The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) recently held that the firm was only liable for a levy surcharge when the total income of that firm exceeds one crore.
Assessee Bhavani Engineering is a partnership firm, carrying the business of generation of solar energy. The returns of income filed by the assessee for the assessment years 2018-19 and 2019-20 were processed under section 143(1) of the Income Tax Act, 1961 Surcharge at the rate of 10% on the income returned by the assessee was levied. According to the assessee, such a levy of surcharge, excess education cess, interest etc., are erroneous. The request of the assessee for a rectification thereof was rejected. The aggrieved assessee filed an appeal before ITAT.
A.V.Raghuram, counsel for the assessee submits that the decision of the revenue was contrary to the provisions of the Finance Act, 2018 which prescribes that in the case of a partnership firm, the surcharge is leviable only if the total income exceeds rupees one crore. Hence according to assess the total income for either of the years did not exceed rupees one crore.
Kumar Aditya, counsel for the revenue contended that,
“Assessee being a firm is covered by the definition of artificial juridical person under section 2(31)(vii) of the Income Tax Act 1961 covered by section 2(3)(a)(i) of the Finance Act, 2018 and, therefore, the authorities below are right in levying the surcharge because admittedly, the income of the assessee for either of the years exceeds rupees fifty lakhs though not exceed rupees one crore”.
2(31)(vii) of the Income Tax Act 1961 provides every artificial person, but not falling within any other sub-clauses mention under section 2(31) of the Income Tax Act 1961.
2(3)(a)(i) of the Finance Act, 2018 every Artificial person or individual, Hindu undivided family or association of person or body of individual shall be liable to a 10% surcharge if the total income exceeds fifty lack but not exceed one crore.
After considering the contentions of both sides the division bench of the ITAT comprising Waseem Ahmed, (Accountant) and Madhumita Roy (Judicial Member) allowed the appeal filed by the assessee and observed that “provisions under section 2(3) of the Finance Act, 2018 abundantly makes it clear that sub-clause (a) thereof is applicable to categories (i), (ii), (v) and (vii) of section 2(31) of the Act whereas sub-clause (b) is applicable to clause (iv), (vi) or co-operative societies whereas sub-clauses (c) and (d) are made applicable to clause (iii) of section 2(31) of the Act”.
Further, the bench held that the firm in 2(3)(b) of Finance Act, 2018 excludes it from the operation of 2(3)(a) thereof. A firm is, therefore, liable for levy of surcharge only when its total income exceeds one crore rupees and not otherwise.
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