Surcharge on maximum marginal rate income tax held inapplicable where income stayed below the threshold

Surcharge was not leviable on income-tax computed at the maximum marginal rate where the assessee's total income was below Rs. 50 lakhs, because the surcharge provision applies only when the prescribed threshold is crossed. The definition of maximum marginal rate under section 2(29C) links the rate to the highest slab, including surcharge if any, but does not authorise surcharge irrespective of slab. Following the co-ordinate Bench view in Tayal Sales Corporation, the surcharge added in processing under section 143(1) was unsustainable and had to be deleted.

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Issues: Whether surcharge could be levied on income-tax computed under the maximum marginal rate where the assessee's income was less than Rs. 50 lakhs.

Analysis: The return was processed under section 143(1) of the Income-tax Act, 1961, and surcharge was added on the footing that the maximum marginal rate necessarily carried surcharge. Section 2(29C) defines the maximum marginal rate by reference to the rate of income-tax including surcharge, if any, applicable in relation to the highest slab of income under the relevant Finance Act. The relevant surcharge provision applies only when the total income crosses the prescribed threshold, and does not contemplate surcharge on income below Rs. 50 lakhs. The interpretation adopted by the co-ordinate Bench in Tayal Sales Corporation was followed, namely that the concept of maximum marginal rate has a nexus with the highest slab of income and does not authorise surcharge irrespective of slab.

Conclusion: Surcharge was not leviable on the assessee's income-tax where the income was less than Rs. 50 lakhs, and the addition of surcharge was unsustainable.

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