Clestra Foundation Vs ITO (ITAT Bangalore)
Maximum Marginal Rate Means Highest Surcharge Too – ITAT Bangalore Confirms 37% on Discretionary Trust Income
A private trust assessed as an AOP, filed its return of income for AY 2023-24 declaring ₹41,69,630/- consisting of dividend income of ₹34,31,064/- & interest income of ₹7,38,562/-. The return was processed u/s 143(1) by CPC which computed tax demand of ₹4,35,175/- by applying surcharge @37% on entire income while determining Maximum Marginal Rate (MMR).
Assessee contended that surcharge was not applicable on dividend income since total income was below ₹50 lakhs. It argued that MMR should be determined only with reference to the basic tax rate of the highest slab & surcharge becomes applicable only if threshold limits are crossed, as per Finance Act. Reliance was placed on Hyderabad ITAT rulings in ITO v. Tayal Sales Corporation (1 SOT 579) & Sriram Trust v. ITO (Exemptions) (2024).
However, CIT(A) rejected the plea, holding that MMR has to be determined u/s 2(29C) r.w.s. 164/167B by taking into account the highest slab of tax & the highest rate of surcharge prescribed in the Finance Act. For AY 2023-24, this worked out to 42.74% (30% base tax + 37% surcharge + 4% cess). The word “if any” in s.2(29C) was interpreted to mean surcharge as specified in the relevant Finance Act.
