TaxTMI 
TaxTMI 
2025 (7) TMI 1741
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....edical reasons and the affidavit and the medical certificate has been placed on record. The Ld.DR has been heard who has objected to the condonation application on account of substantial delay. After hearing both the parties and perusing the facts placed on record, we find that there was reasonable cause for the delay in filing these appeals and hence, the delay is hereby condoned and all the appeals are admitted for adjudication. 3. With the consent of both the parties, the appeal in ITA No. 3128/Mum/2025 (AY. 2021-22) was taken as the lead case for the sake of convenience and discussion wherein the assessee has taken the following ground of appeal: "On facts and circumstances of the case and in law, the learned Joint Commissioner (Appeals) erred in sustaining the action of the learned Assessing Officer in levying the highest rate of surcharge of 37% on the marginal rate of tax applicable u/s 167B in assessing the Appellant's income in intimation u/s 143 (1) instead of 10%. The rate of surcharge @ 10% is correct and may please be restored in appeal." 4. Briefly the facts of the case are that the assessee is an Association of Persons (AOP) and filed its return of....
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....as further submitted that the Special Bench of the Tribunal has since decided the matter in the case of Araadhya Jain Trust vs. ITO in ITA No. 4272/Mum/2024, vide order dt. 09-04-2025 and, therefore, the matter is squarely covered by the decision of the Special Bench of the Tribunal. It was submitted that the said decision has been pronounced after the passing of the impugned order by the Ld.CIT(A) i.e., on 22-10-2024 and, therefore, the same could not be brought to the notice of the Ld.CIT(A). It was accordingly submitted that the necessary relief be provided to the assessee by directing the computation of surcharge @10% as against 37% done by the CPC and which has been upheld by the Ld.CIT(A). 7. Per contra, the Ld. DR submitted that Section 167B(1) of the Income Tax Act, 1961, provides that where the individual shares of the members of an AOP are indeterminate or unknown, the total income of the AOP shall be taxed at the maximum marginal rate (MMR). The Department asserts that the shares of the members in Bhagirathi Enterprise's income were not clearly defined in the return of income, thereby triggering Section 167B(1). It was submitted that the MMR is defined under Secti....
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....ature and therefore required no adjudication. Grounds 3 to 5 are related to charging of surcharge @ 37% and therefore being adjudicated as one ground, I have carefully gone through the Intimation and submissions of the appellant. The submissions of the appellant, dated 19-04-2024 is reproduced as under: We have Filed Return of Income for the Assessment Year 2021-22, Declaring Taxable Income of Rs. 64,02,500/- From Income From House Property (Copy of Computation And Balance Sheet Attached). Since, Members are having Income More than 10 Lakhs - Individually & we fall Under Higher Slab Rate of Income Tax (Under Old Regime) at 30% Plus Surcharge Plus Education Cess as Applicable. Hence, we had Pald Income Tax on AOP at Higher Rate i.e. 30%. Since AOP's Income is Between 50 Lakhs To 1 Corer, Surcharge is Applicable At 10% Plus Education Cess as applicable. We have Paid Income Tax @ 30% Rs. 19,20,751/- + Surcharge @ 10% Rs. 1,92,075/- And Education cess 4% Rs. 84,513/-. As per the above submissions of the appellant the members of the appellant AOP are having income more than 10 lakhs individually and fall under higher slab rate of Income Tax at 30% plus Surcharge pl....
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....he MMR the rate of income-tax, surcharge and the highest slab of income as specified in the Finance Act of the relevant year are the main basis. Further, the rate of income-tax and surcharge are in relation to the highest slab of income as specified in the Finance Act of the relevant year. Therefore, the main criteria for calculating MMR is to ascertain that what is the highest slab of income as specified in the Finance Act. 9.2 In the Finance Act, 2020 applicable for financial year 2020-21, the rates and slabs of income have been specified. From the same it can be seen that for association of persons (AOPs) the rates of income tax specified are as under: THE FIRST SCHEDULE (See section 2) PART I INCOME-TAX Paragraph A (i) In the case of every individual other than the individual referred to in items (ii) and (iii) of this Paragraph or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial judicial person referred to in sub-clause (vii) of clause (31) of section 2 of the Income Tax Act, not being the case to which any other Paragraph of this Part applies,- Rates of income-tax ....
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.... 112A of the Income-tax Act) exceeding two crore rupees but is not covered under clauses (c) and (d), shall be applicable at the rate of fifteen per cent of such income-tax; Provided that in case where the total income includes any income by way of dividend or income under the provisions of section 111A or section 112 or section 112A of the Income-tax Act, the rate of surcharge on the amount of income-tax computed in respect of that part of income shall not exceed fifteen per cent: Provided further that in the case of persons mentioned above having total income exceeding, - (a) fifty lakh rupees but not exceeding one crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of fifty lakh rupees by more than the amount of income that exceeds fifty lakh rupees; (b) one crore rupees but does not exceed two crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one crore rupees by more than the amount of income that exceeds one crore rupe....
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....imum Marginal Rate is calculated after taking into account the highest slab of income and surcharge applicable and therefore there is no relevance to the different slabs of income and surcharge applicable on these different slabs. The tax rate on different slabs of income and different rate of surcharge thereon are relevant only when tax is calculated on AOP or BOI to whom standard provisions of the Income Tax Act, 1961 applies and the same are not applicable to AOP or BOI covered under the provisions of section 167B of the Income Tax Act, 1961. 9.6 Thus, the tax calculated on the basis of MMR of 42.744% for the financial year 2020-21 on the total income of the appellant of Rs.64,02,500/- works out of Rs.27,36,686/-. From the intimation it can be seen that the appellant has total income of Rs.64,02,500/-and the tax as per the Maximum Marginal Rate of 42.744% for the financial year 2020-21 works out to Rs.27,36,686/- and per intimation it is same at Rs.27,36,686/- (tax + surcharge + Health & Education Cess). The above will be more clear from the table given below: Tax calculation as per Intimation Tax calculation as per MMR Total Income Rs.64,02,500 Total Inc....
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....re we proceed to deal with the issue, let us understand what is meant by a "Private Discretionary Trust'. A 'Discretionary Trust' is generally a Trust registered under the Indian Trusts Act, 1882, whereunder, the Trustees hold the power to decide the class of beneficiaries who can receive either capital or income from the Trust at the discretion of the Trustees. However, no one beneficiary has an absolute entitlement either to income or capital. In other words, in a discretionary trust, distribution of all capital and income is completely at the discretion of the Trustees. Generally speaking, in these kind of trusts not only the beneficiaries but even the shares of beneficiaries remain indeterminate. These Trusts/Association of Persons/Body of individuals are covered either u/s.164 or 167B of the Act. These provisions provided that the income of such Trusts/AOPs/BOIs are brought to tax at the maximum marginal rate. The expression "maximum marginal rate" has been defined u/s 2(29C) of the Act as under: "maximum marginal rate" means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case ....
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....I-A or section 115JB or section 115JC or Chapter XII-FA or Chapter XII-FB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the Income-tax Act, the tax chargeable shall be determined as provided in those Chapters or sections, and with reference to the rates imposed by sub-section (1) or the rates as specified in that Chapter or section, as the case may be. Thus, sub section 2(1) of Finance Act, which is subject to the provisions of sub-section (3), though, provides that income-tax shall be charged at the rate specified in Part 1 of the specified schedule, however, sub-section (3) carves out an exception in case of certain class of income or assessees by providing that the chargeable tax shall be determined in terms with those Chapters or sections, and with reference to the rates imposed by sub-section (1) or the rates as specified in that Chapter or section, as the case may be. 25. In case of discretionary trusts, sections 164/167B of the Act, do not by themselves specify the rate of tax. They only say that tax on total income is to be determined at the maximum marginal rate. The definition of 'maximum marginal rate' u/s.2(29C) of....
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....s. 10,00,000 Rs. 1,10,000 plus 30 per cent of the amount by which the total income exceeds Rx. 10,00,000. (III) In the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year.- Rates of income-tax (1) where the total income does not exceed Rs. 5,00,000 Nil: (2) where the total income exceeds Rs. 5,00,000 but does not exceed Rs. 10,00,000 20 per cent of the amount by which the total income exceeds Rs. 5,00,000; (3) where the total income exceeds 10,00,000 Rs. 1,00,000 plus 30 per cent of the amount by which the total income exceeds Rs. 10,00,000 Surcharge on income-tax The amount of income-tax computed in accordance with the preceding provisions of this Paragraph, or the provisions of section 111A or section 112 or section 112A or the provisions of section 113BAC of the Income-tax Act, shall be increased by a surcharge for the purposes of the Union, calculated, in the case of every indivicheal or Hindu undivided family or association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii)....
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....es: (b) one crore rupees but does not exceed two crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees; (c) two crore rupees but does not exceed five crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of two crore rupees by more than the amount of income that exceeds two crore rupees: (d) five crore rupees, the total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax and surcharge on a total income of five crore rupees by more than the amount of income that exceeds five crore rupees. 26. On going through Paragraph A, Part (1) of First Schedule to the Finance Act-2023, it becomes very much clear that under Item (1), the rates of income tax applicable to individuals, Hindu undivided family or association of persons or body of individuals have been provided. As could be seen....
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....of the Income Tax Act, shall be increased by a surcharge, for the purposes of the Union, calculated in the case of particular class of assessees in the manner provided therein. As could be seen from items (a) to (e), provided under the head 'Surcharge on income-tax', there are different rates of surcharge on income tax, depending upon the categories of income. The rate of surcharge starts from minimum of 10% to the maximum of 37% on income-tax. The maximum rate of surcharge at 37% on income-tax is applicable in case of assessees having total income, exceeding Rs.5 crores. It further emanates that the minimum rate of surcharge @ 10% on the income-tax is applicable only when the income of the assessee is above Rs.50 lacs, but less than Rs.1 crore. Thus, as per Paragraph A. Part (1) of First Schedule to the Finance Act-2023, the threshold limit for applicability of surcharge is when total income is Rs.50 lacs and above. In other words, if the total income is below the threshold limit of Rs.50 lacs, there would be no surcharge. Even the first proviso under the heading 'Surcharge on income-tax carves out an exception regarding the rate of surcharge by stating that in case wh....
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.... blush this argument of the department sounds attractive, however, on deeper analysis it is found to be superfluous, for the following reasons. As discussed earlier, Article 271 of the Constitution of India, empowers the Union to impose surcharge for the purposes of Union. Whereas, Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. Therefore, levy of surcharge has to be preceded by a law enacted by the parliament authorizing such levy. Thus, in absence of any law authorising levy of surcharge, it cannot be collected. This legal position is as clear as daylight, hence, does not require further clarification with the use of words 'if any to mean whether the Finance Act of a particular year, if at all, provides for levy of surcharge or not. Though, in our view, there is no conflict between provisions contained u/s. 164/167B, 2(29C) of the Income Tax Act and section 2 of the Finance Act, however, even assuming that there are some conflicts, a harmonious construction has to be made to avoid absurdity and make the provisions workable. Thus, in our view, the expression if any used in section 2(29C) has to be read not de hors but in....
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...., applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back to the respective benches for deciding the appeals accordingly." 13. The Special Bench has held that the expression "if any" used in section 2(29C) has to be read not de hors but in conjunction with the computation mechanism provided under the heading surcharge on income tax' provided in section 2 of Finance Act and in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading 'surcharge on income tax' appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Applying the legal proposition so laid down in the instant case, we find that where the total income of the assessee, being the Association of Persons, is chargeable to tax at maximum marginal rate of 30%, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading 'surcharge on income tax' appearing in....