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 Income-tax Act, 1961, s.164A, inserted by the Finance Act, 1981 with effect from 1 April 1981, as printed on departmental pages stamped Year 1991, Year 2000 and Year 2009. 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.
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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.
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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 Income-tax Act, 1961, s.164A, inserted by the Finance Act, 1981 with effect from 1 April 1981, as printed on departmental pages stamped Year 1991, Year 2000 and Year 2009. 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 Income-tax Act, 1961, s.164A, inserted by the Finance Act, 1981 with effect from 1 April 1981, as printed on departmental pages stamped Year 1991, Year 2000 and Year 2009. 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.
Validity check could not be completed. Validity check could not be completed. The operative sentence and the Explanation are printed identically on departmental pages stamped Year 1991, Year 2000 and Year 2009, and the definition of 'oral trust' they point to was independently transcribed from the section 160 pages stamped Year 2022 and Year 2025. But I could NOT locate any page for section 164A stamped later than Year 2009 — /w/section-164a-60 and /w/section-164a-61 both return 404 and I had no web-search budget left to find the correct suffix — so nothing about the period after 2009 is certified, and a later amendment or omission cannot be excluded on this evidence. No judicial treatment was checked. 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.
'decided_on' is 1 April 1981, the COMMENCEMENT DATE of section 164A recorded in the insertion footnote printed on the departmental pages — 'Inserted by the Finance Act, 1981, w.e.f. 1-4-1981'. It is not a decision date; 'bench' is 'Not applicable — statutory text' and 'favours' is null. Three year-stamped pages were transcribed, all printing the heading 'Charge of tax in case of oral trust' and naming the Income-tax Act, 1961: /w/section-164a-8 (Year: 1991), /w/section-164a (Year: 2000) and /w/section-164a-1 (Year: 2009); all three print the operative sentence and the Explanation identically. The Year 2000 page numbers the footnotes 59 and 60, the Year 2009 page numbers the same two footnotes 66 and 67, and the Year 1991 page numbers them 42 and 43 — the footnote NUMBERS differ between pages while the footnote TEXT is the same, which is worth knowing before anyone cites a footnote number from one of these pages. 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 the Year 2023 section 164 page independently prints its Explanation 2 as omitted by the same Act with effect from the same date — the two pages corroborate each other on that. I do NOT state where the definition of 'maximum marginal rate' went, because I did not retrieve section 2(29C) this pass. The definition itself IS retrievable and was transcribed on verification from two year-stamped departmental pages of section 2 — https://incometaxindia.gov.in/w/section-2-64 (Year: 2024 (No. 1)) and https://incometaxindia.gov.in/w/section-2-65 (Year: 2024 (No. 2)) — which print it word for word identically: '(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, 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. (The URL /w/section-2-29c does 404; the definition lives inside the section 2 pages, whose suffixes follow the same -6x pattern as the rest of this Chapter.) I also could not locate any page for section 164A stamped later than Year 2009, so the position after 2009 is not certified. Every word of the statutory text quoted in this entry was transcribed this pass from incometaxindia.gov.in section pages, each of which was made to print its section HEADING and its "Year:" stamp alongside the text, and each of which named the Act as the Income-tax Act, 1961. No text in this entry comes from an indiankanoon bare-act page, from a commentary, or from memory. 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.
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