Surcharge on Private Discretionary Trust Income: ITAT Applies 15% Rate as Income Does Not Exceed ₹2 Crores [Read Order]
The 37% surcharge applied by CPC was only applicable when income exceeded ₹5 crores
Trust Income
Trust Income
The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) applied a 15% surcharge on the income of a private discretionary trust, as the total income did not exceed ₹2 crores.
Anil Gala Navneet Trust, appellant-assessee, was an irrevocable private discretionary trust formed under the Indian Trust Act, 1882, with its tax liability computed at the maximum marginal rate under section 164 of the Income Tax Act. It filed its return of income on 18.07.2023, declaring ₹1,80,11,780, which included short-term capital gain of ₹1,79,07,779 on the sale of non-agricultural land, savings bank interest of ₹88, and loan interest of ₹1,03,912.
The return was processed by the Centralized Processing Centre (CPC) under section 143(1) and accepted as filed. However, instead of granting the claimed refund of ₹13,61,410, a demand of ₹53,420 was raised. This was due to surcharge being levied at 37% along with consequential interest under sections 234B and 234C of the Act.
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It was an undisputed fact that the total income exceeded ₹1 crore but was below ₹2 crores, making the applicable surcharge rate 15% as per the First Schedule of the Finance Act, 2021. The 37% surcharge applied by CPC was only applicable when income exceeded ₹5 crores.
The two member bench comprising Amit Shukla (Judicial Member) and Girish Agrawal (Accountant Member) observed that the issue was already settled by the Special Bench, Mumbai, in Aradhya Jain Trust vs. ITO dated 09.04.2025.
The Special Bench had held that for private discretionary trusts taxed at the maximum marginal rate, surcharge should be computed as per the slab rates in the Finance Act, not at the highest rate.
Relying on this decision, the appellate tribunal held that the correct surcharge rate in the present case was 15% instead of 37% applied by CPC. The Assessing Officer( AO ) was directed to recompute the surcharge at 15%, delete the demand, and rework the interest under sections 234B and 234C of the Act. Accordingly the appeal was allowed.
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