Maximum marginal rate does not by itself trigger highest surcharge for discretionary trusts below the statutory threshold.

For a private discretionary trust taxed at the maximum marginal rate, surcharge is not automatically payable at the highest rate merely because the trust falls within that tax regime. The applicable surcharge must still be tested against the surcharge thresholds in the relevant Finance Act schedule, and surcharge is attracted only when total income crosses the prescribed limit. Where the trust's income remains below that threshold, the higher surcharge rate does not apply. The commentary adopts the view that surcharge for discretionary trusts depends on the statutory surcharge mechanism for the year and cannot be fixed mechanically at the top bracket.

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Issues: Whether surcharge at the highest rate could be levied on the income of a private discretionary trust chargeable at the maximum marginal rate, where the trust's income in the relevant years remained below the threshold for surcharge.

Analysis: The trust was assessed under the regime applicable to discretionary trusts, and the dispute turned on the meaning of "maximum marginal rate" in section 2(29C) of the Income-tax Act, 1961. The relevant legal framework required tax to be computed at the highest applicable slab rate and surcharge, if any, to be determined with reference to the surcharge mechanism in the Finance Act for the relevant year. The applicable surcharge slabs in Paragraph A, Part I of the First Schedule to the Finance Act, 2023 showed that surcharge is attracted only where total income crosses the prescribed threshold. The trust's income in the relevant years was below that threshold, and the higher surcharge rate of 37% was therefore not applicable. The reasoning adopted the Special Bench view that surcharge for discretionary trusts is not to be mechanically fixed at the highest surcharge bracket merely because tax is charged at the maximum marginal rate.

Conclusion: Surcharge at 37% was not leviable on the assessee trust's income below the surcharge threshold, and the issue was decided in favour of the assessee.

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