M V Subramanian Family Trust Vs ITO (ITAT Chennai)
ITAT Chennai Caps Surcharge on Dividend & Capital Gains of Private Discretionary Trust at 15% – Rejects 37% Levy
Assessee , a private discretionary trust & tax resident in India, filed return of income for AY 2021-22 declaring ₹82,21,860 consisting entirely of dividend income & capital gains. CPC, while processing return u/s 143(1), applied surcharge at 37% on such income, instead of restricting it to 15% as mandated by Finance Act, 2021. Rectification application filed u/s 154 was rejected & CIT(A) also dismissed the appeal.
Before Tribunal, Assessee contended that although the trust was rightly assessed as an AOP taxable at Maximum Marginal Rate (MMR) u/s 164/167B, the surcharge on dividend & capital gains income cannot exceed 15% as per proviso in Finance Act, 2021. Reliance was placed on Special Bench, Mumbai in Araadhya Jain Trust v. ITO [2025] 173 taxmann.com 343, V. Meera Charitable Trust v. ITO (Chennai ITAT, 2025), Mahalaxmi Construction Co. (Mumbai ITAT, 2025) & Sow Rachna Rathi Family Trust (Pune ITAT, 2025)
Revenue, however, relied on Clestra Foundation v. ITO (ITAT Bangalore) which had upheld 37% surcharge as part of MMR.
Tribunal examined the provisions of s.2(29C) & Finance Act, 2021, noting that while MMR applies to discretionary trusts, the Finance Act expressly caps surcharge at 15% in cases where total income includes dividend income or capital gains chargeable u/s 111A/112A. It was emphasized that interpreting MMR to mean flat 37% surcharge irrespective of nature of income would render this statutory cap nugatory & lead to absurdity.
