2024 (6) TMI 1447 - AT - Income Tax

Levy of surcharge despite the total income was less than Rs. 50, 00, 000/- - Incorrect levy of additional interest u/s. 234B - HELD THAT - The surcharge is leviable only when amount of income tax is computed where the total income exceeds Rs. 50, 00, 000/- and so on. Here in this case the return of income is only Rs. 36, 930/- so on this income taxes shall be charged at a maximum marginal rate in terms of Section 164 of the Act. Even after the trust is taxed at maximum marginal rate but for levying the surcharge it is necessary that the slab of income which is chargeable to tax is exceeding Rs. 50, 00, 000/- and above. Thus the interpretation and the observation of the ld. CIT (A) is ostensibly against the law. If CPC which is computer assisted programme has made a mistake then at least ld. CIT (A) should have seen the law in correct perspective; or something should have been brought on record that there is any notification or interpreting the slabs provided in the Finance Act that even if income is less than Rs. 50, 00, 000/- surcharge is leviable in case of AOP. Accordingly the surcharge levied by the CPC is deleted. Consequentially interest u/s. 234B has also got reduced.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment were:

• Whether the levy of surcharge on the income of an irrevocable private discretionary trust with a total income less than Rs. 50,00,000/- was correct.
• Whether the additional interest charged under Section 234B was justified.

ISSUE-WISE DETAILED ANALYSIS

Levy of Surcharge on Income

• Relevant Legal Framework and Precedents: The case revolves around the interpretation of Sections 164 and 2(29C) of the Income Tax Act, 1961. Section 164 pertains to the computation of tax liability for a trust at the maximum marginal rate, while Section 2(29C) defines the "maximum marginal rate" as the rate of income tax, including surcharge, applicable to the highest slab of income.
• Court's Interpretation and Reasoning: The Tribunal observed that the surcharge is applicable only when the total income exceeds Rs. 50,00,000/-. In this case, the assessee's total income was Rs. 36,930/-, which is below the threshold for surcharge applicability. The Tribunal noted that the CIT(A)'s interpretation of the law was incorrect, as the surcharge should only apply when the income exceeds the specified slab rates outlined in the Finance Act.
• Key Evidence and Findings: The Tribunal highlighted that the levy of surcharge was based on a computational error by the Centralized Processing Centre (CPC) and that the CIT(A) failed to correct this error despite the clear provisions of the law.
• Application of Law to Facts: The Tribunal applied the statutory provisions to the facts and concluded that the surcharge was incorrectly levied, as the trust's income did not exceed the threshold of Rs. 50,00,000/-. The Tribunal emphasized that even if the trust is taxed at the maximum marginal rate, the surcharge is not applicable unless the income exceeds the specified threshold.
• Treatment of Competing Arguments: The Tribunal dismissed the CIT(A)'s rationale, which adhered to the CPC's computation without considering the statutory provisions. The Tribunal found no justification for the surcharge levy and concluded that the CIT(A) should have rectified the CPC's error.
• Conclusions: The Tribunal concluded that the surcharge levied by the CPC was incorrect and should be deleted. Consequently, the interest under Section 234B, which was based on the incorrect surcharge, was also reduced.

Levy of Additional Interest under Section 234B

• Relevant Legal Framework and Precedents: Section 234B pertains to the interest charged for defaults in payment of advance tax. The interest is calculated based on the assessed tax, which includes any surcharge levied.
• Court's Interpretation and Reasoning: Since the surcharge was incorrectly levied, the interest calculated under Section 234B was also incorrect. The Tribunal reasoned that the interest should be recalculated based on the correct tax liability, excluding the erroneous surcharge.
• Key Evidence and Findings: The Tribunal found that the interest calculation was directly affected by the surcharge error and needed adjustment.
• Application of Law to Facts: With the deletion of the surcharge, the Tribunal determined that the interest under Section 234B should be recalculated, leading to a reduction in the interest amount.
• Treatment of Competing Arguments: The Tribunal did not find any valid arguments to support the additional interest levy once the surcharge was deemed incorrect.
• Conclusions: The Tribunal concluded that the interest under Section 234B should be reduced, reflecting the correct tax liability without the surcharge.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The interpretation and the observation of the ld. CIT (A) is ostensibly against the law. If CPC which is computer assisted programme has made a mistake, then at least ld. CIT (A) should have seen the law in correct perspective; or something should have been brought on record that there is any notification or interpreting the slabs provided in the Finance Act that even if income is less than Rs. 50,00,000/-, surcharge is leviable in case of AOP."
• Core Principles Established: The surcharge is only applicable when the total income exceeds Rs. 50,00,000/-. The maximum marginal rate does not automatically entail surcharge applicability unless the income threshold is met.
• Final Determinations on Each Issue: The surcharge levied by the CPC was deleted, and the interest under Section 234B was reduced accordingly. The appeal of the assessee was allowed.