2025 (1) TMI 1540 - AT - Income Tax

Levy of surcharge @ 37% - Whether assessee is liable to be taxed at the Maximum Marginal Rate (MMR) along with surcharge @ 37% on income from other sources? - assessee contended that surcharge should not be levied over and above the MMR of 30% for the reason that Section 2(29C) of the Act provides that MMR rate shall include surcharge on the income tax payable by the assessee - HELD THAT - As the proviso categorically state that the amount of income-tax computed in accordance with provisions of Section 111A 112 112A 115A 115AB etc. shall be increased by a surcharge and further enumerates the rate of percentage for each slab of income. It is quite apparent that the MMR rate has to be in addition to the surcharge and therefore is not inclusive of surcharge. The coordinate bench in the case of Tayal Sales Corporation 2001 (2) TMI 877 - ITAT HYDERABAD held that the provisions of Section 2(29C) is worded in such a way that surcharge is to be included along with Maximum Marginal Rate and by no stretch of imagination is MMR inclusive of surcharge. This proposition has been reiterated in various decisions of the Tribunal. Thus we are not in agreement with the ld. AR s argument on the first issue that Maximum Marginal Rate includes surcharge as the same is not in accordance with the provisions of the Act. Surcharge is applicable only to income which surpasses the threshold limit here in this case it begins with the threshold limit of income exceeding Rs. 50 lacs but not exceeding Rs. 1 Crore would be 10% of such income tax and 15% for income exceeding Rs. 1 crore but not exceeding Rs. 2 Crore and thereon it is evident that there is no surcharge leviable when the total income does not exceed Rs. 50 lacs and in the present case the returned income is only Rs. 4, 42, 960/- which is very much below the predetermined threshold limit. The intention of the legislature was to extend marginal relief on the surcharge on income tax for various class of persons intended to reduce the tax burden on individuals and other classes of persons. It is also a settled position of law that no surcharge is leviable on the income tax which is lesser than Rs. 50 lacs as the same has been reiterated by various decisions of the Tribunal wherein deleted the surcharge levied on income where the monetary limit of Rs. 50 lacs has not been exceeded. As this issue is no longer res-integra and by taking a consistent view we direct the ld. AO to delete the surcharge levied in the case of the assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the "Maximum Marginal Rate" (MMR) as defined under Section 2(29C) of the Income Tax Act, 1961, includes the surcharge, or if the surcharge is to be levied in addition to the MMR.
• If the surcharge is in addition to the MMR, whether it is applicable to income that does not exceed Rs. 50,00,000.

ISSUE-WISE DETAILED ANALYSIS

1. Inclusion of Surcharge in Maximum Marginal Rate

• Relevant Legal Framework and Precedents: Section 2(29C) of the Income Tax Act defines the "Maximum Marginal Rate" as the rate of income-tax (including surcharge on income-tax, if any) applicable to the highest slab of income for individuals, associations of persons, or bodies of individuals. The Finance Bill, 2022, provides further clarity on the application of surcharge.
• Court's Interpretation and Reasoning: The Tribunal examined the language of Section 2(29C) and the Finance Bill, 2022, to determine the inclusion of surcharge within the MMR. The Tribunal reasoned that the provision implies that the MMR is not inclusive of the surcharge, as the surcharge is to be added to the MMR.
• Key Evidence and Findings: The Tribunal referred to the Finance Bill, 2022, which explicitly states that income-tax computed under certain sections "shall be increased by a surcharge." This supports the interpretation that surcharge is an addition to the MMR.
• Application of Law to Facts: The Tribunal applied the interpretation of Section 2(29C) and the Finance Bill, 2022, to conclude that the MMR does not include the surcharge, which should be levied separately.
• Treatment of Competing Arguments: The Tribunal considered the assessee's argument that the surcharge was included in the MMR but found it inconsistent with the statutory language and precedents.
• Conclusions: The Tribunal concluded that the MMR does not include the surcharge, which is to be levied in addition to the MMR.

2. Applicability of Surcharge to Income Below Rs. 50,00,000

• Relevant Legal Framework and Precedents: The Finance Bill, 2022, specifies the surcharge rates applicable to different income slabs, starting from income exceeding Rs. 50,00,000.
• Court's Interpretation and Reasoning: The Tribunal interpreted the Finance Bill, 2022, to mean that surcharge is not applicable to income below Rs. 50,00,000, as the surcharge rates begin at this threshold.
• Key Evidence and Findings: The Tribunal noted that the assessee's income was Rs. 4,42,960, which is below the Rs. 50,00,000 threshold for surcharge applicability.
• Application of Law to Facts: The Tribunal applied the provisions of the Finance Bill, 2022, to the facts, determining that no surcharge should be levied on the assessee's income.
• Treatment of Competing Arguments: The Tribunal considered the Departmental Representative's argument for applying surcharge but found it unsupported by the statutory provisions for income below Rs. 50,00,000.
• Conclusions: The Tribunal concluded that surcharge is not applicable to the assessee's income, which is below the Rs. 50,00,000 threshold.

SIGNIFICANT HOLDINGS

• Core Principles Established: The Tribunal established that the "Maximum Marginal Rate" does not include the surcharge, which is to be levied separately. Additionally, surcharge is not applicable to income below Rs. 50,00,000.
• Final Determinations on Each Issue: The Tribunal directed the deletion of the surcharge levied on the assessee's income, as the MMR does not include surcharge and the income is below the threshold for surcharge applicability.