The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) recently ruled in favour of a trust in a dispute over applying an income tax surcharge. The case involved whether the trust was liable to pay a 37% surcharge as determined by the assessing authorities or the lower 10% surcharge it had applied in its tax return.
The assessee, Ria Zaveri Trust, based in Ahmedabad, filed its income tax return for the Assessment Year (AY)2021-22, applying a 10% surcharge on its taxable income. The (CPC) applied a surcharge of 37%, increasing the trust’s tax liability.
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The Assistant Commissioner of Income Tax (ACIT) upheld the CPC’s surcharge application. Aggrieved, the assessee appealed to the Commissioner of Income Tax (Appeals), National Faceless Appeals Centre (NFAC). The CIT(A) upheld the decisions taken by the lower authorities, which led the trust to appeal to the tribunal.
The trust’s authorised representative (AR) argued that CIT(A) had incorrectly applied a 37% surcharge, disregarding the correct interpretation of the Finance Act and relevant tax provisions. The AR further contended that surcharge rates depend on income slabs as per the Finance Act. The surcharge increases progressively based on income thresholds for individuals, associations of persons (AOPs), and bodies of individuals (BOIs).
It was submitted that the trust’s taxable income was below ₹50 lakh. Under the provisions of the Finance Act, the higher surcharge rates are applicable only when income exceeds ₹50 lakh, ₹1 crore, ₹2 crore, or ₹5 crore, depending on the bracket. Since the assessee trust’s total annual income was just ₹36,930, no surcharge above 10% should have been levied.
After observing the parties’ submissions, the Tribunal held that the surcharge under the Finance Act applies only to incomes above the specified slabs.
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Since the Trust’s total taxable income was well below ₹50 lakh, the surcharge should be 10% instead of 37%. The ITAT further asserted that the CPC’s automated calculation was erroneous, and CIT(A) should have corrected this mistake rather than upheld it.
The tribunal, comprising Dr B.R.R. Kumar (Vice President) and Shri T.R. Senthil Kumar(Judicial Member), upheld that interest under Section 234B of the Income Tax Act, which was affected by the surcharge, should be reduced accordingly. As a result, the assessee’s appeal was allowed.
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