ORDER
P. K. AMMINI, J. M. :
These appeals are by the Revenue relating to the asst. yr. 1985-86 for which the relevant accounting period ended on 16th Aug., 1984.
ITA No. 774/Coch/1988
2. The only point raised in this appeal is as follows :
“The learned CIT(A) erred in holding that the maximum marginal rate to be applied is Rs. 35,250 plus 55% of the amount by which the total income exceeds Rs. 1 lakh plus surcharge @ 12.5% of such income-tax. He failed to note that the Expln. 2 to S. 164 clearly states that the rate means the rate applicable to the highest slab and hence for asst. yr. 1985-86 the rate to be applied is the flat rate of 55%.”
3. The assessee is a private trust engaged in the textile business. The assessee is assessed to income-tax under S. 161(1A) of the IT Act, 1961. While completing the assessment, the Assessing Officer charged the tax at the maximum marginal rate of tax. While so doing, he charged the tax @ 55% on the income of the assessee because it represented the highest rate of tax prescribed in the Finance Act, 1985.
4. Being aggrieved, the assessee took up the matter in appeal before the CIT(A), who held as follows :
“For the asst. yr. 1985-86, this maximum rate of tax will be “Rs. 35,250 plus 55% of the amount by which the total income exceeds Rs. 1,00,000″ plus surcharge at the rate of twelve and a half per cent of such income-tax which may be interpreted to mean Rs. 35,250 on the income upto Rs. one lakh plus 55 per cent of the excess, if any, plus the surcharge.”
The Revenue is aggrieved against the aforesaid finding of the CIT(A) and in second appeal before the Tribunal.
5. We have heard rival submissions. Shri Abraham, the learned Senior Departmental Representative, contended that as per First Schedule Part I of income-tax and sur-tax on income-tax as provided in the Finance Act, 1985, the highest rate of tax is at 55% where the income exceeded Rs. 1 lakh. Therefore, this should represent the maximum marginal rate. On the other hand, Shri Krishnan, the learned representative of the assessee relied on the findings of the CIT(A) on this point. In our considered opinion, the CIT(A) is justified in directing the Assessing Officer to compute the tax at the maximum marginal rate as applicable to AOP. The maximum marginal rate has been explained in Expln. 2 to S. 164, as follows :
“In this section, “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an AOP as specified in the Finance Act of the relevant year.”
Thus, it does not represent the highest rate of income-tax as provided for in the First Schedule because by definition it includes surcharge on income-tax in relation to slab of income. Moreover, the Explanation does not refer to “maximum rate of tax”. On the other hand it goes a step further and describes it as “maximum marginal rate of tax”. In other words, the maximum rate will have to subject to certain marginalisation as provided for in the First Schedule itself wherein the rate of income-tax are prescribed on slab basis. Only when the income-tax is worked out on that basis, of course, with reference to the highest slab of income, one would be able to find out the surcharge thereon. For example, say the income is Rs. 1,50,000. The computation of tax will be as follows :
Tax
(a) Upto Rs. 1 lakh
35,250
(b) Excess over 1 lakh @ 55%
27,500
Total
62,750
(c) Sur-charge @ 12.5% on the above
7,518
Total (a+b+c)
70,268
Maximum Marginal rate = 1,50,000/70,268 = Rs. 46.85%
The above percentage, namely, 46.85% is by taking the maximum rate of tax at 55% and the surcharge thereon duly marginalised for the difference in rate of tax prescribed for different slabs of income and non-tax slab of income. This is what is meant by maximum marginal rate.
6. In view of the above, we dismiss the appeal of the Revenue.
ITA No. 775/Coch/88
7. The only grievance in this appeal is against the finding of allowance of entire salary paid to three employees of the assessee.
8. In the assessment, the assessee claimed the salary paid to three employees, as follows :
(a) Shri V. Mahadeva Iyer
Rs. 36,000
(b) Shri Laxminarayanan
Rs. 30,000
(c) Smt. G. Radhammal
Rs. 15,000
The ITO disallowed the salary of Smt. Radhammal as in the earlier assessment year. In respect of the salary of S/Shri Mahadeva Iyer and Laxminarayanan, the ITO restricted the same to Rs. 2,000 per month and the balance in excess of Rs. 2,000 per month was disallowed.
9. In appeal, the CIT(A) allowed the entire claim of the assessee. Hence, the Revenue is in second appeal.
10. We have heard rival submissions. We see that this issue stands covered by the order of the Tribunal in ITA No. 730/Coch/87 for the asst. yr. 1984-85, dt. 13th Aug., 1992 in favour of the assessee. The order of the Tribunal for the asst. yr. 1984-85 was based on the decision of the Tribunal in ITA No. 817/Coch/86 for the asst. yr. 1983-84 dt. 6th Feb., 1992, in the assessees own case, wherein we have held as under :
“the salary and remuneration have been paid in pursuance of resolution passed by the Board of Trustees with the full acquiescence of all the beneficiaries and the turnover of the business and the profitability was fairly substantial. The Tribunal also found that the claim made under the head salary was very low”.
In this case also there is no fresh material was furnished so as to take a difference view. Hence, following our earlier order, we uphold the findings of the CIT(A) on this point.
11. In the result, both the appeals of the Revenue fail and they are hereby dismissed.