Income-tax surcharge must follow the applicable slab rate; first slab taxpayers face 10%, not 37%, on return processing.

Surcharge on return processing under section 143(1) depends on the assessee's applicable income slab under Paragraph A, Part I, First Schedule to the Income-tax Act, 1961. Where income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore, the first surcharge slab applies and the surcharge rate is 10%, including for dividend income and income chargeable under sections 111A, 112 and 112A. The higher 37% surcharge rate is not applicable to that slab, and any adjustment applying 37% is unsustainable.

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Issues: Whether surcharge on the assessee's tax liability, in the relevant income slab, was leviable at 10% or at 37% while processing the return under section 143(1).

Analysis: The assessee fell within the first surcharge slab under Paragraph A, Part I, First Schedule to the Income-tax Act, 1961, as the income exceeded Rs. 50 lakhs but did not exceed Rs. 1 crore. The applicable surcharge rate for that slab, including income by way of dividend and income chargeable under sections 111A, 112 and 112A, was 10%. The higher rate of 37% was therefore not applicable to the assessee's case.

Conclusion: The surcharge was liable to be levied at 10% and the addition made at 37% was unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: Surcharge must be levied according to the applicable income slab under the First Schedule, and where the assessee falls within the first slab, the surcharge rate is 10%.

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