ITAT Quashes 37% Surcharge on Employee Welfare Trust; Normal AOP Rates to Apply

Deloitte Employees Welfare Trust, a private trust formed exclusively for the welfare of employees of Deloitte, filed its return for AY 2022-23 as an AOP, offering interest income from fixed deposits and paying tax at normal AOP rates.

While processing the return under Section 143(1), the CPC applied tax at the maximum marginal rate with 37% surcharge under Section 167B, resulting in a demand. The CIT(A) upheld the action.

Issue Before Tribunal: Whether an employee welfare trust covered by clause (iv) of the first proviso to Section 164(1) is taxable at the maximum marginal rate under Section 167B, and whether surcharge at 37% is leviable when income is below Rs. 50 lakh.

ITAT Ruled: The ITAT allowed the appeal. It held that the assessee is a bona fide employee welfare trust falling within the exception under Section 164(1)(iv) and, therefore, outside the scope of Section 167B. Such trusts are taxable at normal AOP rates.

Relying on CBDT Circular No. 577 and judicial precedents, the Tribunal further held that surcharge was not leviable since the income was below Rs. 50 lakh. The Assessing Officer was directed to recompute tax accordingly.

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