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2025 (5) TMI 1402 - AT - Income TaxSurcharge on the dividend income - assessee has paid surcharge @10% BUT CPC calculated the surcharge @37% - HELD THAT - We notice that the surcharge is to be levied based on the slab rates referred in First Schedule Paragraph A of Part 1 and surcharge on Dividend Income cannot exceed 15%. From going through above schedule for rate of surcharge we find that in the instant case the income is only from dividend and is between the slab rate of Rs. 50.00 lakh to Rs. 1 crore and therefore surcharge is leviable @10% and therefore CPC erred in charging surcharge @37%. Thus finding of CIT(A) is reversed and grounds of appeal raised by the assessee are allowed.
The primary issue before the Tribunal concerns the validity of the surcharge rate applied by the Central Processing Centre (CPC) on the dividend income earned by a Discretionary Private Trust for the Assessment Year 2022-23. Specifically, whether the surcharge on dividend income should be levied at 37% as computed by the CPC or at a lower rate of 10% or 15% as contended by the assessee.
The core legal questions considered are:
Issue-wise Detailed Analysis: Issue 1: Validity of surcharge rate of 37% on dividend income Legal Framework and Precedents: The surcharge rates are governed by the Finance Act schedules, particularly the First Schedule, Paragraph A, Part I, which prescribes slab-wise surcharge rates on income-tax. Section 2(29C) of the Income-tax Act defines the Maximum Marginal Rate (MMR) of tax, and section 164 deals with the calculation of tax on income of certain persons including trusts. The Finance Act, 2022 and 2023 amendments clarify surcharge slabs and caps on surcharge rates applicable to dividend income. The Special Bench decision in Araadhaya Jain Trust vs. ITO (ITA No. 4272/Mum/2024) is particularly instructive. It held that surcharge must be levied as per slab rates in the First Schedule and that the maximum surcharge on dividend income cannot exceed 15%. The Bench emphasized that the highest surcharge rate of 37% applies only when total income exceeds Rs. 5 crores, which was not the case here. Court's Interpretation and Reasoning: The Tribunal examined the relevant provisions of the Finance Act schedules and the Special Bench ruling. It noted that the income of the assessee trust was Rs. 90,12,900/- from dividend, which falls within the slab of Rs. 50 lakh to Rs. 1 crore. According to the First Schedule, surcharge on income-tax in this slab is 10%. The Tribunal observed that the CPC erred by applying a 37% surcharge rate, which is applicable only for incomes exceeding Rs. 5 crores. Key Evidence and Findings: The assessee's return declared income of Rs. 90,13,190/- with surcharge applied @10%. The CPC's intimation order applied surcharge @37%, resulting in an inflated tax demand. The Tribunal relied on the Special Bench decision and other coordinate bench rulings which consistently held that surcharge on dividend income is capped at 15% and slab rates must be followed. Application of Law to Facts: Applying the First Schedule slab rates to the assessee's income, the surcharge rate of 10% is appropriate. The maximum marginal rate of 42.744% applied by the CIT(A) and CPC, which included surcharge @37%, was therefore incorrect. The Tribunal reversed the CIT(A)'s order on this point. Treatment of Competing Arguments: The Departmental Representative supported the lower authorities' orders applying the 37% surcharge. The Tribunal rejected this, relying on the clear statutory scheme and authoritative Special Bench precedent limiting surcharge on dividend income to a maximum of 15%, and in this case, applicable slab being 10%. Conclusion: The surcharge on dividend income should be levied at 10% as per the applicable slab rates, not at 37%. The CPC's calculation was erroneous and the CIT(A) erred in affirming it. Issue 2: Applicability of interest under sections 234B and 234C calculated on surcharge at 37% Legal Framework: Sections 234B and 234C impose interest for default in payment of advance tax and deferment of advance tax installments respectively. Interest is calculated on the tax amount determined, which includes surcharge and cess. Court's Reasoning: Since the surcharge rate applied by CPC was incorrect, the tax base on which interest was calculated was also inflated. The Tribunal found that the interest levied on the erroneous surcharge amount was not justified. Conclusion: Interest calculated on tax including surcharge at 37% is not justified and must be recalculated based on the corrected surcharge rate of 10%. Issue 3: Precedential value of earlier decisions in AY 2021-22 limiting surcharge on dividend income Legal Framework and Precedents: The assessee cited prior appellate decisions where surcharge on dividend income was limited to 15%. The Tribunal noted these decisions, including the Special Bench ruling in Araadhaya Jain Trust and multiple coordinate bench decisions, which consistently held that surcharge on dividend income is capped at 15% and must be applied as per slab rates. Court's Reasoning: The Tribunal relied heavily on these precedents, finding them directly applicable and binding for the current appeal. It emphasized that the surcharge slabs in the Finance Act must be followed strictly and that the maximum surcharge on dividend income is limited by law. Conclusion: The Tribunal upheld the principle established in earlier decisions, rejecting the higher surcharge rate applied by CPC and CIT(A). Significant Holdings: "The surcharge is to be levied based on the slab rates referred in First Schedule, Paragraph A of Part 1 and surcharge on Dividend Income cannot exceed 15%. ... in the instant case the income is only from dividend and is between the slab rate of Rs. 50.00 lakh to Rs. 1 crore and therefore surcharge is leviable @10% and therefore CPC erred in charging surcharge @37%." Core principles established include:
The Tribunal reversed the CIT(A)'s order and allowed the appeal, directing that surcharge on the dividend income be computed at 10%, consistent with the statutory provisions and judicial precedents.
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