Surcharge on discretionary trust income cannot be imposed automatically where income stays below the Finance Act threshold.

A private discretionary trust taxed at the maximum marginal rate was not automatically liable to surcharge where its total income remained below the surcharge threshold prescribed in the relevant Finance Act. The applicable scheme requires income-tax to be computed under the slab structure in that Act and surcharge to be imposed only in accordance with the surcharge provisions contained in the same enactment. Reading surcharge as mandatory merely because the trust is taxed at the maximum marginal rate would distort the statutory structure and render the slab-wise surcharge regime redundant. On that basis, no surcharge was payable and the levy was held unsustainable.

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Issues: Whether surcharge could be levied on the tax payable by a private discretionary trust taxed at the maximum marginal rate when the total income was below the threshold prescribed for surcharge under the relevant Finance Act.

Analysis: The applicable provisions treat the income of a discretionary trust as chargeable at the maximum marginal rate, but the definition of that rate refers to the income-tax rate, including surcharge if any, as specified in the Finance Act of the relevant year. The computation therefore has to proceed by first identifying the income-tax rate under the slab structure in the Finance Act and then applying surcharge only in accordance with the surcharge provisions contained in that same enactment. A construction that automatically applies the highest surcharge merely because the assessee is taxed at the maximum marginal rate would make the slab-wise surcharge structure otiose and would be inconsistent with the statutory scheme. Since the assessee's income was below the surcharge threshold, no surcharge was payable.

Conclusion: The levy of surcharge was not sustainable and the assessee was entitled to relief.

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