The issue before the Special Bench was whether a private discretionary trust, whose income is taxable at the maximum marginal rate, is automatically liable to the highest rate of surcharge irrespective of its total income. The Tribunal held that the expression “maximum marginal rate” in section 2(29C) refers to the highest slab of income

and not the highest rate of tax or surcharge. Surcharge is to be levied only in accordance with the slab-wise provisions contained under the heading “Surcharge on Income-tax” in Paragraph A, Part I of the First Schedule to the relevant Finance Act. Where the total income does not cross the prescribed threshold, no surcharge is leviable. Levying the highest surcharge irrespective of income would render the statutory surcharge slabs otiose and lead to absurd results. Accordingly, surcharge on a private discretionary trust taxable at the maximum marginal rate must be computed with reference to the applicable income slab under the Finance Act.

A discretionary trust filed return at maximum marginal rate. CPC levied surcharge at highest rate (37%). Tribunal held that surcharge must be computed as per slab rates in Finance Act. Maximum marginal rate means tax rate applicable to highest slab (30%) plus surcharge as per relevant slab, not automatically the highest 37%.
(AY. 2023-24)