Maximum marginal rate surcharge must follow Finance Act slab rates, not the highest surcharge rate automatically.

For an association of persons taxed at the maximum marginal rate under section 167B, surcharge must be computed by reference to the slab-wise surcharge rates in the relevant Finance Act, read harmoniously with section 2(29C). The expression "maximum marginal rate" does not permit automatic application of the highest surcharge rate merely because section 167B applies; it requires use of the surcharge rate attached to the income slab into which the total income falls. On that construction, where income fell within the slab attracting 10% surcharge, surcharge could not be levied at 37%.

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Issues: Whether an association of persons taxed at the maximum marginal rate under section 167B of the Income-tax Act, 1961 is liable to surcharge at the highest surcharge rate applicable to the top income slab, or at the surcharge rate applicable to the relevant income slab under the Finance Act of the relevant year.

Analysis: The definition of "maximum marginal rate" in section 2(29C) links the rate of income-tax, including surcharge, to the highest slab of income as specified in the Finance Act of the relevant year. The determination of the maximum marginal rate therefore requires reference to the slab structure in the Finance Act and not a standalone application of the highest surcharge percentage merely because section 167B applies. The reasoning adopted from the Special Bench treated the surcharge mechanism in the Finance Act as part of the computation scheme and held that the words "if any" in section 2(29C) must be read in harmony with the surcharge provisions of the Finance Act. Applying that construction, where the assessee's total income fell within the slab attracting 10% surcharge and not the highest slab attracting 37%, the surcharge could not be levied at 37%.

Conclusion: The surcharge was required to be computed at 10% and not 37%, and the assessee succeeded on the substantive issue.

Ratio Decidendi: For assessees chargeable to tax at the maximum marginal rate, surcharge must be computed with reference to the slab-wise surcharge rates prescribed in the Finance Act of the relevant year, read harmoniously with section 2(29C), and not automatically at the highest surcharge rate.

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