Section 307 — Charge of tax where share of beneficiaries unknown. Successor to s.164 of the 1961 Act.
Section 307 is in Chapter XVII — Special Provisions Relating to Certain Persons, which runs from section 302 to section 355.
Sub-section (1) charges income of the persons mentioned in section 303(1)(c) and (d) at the maximum marginal rate in either of two cases: where the income or part of it is not specifically receivable on behalf or for the benefit of any one person, or where the individual shares of the persons for whose benefit it is receivable are indeterminate or unknown.
Sub-section (2) brings that income back to the rate applicable to an association of persons, as if it were that association's total income, in four cases: clause (a), where no beneficiary has other income chargeable under the Act exceeding the maximum amount not chargeable to tax in the case of an association of persons and no beneficiary is a beneficiary under any other trust; clause (b), where the income is receivable under a trust declared by a person by will and that is the only trust so declared by him; clause (c), where it is receivable under a trust created before 1 March 1970 by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all circumstances existing at the relevant time, that it was created bona fide exclusively for the settlor's relatives, or the members of the family where the settlor is a Hindu undivided family, who were mainly dependent on the settlor for support and maintenance; and clause (d), where it is receivable by trustees on behalf of a provident, superannuation, gratuity, pension or other fund created bona fide by a person carrying on a business or profession exclusively for persons employed in it.
Sub-section (3), subject to sub-section (4), charges the maximum marginal rate where income of a person mentioned in section 303(1)(d) consists of or includes profits and gains of business. Sub-section (4) is the only exception: where those profits are receivable under a trust declared by will exclusively for a relative dependent on the settlor for support and maintenance, and that is the only trust so declared by him, association of persons rates apply.
Sub-section (5) supplies the deeming rules that decide most cases. Income is deemed not specifically receivable for any one person unless that person is expressly stated in the court's order, the instrument of trust or the wakf deed and identifiable as such on its date; shares are deemed indeterminate or unknown unless expressly stated there and ascertainable as such on that date.
Where a trust names no identified beneficiary or no stated share there is no personal rate structure to apply, and the arrangement could otherwise fragment income across unnamed hands. The section answers with the maximum marginal rate, and then restores ordinary association of persons rates in the narrow cases where the arrangement is plainly not a device — small beneficiaries, a sole will trust, an old dependent-family trust, or an employee benefit fund. Sub-section (5) makes the test documentary and fixes it at the date of the instrument, so indeterminacy cannot be cured afterwards.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate where the beneficiary or the share is not identified | The maximum marginal rate — the section states no percentage | Income of a person mentioned in section 303(1)(c) or (d) not specifically receivable for any one person, or whose individual shares are indeterminate or unknown | Sub-section (1) |
| Rate where an exception applies | The rate applicable to an association of persons, as if the income were its total income | Any of clauses (a) to (d) of sub-section (2); for business profits, only the will-trust case in sub-section (4) | Sub-sections (2) and (4) |
| Ceiling on a beneficiary's other income for the clause (a) exception | The maximum amount not chargeable to tax in the case of an association of persons — the section states no amount | No beneficiary may exceed it, and no beneficiary may be a beneficiary under any other trust | Sub-section (2)(a) |
| Cut-off date for the non-testamentary family trust exception | Created before 1 March 1970 | By a non-testamentary instrument, with the Assessing Officer satisfied it was created bona fide exclusively for the settlor's relatives or the family's members, mainly dependent on him for support and maintenance | Sub-section (2)(c) |
Everything turns on the four corners of the instrument as it stood on its own date. Sub-section (5) makes both tests documentary — the beneficiary expressly stated and identifiable, the shares expressly stated and ascertainable, on the date of the order, instrument or deed — so a later clarification does not help. Business profits are treated more harshly still: sub-section (3) charges the maximum marginal rate on them regardless of the sub-section (2) exceptions, and only the narrow will-trust case in sub-section (4) escapes. The exception in clause (2)(a) is the one most often claimed and the hardest to satisfy, because it fails if a single beneficiary is a beneficiary under any other trust.
A trust deed names a class of beneficiaries but does not state their individual shares, and the trustee receives Rs 30 lakh of interest income. Because the shares are not expressly stated and ascertainable on the date of the deed, sub-section (5)(b) deems them indeterminate and sub-section (1)(b) charges the whole Rs 30 lakh at the maximum marginal rate. Had every beneficiary's other income been within the maximum not chargeable to tax for an association of persons and none been a beneficiary under any other trust, clause (2)(a) would have brought the same income back to those rates. Had it been business profits, sub-section (3) would charge the maximum marginal rate regardless, unless sub-section (4) were made out.
In the return filed by a trustee, receiver or manager as a representative assessee, and in the assessment order applying the maximum marginal rate to trust income. The argument in practice is almost always about sub-section (5) — whether the deed states beneficiaries or shares that were identifiable or ascertainable on the date of the deed itself.
shall be chargeable to tax at the maximum marginal rate
shall be chargeable to tax at the rate applicable to an association of persons as if it were its total income
unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed and are ascertainable as such on the date of such order, instrument or deed
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