Case Law Details
Anil Gala Navneet Trust Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT) in Mumbai has ruled in favor of Anil Gala Navneet Trust, a private discretionary trust, regarding an incorrect levy of surcharge and interest by the Centralised Processing Centre (CPC). The trust’s total income for the Assessment Year 2023-23 was Rs. 1,80,11,780, which falls into the tax bracket of over Rs. 1 crore but under Rs. 2 crore. The trust, therefore, applied a surcharge rate of 15% as per the First Schedule to the Finance Act, 2021. However, during the processing of its return, the CPC levied a surcharge of 37%, which is applicable only to incomes exceeding Rs. 5 crore. This incorrect calculation resulted in an erroneous demand of Rs. 53,420 from the trust, instead of a refund of Rs. 13,61,410.
The ITAT’s decision was based on a precedent set by a Special Bench of the Mumbai ITAT in the case of Aradhya Jain Trust vs. ITO. In that case, the Special Bench had definitively held that for private discretionary trusts whose income is taxed at the maximum marginal rate, the surcharge must be calculated based on the slab rates specified in the Finance Act, not at the highest possible rate. Applying this judicial precedent, the ITAT concluded that the correct surcharge rate for Anil Gala Navneet Trust was indeed 15%, not 37%.
Consequently, the ITAT directed the Assessing Officer to re-compute the tax liability by applying the 15% surcharge rate and to delete the incorrect demand. The ruling also has a consequential effect on the levy of interest under Sections 234B and 234C, which the officer was also instructed to re-calculate to accurately reflect the correct tax amount. This decision allows the trust to claim its refund and rectifies the CPC’s error in applying the wrong surcharge rate.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the assessee is against the order of Ld. CIT(A)-1, Kolkata, vide order no. ITBA/APL/S/250/2024-25/1075357474(1), dated 31.03.2025 passed against the intimation issued by Centralised Processing Centre, Bengaluru, (CPC) u/s. 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.05.2024 for Assessment Year 2023-23.
2. Grounds taken by the assessee are reproduced as under:
“Ground No. 1: Validity of the adjustments made in the Intimation u/s 143(1)
1. The learned CIT(A) erred in not quashing the impugned intimation order passed u/s.143(1) of the Income Tax Act, 1961 as no opportunity of being heard was provided to the Appellant before levying surcharge and additional interest.
Ground No. 2: Incorrect levy of surcharge amounting to Rs. 19,99,307/-
1. The learned CIT(A) erred in facts and law by imposing surcharge at the rate of 37% on the Appellant’s total tax of Rs.54,03,534/- on the short-term capital gain and interest income instead of surcharge applicable at the rate of 15% in accordance with the provisions of First Schedule to Finance Act, 2020 as the appellant’s total income exceed Rs.1 Crore but does not exceed Rs.2 Crore for the year under consideration.
2. Your Appellant prays that the surcharge on total tax of Rs.54,03,534/- on the short-term capital gain and interest income should be charged at 15% amounting to Rs.8,10,530/- instead of 37%.
Ground No.3: Incorrect levy of interest u/s 2348 and 234C aggregating to Rs.1,78,504/-
1. The learned CIT(A) consequently erred in charging interest u/s 2348 of Rs.54,306/-and excess interest u/s 234C of Rs.1,24,198/-.
2. Your Appellant prays that the excess interest levied in the intimation u/s 2348 and u/s 234C of the IT Act may please be deleted.
Ground No.4: General Grounds of appeal
1. Your Appellant craves leave to file additional evidences during the course of appeal proceedings in terms of Rule 46A r.w.s. 250.”
3. Issue involved in the present appeal is in respect of levy of surcharge which is at the rate of 37%, which according to the assessee ought to have been at the rate of 15% since its total income does not exceed Rs. 2 crores for the year under consideration.
3.1. Facts of the case are that assessee is an irrevocable private discretionary trust formed under the Indian Trust Act, 1882. Tax liability of the assessee is computed at the maximum marginal rate in accordance with the provisions of section 164 of the Act. Return of income was filed on 18.07.2023, reporting total income at Rs.1,80,11,780/- which comprises of short term capital gain on sale of non-agricultural land under the head capital gains amounting to Rs.1,79,07,779/-; interest on saving bank account of Rs.88/- and interest on loan of Rs.1,03,912/- under the head ‘income from other sources’.
3.2. Return of the assessee was processed by CPC u/s.143(1) wherein total income reported by the assessee in its return is accepted as such. However, despite accepting the returned income, a demand of Rs. 53,420/- has been raised though assessee had claimed a refund of Rs.13,61,410/- in its return. The reason for which the demand has been raised instead of granting of refund is that surcharge has been levied at the time of processing of return at a rate of 37% and also having a consequential effect on levy of interest u/s.234 B and 234C.
4. It is undisputed and uncontroverted that assessee reported its total income which exceeds Rs.1 crore but is less than Rs. 2 crores as stated above and the same has been accepted by the Revenue while processing the return. First schedule of the Finance Act, 2021 provides that the amount of income shall be increased by surcharge at rates specified therein when the total income exceeds the threshold limits namely Rs. 50 lakhs/1 crore/2 crores/5 crores, as the case may be. In the case of the assessee, the surcharge rate to be considered for calculation of maximum marginal rate is 15% as the total income does not exceed Rs.2 crores. Surcharge at the rate of 37% is applicable only when income exceeds Rs.5 crores.
4.1. The issue in the present appeal is no longer res integra and is settled by the decision of Hon’ble Special Bench, Mumbai in the case of Aradhya Jain Trust vs. ITO in ITA No. 4272/Mum/2024 dated 09.04.2025, wherein, the special bench was constituted to decide the issue “whether, in the case of private discretionary trusts whose income is chargeable to tax at maximum marginal rate, surcharge is chargeable at the highest applicable rate or at a slab rate?”. After detailed deliberation, the conclusion was drawn by the Hon’ble Special Bench in para 32, wherein it states that “In the ultimate analysis, we hold, 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. Hence reference is decided in favour of the assessee”.
5. Accordingly, in the present case, taking into consideration the factual matrix as stated above and the decision of Hon’ble Special Bench (supra) the rate of surcharge applicable in the case of assessee is at 15% instead of 37% taken by the CPC. Ld. Assessing Officer is thus directed to re-compute the surcharge by applying the rate of 15% and delete the demand so raised. This re-calculation of surcharge has a consequential effect on the levy of interest u/s.234B and 234C, which also needs to be reworked by the ld. Assessing Officer to give full effect to the demand which has been raised. Accordingly, grounds raised by the assessee are allowed.
6. In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 31 July, 2025
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