Surcharge on Trusts Not Automatic; Applies Only if Income Exceeds Prescribed Limit

Ujjwal Business Trust Vs Income Tax CPC Exem Ward 2(4) (ITAT Mumbai)

In the case of Ujjwal Business Trust Vs. Income Tax CPC Exem Ward 2(4), the assessee, an irrevocable private discretionary trust, challenged the levy of surcharge and additional interest imposed during income tax processing for the Assessment Year 2022-23. The dispute arose when the Centralized Processing Center (CPC) levied a surcharge amounting to ₹3,959 and consequential education cess and interest under Section 234B, despite the total declared income being only ₹36,930—far below the ₹50 lakh threshold for surcharge applicability. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the surcharge, asserting that as a discretionary trust, the assessee was subject to taxation at the maximum marginal rate under Section 164 of the Income Tax Act. However, the trust argued that the surcharge should apply only when the income exceeds ₹50 lakh, as per the provisions of the Finance Act.

Upon reviewing the case, the Income Tax Appellate Tribunal (ITAT) Mumbai ruled in favor of the assessee, stating that surcharge under Section 2(29C) is applicable only when the taxable income surpasses ₹50 lakh. The Tribunal found that the CIT(A) failed to consider this threshold and incorrectly upheld the CPC’s computation. The ITAT clarified that even though the trust is taxed at the maximum marginal rate, the surcharge is not automatically applicable unless the prescribed income limit is exceeded. Since the assessee’s income was well below this threshold, the surcharge was deemed incorrectly levied and was consequently deleted. The Tribunal also ruled that since the surcharge was removed, the additional interest imposed under Section 234B was also to be reduced. As a result, the appeal was allowed in favor of Ujjwal Business Trust.

Author Info

Name: CA Sandeep Kanoi

Qualification: CA in Job / Business

Company: Taxguru Consultancy

Location: Mumbai, Maharashtra

Articles Published: 19,776

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