2024 (12) TMI 1585 - AT - Income Tax

Tax Surcharge Struck Down: Income Below Rs. 50 Lakh Exempts Taxpayer from Additional Levy Under Finance Act Provisions

Ria Zaveri Trust Versus Assistant Commissioner of Income Tax, CPC Bangalore (Present Jurisdiction: ITO, Ward 7 (12) (1), Ahmedabad

The SC analyzed the legality of surcharge levied on income tax. The Tribunal found that since the appellant's total income was below Rs. 50 lakh, no ... Levy of surcharge - interpretation and application of the definition of Maximum Marginal Rate (MMR) - CIT(A) applying surcharge at the rate 37% as compared to appellant levying at 10% in the return of income - HELD THAT:- Both the parties fairly agreed that the issue before us mentioned in the grounds of appeal stands squarely covered by the orders of the Tribunal in the cases of Ujjwal Business Trust [2024 (6) TMI 1447 - ITAT MUMBAI], M/s. Lintas Employees Holiday Assistance Trust [2024 (7) TMI 1621 - ITAT MUMBAI], Shriram Trust [2024 (6) TMI 1406 - ITAT HYDERABAD] and Tayal Sales Corporation [2001 (2) TMI 877 - ITAT HYDERABAD] as held the maximum marginal rate is the rate of income tax which includes surcharge if any applicable in relation to the higher slab of income in the case of individual, AOP, BOI as specified in the Finance Act of the relevant year. Thus, the tax rate and surcharge is applicable on the basis of slab rate provided under the Finance Act of the relevant year. The first schedule to the Finance Bill 2022 which is applicable in the case of the assessee which provides for rates of income tax for various persons including the individual, HUF, AOP, BOI or artificial juridical person wherein slab rate for levy of tax of rates have been provided. However, the surcharge of income tax is applicable on the income which are exceeding slab rate of Rs.50,00,000/- and above, wherein different rate of surcharge have been provided. The surcharge leviable on income tax as provided in the Finance Act, 1992.Thus, the surcharge is leviable only when amount of income tax is computed where the total income exceeds Rs.50,00,000/- and so on. Assessee appeal allowed. The primary issue presented for consideration is whether the surcharge at the rate of 37% was correctly levied on the appellant, despite the appellant having declared and levied surcharge at 10% in the return of income for the Assessment Year 2021-22.The core legal question revolves around the applicability and computation of surcharge on income tax, specifically whether surcharge can be levied when the total income does not exceed the prescribed threshold of Rs. 50,00,000 as per the Finance Act applicable for the relevant assessment year.Another related question is whether the Commissioner of Income Tax (Appeals) erred in upholding the levy of surcharge at a higher rate contrary to the appellant's return and established legal principles.Both parties agreed that the issue is squarely covered by precedent orders of the Tribunal in several cases, notably those involving trusts and associations of persons (AOPs) where similar surcharge computations were challenged.Regarding the detailed analysis of the issue, the Tribunal referred extensively to Section 2(29C) of the Income Tax Act, which defines the 'maximum marginal rate' as the rate of income tax including surcharge applicable to the highest slab of income for individuals, associations of persons, or bodies of individuals as specified in the Finance Act for the relevant year.The Tribunal emphasized that the applicable tax rate and surcharge must be determined based on the slab rates provided under the Finance Act for that particular year. The Finance Act 2022, relevant for this case, prescribes different surcharge rates based on income thresholds:10% surcharge for total income exceeding Rs. 50 lakh but not exceeding Rs. 1 crore;15% for income exceeding Rs. 1 crore but not exceeding Rs. 2 crore;25% for income exceeding Rs. 2 crore but not exceeding Rs. 5 crore;37% for income exceeding Rs. 5 crore.The Tribunal highlighted that the surcharge is leviable only if the total income exceeds Rs. 50 lakh. In the instant case, the appellant's return of income was Rs. 36,930, which is significantly below the threshold for surcharge applicability.The Tribunal examined the provisions relating to surcharge on income tax, specifically the clauses that prescribe surcharge rates and the conditions under which they apply. It noted that the surcharge is computed on the amount of income tax calculated under the relevant sections of the Income Tax Act, and the total income must exceed the specified slabs for surcharge to be charged.Applying these legal principles to the facts, the Tribunal found that since the appellant's total income was below Rs. 50 lakh, no surcharge should have been levied. The imposition of a 37% surcharge by the Commissioner of Income Tax (Appeals) was therefore contrary to the statutory provisions and the Finance Act's prescribed slabs.The Tribunal also addressed the argument that the Central Processing Centre (CPC), which uses computer-assisted programs for tax computation, might have made an error in levying the surcharge. It held that even if such a mistake occurred, the CIT(A) should have correctly interpreted the law and not upheld the surcharge without any supporting notification or legal provision justifying surcharge on income below Rs. 50 lakh.In considering competing arguments, the Tribunal gave weight to the statutory language and the Finance Act's explicit provisions, rejecting any notion that surcharge can be levied arbitrarily or beyond the prescribed income slabs. It underscored that the surcharge must be strictly in accordance with the Finance Act and relevant legal definitions.Consequently, the Tribunal deleted the surcharge levied by the CPC and also reduced the consequential interest under Section 234B of the Income Tax Act, which relates to interest for defaults in payment of advance tax.The Tribunal relied on consistent precedents from coordinate benches that have held similarly in cases involving trusts and AOPs, reinforcing the principle that surcharge is not leviable unless the income crosses the statutory threshold.In its significant holdings, the Tribunal stated:'The surcharge is leviable only when amount of income tax is computed where the total income exceeds Rs.50,00,000/- and so on... the interpretation and the observation of the ld. CIT(A) is ostensibly against the law.''If CPC which is computer assisted programme has made a mistake, then at least ld. CIT(A) should have seen the law in correct perspective; or something should have been brought on record that there is any notification or interpreting the slabs provided in the Finance Act that even if income is less than Rs.50,00,000/-, surcharge is leviable in case of AOP.'The core principle established is that surcharge under the Income Tax Act and Finance Act can only be levied when the total income exceeds the prescribed slab limits, and any surcharge levied contrary to this is not sustainable in law.On the final determination, the Tribunal allowed the appeal of the assessee, set aside the surcharge levied at 37%, and reduced the interest accordingly, thereby restoring the surcharge at the rate declared by the appellant in the return of income (10%) or effectively deleting it given the income level.