Private discretionary trust fails to challenge Section 167B maximum marginal rate computation including highest surcharge rates

ITAT Mumbai dismissed the appeal of a private discretionary trust challenging the computation of maximum marginal rate under Section 167B. The trust contended that surcharge should be calculated based on its actual income slab rather than the highest rate applicable to individuals. ITAT held that Section 2(29C) clearly mandates that maximum marginal rate for discretionary trusts includes both the highest tax rate (30%) and highest surcharge rate (37%) applicable to individuals, plus education cess (4%). The tribunal emphasized this provision serves as an anti-avoidance measure to discourage discretionary trusts, requiring strict interpretation. CPC's computation applying maximum rates was upheld.

---

---

Issues Involved:
Calculation of surcharge at maximum marginal rate for a private discretionary trust under Section 2(29C) of the Income Tax Act, 1961.

Detailed Analysis:

1. Calculation of Maximum Marginal Rate:
The appeal concerns the calculation of the maximum marginal rate for a private discretionary trust. The assessee contended that the surcharge should be computed based on the income slab of the trust, not at the highest rate provided in the Finance Act. The Revenue argued that both tax and surcharge should be at the highest rates applicable to an individual. Section 2(29C) defines the maximum marginal rate as the highest slab of income tax and surcharge for an individual. The Tribunal held that the law mandates the highest tax and surcharge rates for calculating the maximum marginal rate, as supported by legal commentaries and judicial precedents. The purpose is to discourage discretionary trusts by taxing them at the maximum marginal rate.

2. Judicial Precedents and Interpretation:
The Tribunal cited the decision of the Hon'ble Kerala High Court in CIT vs. C.V. Divakaran Family Trust, emphasizing the strict interpretation of the anti-avoidance rule for trusts. It also referred to the Supreme Court's decision in Gosar Family Trust vs. CIT and the Bombay High Court's ruling in CIT vs. JK Holdings to support the application of the maximum marginal rate to trusts. The Tribunal highlighted that prior decisions of coordinate benches did not consider these authoritative judgments and commentaries, emphasizing the need to follow higher court decisions.

3. Power of Central Processing Centre (CPC):
The assessee argued that CPC lacked the authority to vary the surcharge rate under Section 143(1) of the Act. However, the Tribunal held that CPC has the power to compute the correct tax amount and sum payable by the assessee as per Section 143(1)(b) and (c) of the Act. Therefore, the Tribunal upheld the decision of the CIT(A) regarding the computation of the correct surcharge rate by CPC.

4. Final Decision:
After thorough consideration, the Tribunal dismissed the appeal of the assessee, affirming the order of the CIT(A) regarding the correct calculation of the maximum marginal rate and the power of CPC to determine the surcharge rate. The judgment was pronounced on 07/10/2024, settling the dispute over the calculation of surcharge for a private discretionary trust.

---