A trust in our family was never reduced to writing. The Assessing Officer says section 164A applies and has charged the maximum marginal rate on everything. Is there any relief at all?
Only one, and it has to have been taken in time. Section 164A provides that where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust then, notwithstanding anything contained in any other provision of the Act, tax shall be charged on such income at the maximum marginal rate. There is no proviso — none of the escapes in section 164's first proviso, and not the will-trust proviso in section 161(1A), is available. The Explanation to section 164A gives 'oral trust' the meaning assigned to it in Explanation 2 below section 160(1), and that definition is residual: a trust not declared by a duly executed instrument in writing (including a valid wakf deed) AND not deemed under Explanation 1 to section 160(1) to be so declared. The only way out is therefore Explanation 1 — filing with the Assessing Officer a statement in writing signed by the trustees setting out the purposes of the trust, the particulars of the trustees, the beneficiaries and the trust property, within three months of the declaration of the trust (or, for a trust declared before 1 June 1981, within three months from that day).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1981-04-01, reported as Section 164A read with section 160(1)(v) of the Income-tax Act, 1961; section 164A was inserted by the Finance Act, 1981 with effect from 1 April 1981. It bears on section 164A, section 160(1)(v), section 160, section 160(1)(iv), section 164, section 161(1A), section 2(29C) of the Income Tax Act 1961, in Charitable Trusts & Exemption, Assessment & Scrutiny and How Tax Law Is Read matters.
Section 164A is the harshest charge in Chapter XV and it is the one people discover too late. Read the two definitions together and the point becomes clear: 'oral trust' is not defined by how the trust was created but by what was NOT done afterwards. A trust created orally is still capable of being a section 160(1)(iv) trust — with all of section 164's provisos open to it — if the Explanation 1 statement was filed in time. Once that three-month window has closed, the trust is an oral trust for good, and section 164A charges the maximum marginal rate on the whole of the income with no reference to whether the shares are determinate, whether the beneficiaries have other income, or whether there is any business income at all. The 'notwithstanding anything contained in any other provision of this Act' opening is unusually wide — wider than the 'notwithstanding sub-section (1)' in section 161(1A) — and it is what displaces section 161(1) and section 164 together. The practical lesson is documentary rather than forensic: this is a provision that is defeated by a filing, and only by a filing.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
Read aloud by your device. Press again to stop.
Section 164A, as printed identically on the Year 1991, Year 2000 and Year 2009 departmental pages: 'Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate. Explanation.—For the purposes of this section,— (i) [omitted] (ii) "oral trust" shall have the meaning assigned to it in Explanation 2 below sub-section (1) of section 160.' The omitted clause (i) read: '"maximum marginal rate" shall have the meaning assigned to it in Explanation 2 below sub-section (3) of section 164;' and was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989. Explanation 2 below section 160(1) defines an 'oral trust' as a trust which is not declared by a duly executed instrument in writing (including any wakf deed valid under the Mussalman Wakf Validating Act, 1913) and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.
Where a trustee receives or is entitled to receive income on behalf or for the benefit of any person under an oral trust, tax is charged on that income at the maximum marginal rate notwithstanding any other provision of the Act. The section carries no proviso and no exception. Whether a trust is an 'oral trust' is decided by Explanation 2 below section 160(1), so a trust with no written instrument escapes section 164A only if the Explanation 1 statement was forwarded to the Assessing Officer within the period Explanation 1 allows, which makes it a section 160(1)(iv) trust instead.
Not applicable — this is a statement of statutory text and of the amendment footnotes printed on the same departmental pages. No judicial reasoning is involved.
Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppOnly one, and it has to have been taken in time. Section 164A provides that where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust then, notwithstanding anything contained in any other provision of the Act, tax shall be charged on such income at the maximum marginal rate. There is no proviso — none of the escapes in section 164's first proviso, and not the will-trust proviso in section 161(1A), is available. The Explanation to section 164A gives 'oral trust' the meaning assigned to it in Explanation 2 below section 160(1), and that definition is residual: a trust not declared by a duly executed instrument in writing (including a valid wakf deed) AND not deemed under Explanation 1 to section 160(1) to be so declared. The only way out is therefore Explanation 1 — filing with the Assessing Officer a statement in writing signed by the trustees setting out the purposes of the trust, the particulars of the trustees, the beneficiaries and the trust property, within three months of the declaration of the trust (or, for a trust declared before 1 June 1981, within three months from that day). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 164A, section 160(1)(v), section 160, section 160(1)(iv), section 164, section 161(1A), section 2(29C) of the Income Tax Act 1961. It is reported as Section 164A read with section 160(1)(v) of the Income-tax Act, 1961; section 164A was inserted by the Finance Act, 1981 with effect from 1 April 1981. Section 164A is the harshest charge in Chapter XV and it is the one people discover too late. Read the two definitions together and the point becomes clear: 'oral trust' is not defined by how the trust was created but by what was NOT done afterwards. A trust created orally is still capable of being a section 160(1)(iv) trust — with all of section 164's provisos open to it — if the Explanation 1 statement was filed in time. Once that three-month window has closed, the trust is an oral trust for good, and section 164A charges the maximum marginal rate on the whole of the income with no reference to whether the shares are determinate, whether the beneficiaries have other income, or whether there is any business income at all. The 'notwithstanding anything contained in any other provision of this Act' opening is unusually wide — wider than the 'notwithstanding sub-section (1)' in section 161(1A) — and it is what displaces section 161(1) and section 164 together. The practical lesson is documentary rather than forensic: this is a provision that is defeated by a filing, and only by a filing. If it applies to you, the first step is this: Establish first whether the Explanation 1 statement to section 160(1) was ever filed, and when. If it was filed within three months of the declaration, the trust is a section 160(1)(iv) trust and section 164A does not apply — take that point before any argument on rate.
Section 164A, as printed identically on the Year 1991, Year 2000 and Year 2009 departmental pages: 'Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate. Explanation.—For the purposes of this section,— (i) [omitted] (ii) "oral trust" shall have the meaning assigned to it in Explanation 2 below sub-section (1) of section 160.' The omitted clause (i) read: '"maximum marginal rate" shall have the meaning assigned to it in Explanation 2 below sub-section (3) of section 164;' and was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1 April 1989. Explanation 2 below section 160(1) defines an 'oral trust' as a trust which is not declared by a duly executed instrument in writing (including any wakf deed valid under the Mussalman Wakf Validating Act, 1913) and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing. The matter was decided on 1981-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Where a trustee receives or is entitled to receive income on behalf or for the benefit of any person under an oral trust, tax is charged on that income at the maximum marginal rate notwithstanding any other provision of the Act. The section carries no proviso and no exception. Whether a trust is an 'oral trust' is decided by Explanation 2 below section 160(1), so a trust with no written instrument escapes section 164A only if the Explanation 1 statement was forwarded to the Assessing Officer within the period Explanation 1 allows, which makes it a section 160(1)(iv) trust instead.
Not applicable — this is a statement of statutory text and of the amendment footnotes printed on the same departmental pages. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "Where a trustee receives or is entitled to receive any income on behalf or for the benefit of any person under an oral trust, then, notwithstanding anything contained in any other provision of this Act, tax shall be charged on such income at the maximum marginal rate."
It was decided by the CBDT Circulars & Instructions on 1981-04-01 and is reported as Section 164A read with section 160(1)(v) of the Income-tax Act, 1961; section 164A was inserted by the Finance Act, 1981 with effect from 1 April 1981. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 164A, section 160(1)(v), section 160, section 160(1)(iv), section 164, section 161(1A), section 2(29C), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Where a trustee receives or is entitled to receive income on behalf or for the benefit of any person under an oral trust, tax is charged on that income at the maximum marginal rate notwithstanding any other provision of the Act. The section carries no proviso and no exception. Whether a trust is an 'oral trust' is decided by Explanation 2 below section 160(1), so a trust with no written instrument escapes section 164A only if the Explanation 1 statement was forwarded to the Assessing Officer within the period Explanation 1 allows, which makes it a section 160(1)(iv) trust instead. It arises in Charitable Trusts & Exemption, Assessment & Scrutiny and How Tax Law Is Read matters, on section 164A, section 160(1)(v), section 160, section 160(1)(iv), section 164, section 161(1A), section 2(29C) of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If there is any written instrument at all, test it against 'duly executed instrument in writing whether testamentary or otherwise', including a wakf deed valid under the Mussalman Wakf Validating Act, 1913. A trust with a written instrument is not an oral trust however informal the instrument looks. Do not waste effort on the section 164 provisos or on the will-trust proviso to section 161(1A). Section 164A carries none of them and overrides both. For any trust being declared now that is not being reduced to a formal deed, diarise the three-month Explanation 1 filing as the single most important compliance step in its life. Do not state a figure for the maximum marginal rate from memory; compute it under section 2(29C) with the Finance Act of the relevant year. Where the Department asserts an oral trust, make it identify the date of declaration, because that date starts the three-month period and is what determines whether Explanation 1 was available at all.
Searched for later treatment; none was found. That is not the same as a source affirming it. Section 164A has not been amended since 1989. The consolidations of the section consulted print the operative sentence in the words the entry gives — tax charged on such income at the maximum marginal rate, notwithstanding anything contained in any other provision of the Act — and carry only two footnotes: 'Inserted by the Finance Act, 1981, w.e.f. 1-4-1981' and 'Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989', the latter recording the omission of clause (i) of the Explanation, the old maximum-marginal-rate definition. That leaves the Explanation pointing to Explanation 2 below s.160(1) for the meaning of 'oral trust', exactly as the entry states, and the omission predates the text the entry sets out. No later edition of the section is recorded, and no instrument amending it since is recorded. This states the law under the 1961 Act, which governs up to AY 2026-27 and the disputes arising from those years. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The decided_on field is 1 April 1981, the COMMENCEMENT DATE of section 164A recorded in its insertion footnote — 'Inserted by the Finance Act, 1981, w.e.f. 1-4-1981'. It is not a decision date, and this is a statutory entry with no judgment behind it: it asserts no bench and no holding. Three consolidations of the section, all printing the heading 'Charge of tax in case of oral trust' and naming the Income-tax Act, 1961, print the operative sentence and the Explanation identically. Their footnote NUMBERS differ from one another while the footnote TEXT is the same, which is worth knowing before anyone cites a footnote number for this section: cite the words, not the number. Clause (i) of the Explanation, which defined 'maximum marginal rate' by reference to Explanation 2 below section 164(3), was 'Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989', and section 164 independently prints its Explanation 2 as omitted by the same Act with effect from the same date — the two corroborate each other on that. The definition itself now sits in section 2(29C), which reads: '(29C) "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 individual, association of persons or, as the case may be, body of individuals as specified in the Finance Act of the relevant year;'. Two things follow that a reader needs: the rate INCLUDES surcharge, and it is the rate on the highest slab for an individual, association of persons or body of individuals, and not a company rate. It still fixes no percentage — the percentage comes from the Finance Act of the relevant year, which is why no figure is stated here. No text of section 164A later than the third of the three consulted is recorded, so the position after that date is not certified. Check the section in the bare Act for the year you are advising on before telling a trustee that there is no proviso. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Where a trustee receives or is entitled to receive income on behalf or for the benefit of any person under an oral trust, tax is charged on that income at the maximum marginal rate notwithstanding any other provision of the Act. The section carries no proviso and no exception. Whether a trust is an 'oral trust' is decided by Explanation 2 below section 160(1), so a trust with no written instrument escapes section 164A only if the Explanation 1 statement was forwarded to the Assessing Officer within the period Explanation 1 allows, which makes it a section 160(1)(iv) trust instead.
TaxSphere, “Statutory position — s.164A read with s.160(1)(v): an oral trust pays the maximum marginal rate on the whole of its income, with no proviso and only one way out”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-164a-oral-trust-maximum-marginal-rate-with-no-proviso/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
The Assessing Officer has issued a notice describing me as the 'representative assessee' of a family trust. Who can lawfully be made a representative assessee, and does being called one make me the assessee?
Our family trust has determinate shares, mostly interest and rent, and a small share of profit from a partnership business. The Assessing Officer has charged the entire trust income at the maximum marginal rate. Can he, when the shares are fixed?
Our discretionary trust has been charged at the maximum marginal rate under section 164 because the beneficiaries' shares are not fixed. What exactly takes a trust out of that rate, and does it help that the trust was created by my father's will?
The Assessing Officer has assessed our trust in one order on the whole of the trust income at slab rates of its own. The shares of the beneficiaries are fixed and known. Is that how section 161 works?
