2025 (1) TMI 95 - AT - Income Tax

Levy of surcharge @ 37% - surcharge on income including interest u/s 234F - reason given by the Addl./JCIT(A) is that the tax liability of the assessee has to be computed by maximum marginal rate and, therefore, surcharge is applicable as per section 2(29(c) - HELD THAT - Maximum marginal rate is rate of income tax, which includes surcharge if any, applicable in relation to the highest slab of income in the case of individual/AOP/Company as specified in the Finance Act. Hence, the tax rate on surcharge is applicable on the basis of slab rate provided under the Finance Act. The tax rate and surcharge are applicable on the basis of slab rate provided under the Finance Act of the relevant year. The first schedule to the Finance Bill, 2022, which is applicable in the present case in hand, which provides for rate of income tax for the year on the persons including the HUF/AOP/Company/individual or association of persons, wherein slab rates for levy of tax of rate have been provided. The surcharge is leviable only when the amount of income tax is computed where the total income exceeds Rs. 50 lakhs. But in the case on hand, the return of income is only Rs. 1,27,095/-, so on this income, income tax shall be charged at maximum marginal rate in terms of section 164 of the Income Tax Act. For levying the surcharge, it is necessary that the slab of income, which is chargeable to tax is exceeding Rs. 50 lakhs and above. Therefore, view taken by the ld. Addl./JCIT(Appeals) is against the law and cannot be sustained. Therefore, direct AO that there could not be any surcharge levied on the income tax since income of the assessee is less than Rs. 50 lakhs. Hence, the grounds raised by the assessee are allowed.

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal questions:

Whether the surcharge at the rate of 37% is applicable to the assessee's total tax liability, given that the total income was Rs. 1,27,100/- and surcharge is not leviable for incomes up to Rs. 50 lakhs in the case of an Association of Persons (AOP).
Whether the computation of Health and Education Cess was correctly calculated at Rs. 2,090/- as opposed to Rs. 1,525/- as declared in the return of income.
Whether the interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961, was correctly computed, given that the return of income showed nil interest liability.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Surcharge

Relevant legal framework and precedents: The surcharge is applicable based on the slab rate provided under the Finance Act. Section 2(29C) of the Income Tax Act 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 court found that the surcharge is only applicable when the total income exceeds Rs. 50 lakhs. Since the assessee's income was Rs. 1,27,100/-, the surcharge should not have been levied.
Key evidence and findings: The court noted that the assessee's income did not exceed the Rs. 50 lakh threshold, which is a prerequisite for surcharge applicability.
Application of law to facts: The court applied the provisions of the Finance Act and section 2(29C) of the Income Tax Act, determining that the surcharge was incorrectly applied.
Treatment of competing arguments: The court considered the revenue's argument that the surcharge was part of the maximum marginal rate but found it inapplicable due to the income threshold not being met.
Conclusions: The court concluded that the surcharge should not be levied on the assessee's income and directed the Assessing Officer to correct the tax liability.

Issue 2: Computation of Health and Education Cess

Relevant legal framework and precedents: The computation of Health and Education Cess is linked to the tax liability and should be calculated accurately based on the declared income.
Court's interpretation and reasoning: The court did not explicitly address this issue in detail, as the primary focus was on the surcharge applicability.
Key evidence and findings: The court acknowledged the discrepancy in the computation of the cess but did not provide a detailed analysis.
Application of law to facts: The court implicitly recognized the need for accurate computation based on the corrected tax liability.
Treatment of competing arguments: The court did not delve into competing arguments regarding the cess computation.
Conclusions: The court's decision to correct the surcharge implicitly suggests a need to reassess the cess computation.

Issue 3: Computation of Interest under Sections 234A, 234B, and 234C

Relevant legal framework and precedents: Sections 234A, 234B, and 234C deal with interest for defaults in furnishing return of income, payment of advance tax, and deferment of advance tax, respectively.
Court's interpretation and reasoning: The court did not provide a detailed analysis of this issue, focusing instead on the surcharge matter.
Key evidence and findings: The court recognized the discrepancy in the interest computation but did not elaborate on it.
Application of law to facts: The court's decision on the surcharge indirectly impacts the interest computation, necessitating a reassessment.
Treatment of competing arguments: The court did not address competing arguments on the interest computation.
Conclusions: The court's decision implies that the interest computation should be revisited in light of the corrected surcharge application.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Therefore, I am of the considered view that the view taken by the ld. Addl./JCIT(Appeals) is against the law and cannot be sustained. Therefore, I direct the ld. Assessing Officer that there could not be any surcharge levied on the income tax since income of the assessee is less than Rs. 50 lakhs."
Core principles established: The surcharge is only applicable when the total income exceeds the threshold of Rs. 50 lakhs. The maximum marginal rate, including surcharge, applies only to incomes above this threshold.
Final determinations on each issue: The court allowed the appeal, directing the removal of the surcharge from the tax liability and implicitly calling for a reassessment of the Health and Education Cess and interest computations.

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