ITAT Rules Surcharge on AOP Income Limited to 10%, Not 37%

An Association of Persons (AOP) filed returns for AYs 2021-22, 2022-23, and 2023-24 declaring income from house property. For AY 2021-22, the assessee declared Rs. 64,02,500 and computed tax at 30% with a 10% surcharge. However, CPC processed the return under Section 143(1) with a surcharge at 37%, raising the tax liability substantially.

The assessee’s rectification plea under Section 154 was rejected, and the CIT(A) confirmed CPC’s computation on the ground that the surcharge must follow the maximum marginal rate under Section 167B. On further appeal, the assessee argued that the surcharge should be slab‑based, relying on the ITAT decision in Araadhya Jain Trust.

Main Issue: Whether the surcharge on AOP’s income under Section 167B should follow the slab rates of the Finance Act or be levied at the flat 37% maximum marginal rate.

Tribunal’s Ruling: The Tribunal allowed the appeals, determining that a flat surcharge rate of 37% cannot be indiscriminately applied; instead, the surcharge must correspond to the relevant slab rates prescribed under the Finance Act. The Bench observed that, for the assessment year 2021-22, the assessee’s income exceeded Rs. 50 lakh but did not surpass Rs. 1 crore. So, the appropriate surcharge rate should be 10%. The Tribunal relied on the Special Bench’s decision in Araadhya Jain Trust, which clarified that the concept of “maximum marginal rate” does not override the slab-wise surcharge structure.

The Tribunal condoned a 123-day delay in filing, accepted the assessee’s arguments, and instructed the authorities to recompute the surcharge at 10% for AY 2021-22. The Tribunal held as follows:

“Since the facts of the present appeals for the AYs. 2022-23 & 2023-24 are identical to one as decided by us in ITA No. 3128/Mum/2025, for the AY. 2021-22 (supra) and, therefore, our findings in the said appeal, mutatis mutandis, would apply to these appeals as well. Hence, while setting aside the appellate order(s) in these two appeals, we allow the grounds raised by the assessee in both the assessment years under consideration.”

Therefore, the same relief was extended for the assessment years 2022-23 and 2023-24, setting aside of the CIT(A)’s orders.

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