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Mumbai Tribunal Special Bench rules determination of maximum marginal rate for private discretionary trust with surcharge at graded rate
This Tax Alert summarizes a Mumbai Tribunal (Tribunal) Special Bench (SB) decision dated 9 April 2025, in the case of Araadhya Jain Trust [1] (Taxpayer), wherein an issue arose on the applicable rate of surcharge while determining maximum marginal rate (MMR) to income earned by a private discretionary trust (DT).
In this case, the Taxpayer, a private DT, offered income to tax at MMR as per the provisions of the Indian Tax Laws (ITL) by considering the highest rate of income tax, but without surcharge, as the total income of the DT fell below the threshold for levy of surcharge. However, the Centralised Processing Centre (CPC), while processing the return of income, levied MMR by using the highest rate of surcharge.
The Tribunal disagreed with the approach of the CPC and, after considering the detailed arguments, ruled in favor of the Taxpayer. It held that, while determining MMR applicable to DTs, the highest income tax slab rate as applicable to individuals is to be adopted, whereas surcharge is to be considered in a graded manner depending upon the level of total income.
[1] Araadhya Jain Trust v. ITO (ITA No. 4272/Mum/2024) dated 9 April 2025