Maximum marginal rate for private discretionary trusts still attracts slab-based surcharge under the Finance Act, not the highest rate.

Private discretionary trusts taxed at the maximum marginal rate are not automatically liable to surcharge at the highest surcharge rate. The definition of "maximum marginal rate" under section 2(29C) links tax to the Finance Act's rate structure, including surcharge "if any", while sections 164 and 167B do not independently fix the surcharge mechanism. The surcharge must therefore be computed under the graduated, slab-based surcharge scheme in the relevant Finance Act, unless a clear statutory mandate requires otherwise. Reading the provision to impose the highest surcharge in every case would disapply the graded surcharge structure and lead to an unreasonable result.

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Issues: Whether, in the case of private discretionary trusts whose income is chargeable to tax at the maximum marginal rate, surcharge is chargeable at the highest applicable rate or at slab rates.

Analysis: The definition of "maximum marginal rate" under section 2(29C) of the Income-tax Act, 1961 refers to the rate of income-tax, including surcharge on income-tax, if any, as specified in the Finance Act of the relevant year. Sections 164 and 167B of the Income-tax Act, 1961 provide for taxation at the maximum marginal rate but do not independently prescribe the surcharge mechanism. The surcharge provisions in the Finance Act operate through their own graduated structure, linked to the quantum of total income. Reading the definition as mandating surcharge at the highest rate in every case of a discretionary trust would render the graded surcharge provisions and the provisos under the Finance Act ineffective and would produce an absurd and discriminatory result. The expression "if any" was therefore construed in conjunction with the surcharge computation mechanism contained in the Finance Act.

Conclusion: Surcharge in the case of a private discretionary trust taxed at the maximum marginal rate is to be computed with reference to the slab-based surcharge structure under the relevant Finance Act, not at the highest surcharge rate in every case. The issue is answered in favour of the assessee.

Ratio Decidendi: Where taxation is imposed at the maximum marginal rate, the surcharge component must still be determined under the graduated surcharge scheme of the relevant Finance Act unless the statute clearly mandates otherwise.

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