assessee is aggrieved and is in appeal before us. 6. The learned Authorized Representative (A.R.) categorically held that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITO vs. Tayal Sales Corporation [2003] 1 SOT 579 (Hyd.) and decision of ITAT, Hyderabad Bench in the case of Sriram Trust, Hyderabad vs. ITO in ITA No. 439/Hyd/2024 dated 19.06.2024. The learned A.R. also referred to the provisions of the Finance Act, 2022,to Page | 6 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai substantiate the claim of the assessee that for the purpose of working out the maximum marginal rate only the highest slab of tax rate is to be considered and surcharge is required to be applied as per the regular slab as applicable to the income offered by the assessee. 7. The learned Departmental Representative (D.R.) vehemently supported orders of the LD Lower Authorities. 8. We have carefully considered the rival contention and have also perused the orders of the lower authorities. In the present appeal, there is no dispute between the parties that assessee is a private discretionary trust, therefore, should be taxed at the maximum marginal rate. The issue involved is how to calculate the maximum marginal rate. The assessee has claimed while computing the maximum marginal rate by taking the Income Tax rate applicable in relation to the highest slab of income in case of an individual , this is also not in dispute. But the dispute is what should be the applicable rate of surcharge. The assessee claims that the rate of surcharge applicable to be assessee according to the income slab of the assessee and should not be at the highest rate of surcharge provided in the Finance Act. According to the Revenue, the surcharge rate should also be highest rate of surcharge applicable in case of an individual. 9. Section 2(29C) of the Act defines maximum marginal rate. It provides that maximum marginal rate means the rate of income tax (including surcharge on income tax, if any) applicable in a relation to the highest slab of income in the case of an individual as specified in the Finance Act of the relevant Page | 7 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai year. Thus, according to the provisions, when assessee is to be taxed at maximum marginal rate, same is to be arrived at by taking highest slab of tax and highest slab of surcharge applicable in case of an individual. This view is already expressed in the commentary on Income Tax by Chaturvedi and Pithisaria as well as of the book published by Mr. Vinod Singhania. Even otherwise, language of law is clear that maximum marginal rate shall be maximum rate of tax and surcharge of the highest rate 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) of the Act that rate of income tax (including surcharge of income tax, if any) applicable in relation to the highest slab of income in case of an individual. Thus, purpose of mentioning surcharge in that section is to compute maximum marginal rate as high rate of tax and also highest rate of surcharge. If one reads the provisions of the law as suggested by the learned A.R., mentionof the word surcharge in Section 2(29C) of the Act becomes redundant. The definition is not capable of any doubt and only meaning that it admits is that the rate on the maximum slab of income and maximum rate of surcharge is to be treated as the maximum marginal rate. The Finance Act for each year prescribes various slabs for each category of the assessee and the corresponding rates applicable. This view is also supported by the decision of the Hon'ble Kerala High Court in the case of CIT vs. C.V. Divakaran Family Trust [2002] 254 ITR 222 (Ker.). It is also true 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 Page | 8 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai certain specified situation. Thus, such a policy is defeated, if we hold that the beneficiary of a trust is 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. We also draw support from the decision of the Hon'ble Supreme Court in the case of Gosar Family Trust, Jamnagar etc vs. CIT dated 28.04.1994 (MANU/ SC/0316/1995). 10. The levy of maximum marginal rate on trust is thus specific anti Avoidance rule and therefore should be given a strict interpretation. Law prescribes that tax shall be charged on income in respect of which such person is so liable at the maximum marginal rate. There is no provision in the law to charge specific discretionary trust bit lower than the rates of tax and surcharge applicable to a beneficiary individual. We also draw strength from the decision of the Hon'ble Bombay High Court in the case of CIT vs. JK Holdings [2003] 133 Taxman 443 (Bombay) 11. The learned A.R. have relied upon the several decisions of the coordinate Benches, however, none of those decisions has considered the decision of the Hon'ble Supreme Court and Hon'ble High Courts as well as the authoritative commentaries, as stated above. We are duty bound to follow those decisions. 12. In the result, we confirm the order of the learned CIT(A) holding that the maximum marginal rate is correctly computed by the Central Processing Centre by taking the maximum rate of income tax and maximum of rate of surcharge applicable in case of an individual for the assessment year and same is applicable on assessee , a private discretionary trust. Page | 9 ITA No2197/M/2024 A Y : 2022–23 Aradhya Jain Trust Versus ITO, Mumbai 13. In view of above discussion, the Ground Nos. 1 to 5 of the appeal are dismissed. 14. The next contention of the assessee is that CPC does not have any power to vary the rate of surcharge by processing the return of income u/s. 143(1) of the Act. For this proposition we find 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. Therefore, on this ground also, we do not find any reason to interfere with the order of the learned CIT(A). 15. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 07/10/2024. Sd/- Sd/- Sd- Sd/- (ANIKESH BANERJEE) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 07.10.2024 Aks/- Copy of the Order forwarded to : The Appellant, The Respondent, The CIT, The DR ITAT & Guard File BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai "