2025 (7) TMI 868 - AT - Income Tax

Levy of Surcharge - Threshold of total income - CPC has levied surcharge 37% on the tax payable on the total income - HELD THAT - Levying of surcharge comes into effect only if the total income exceeds Rs. 50.00 lakh however in the case of assessee since the income is below Rs. 50.00 lakh for both the impugned years therefore no surcharge is leviable. We therefore hold that assessee has correctly computed the tax liability in the income tax returns filed by it for both the years under appeal before us. Impugned orders for both the years under consideration are set aside and grounds of appeal raised by the assessee for both the years are allowed.

Summary

The core legal question considered in these appeals is whether surcharge under the Income-tax Act, 1961 is leviable on the income of the assessee, a private trust, where the total income is below Rs. 50.00 lakh for the assessment years 2023-24 and 2024-25.

For this issue, the relevant legal framework is Section 250 of the Income-tax Act, 1961, which governs appeals, and the First Schedule to the Finance Act, 2023, particularly Paragraph A of Part I, which sets out the slab rates for income tax and surcharge applicable to individuals, Hindu undivided families, associations of persons, bodies of individuals, and artificial juridical persons. The schedule specifies that surcharge is applicable only when total income exceeds Rs. 50.00 lakh, with graduated rates ranging from 10% to 37% depending on the income bracket.

The Court examined the decision of the Hon'ble Special Bench in the case of Araadhaya Jain Trust vs. ITO, which held that surcharge must be levied strictly in accordance with the slab rates provided in the First Schedule under Paragraph A, Part I, and that surcharge is leviable only if the total income exceeds Rs. 50.00 lakh. This precedent was central to the assessee's argument that the surcharge levied by the Central Processing Centre (CPC) was erroneous since the assessee's income for both years was below the Rs. 50.00 lakh threshold.

The Court noted that the assessee's declared income was Rs. 7,84,000 and Rs. 8,20,920 for the respective years, both well below the Rs. 50.00 lakh mark. Although the income was chargeable at the Maximum Marginal Rate and taxes were duly paid, the CPC had levied a surcharge at 37% on the tax payable, which was challenged as incorrect.

In its reasoning, the Court meticulously reproduced the relevant portions of the First Schedule to highlight the surcharge slabs. It emphasized that surcharge is an additional levy on the computed income tax, applicable only when the total income crosses the specified thresholds starting at Rs. 50.00 lakh. The Court further observed that the provisos to the surcharge provisions limit the surcharge rates and cap the total tax and surcharge payable, reinforcing the structured approach to surcharge imposition.

The Court applied this legal framework to the facts, concluding that since the assessee's total income for both years was below Rs. 50.00 lakh, no surcharge was leviable. The CPC's imposition of surcharge at 37% was therefore contrary to the statutory provisions and the authoritative precedent. The Court rejected the Department's arguments supporting the surcharge levy, finding them inconsistent with the statutory scheme and the Special Bench ruling.

Consequently, the Court held that the assessee had correctly computed its tax liability in the returns filed and that the surcharge imposed was erroneous. The impugned orders passed by the Addl./JCIT(A) were set aside, and the grounds of appeal raised by the assessee were allowed for both assessment years.

Significant holdings include the Court's clear statement that "levying of surcharge comes into effect only if the total income exceeds Rs. 50.00 lakh," and that "in the case of assessee since the income is below Rs. 50.00 lakh for both the impugned years, therefore no surcharge is leviable." This affirms the principle that surcharge is not a blanket addition but is strictly governed by income thresholds as per the First Schedule to the Finance Act.

In conclusion, the Court's final determination is that surcharge cannot be levied on income below Rs. 50.00 lakh, and the tax liability computed by the assessee without surcharge is correct. The appeals were allowed accordingly, setting aside the surcharge imposed by the CPC for the assessment years 2023-24 and 2024-25.