Our association of persons has fixed member shares, but one member has other income well above the basic exemption limit. Can the Assessing Officer still charge the association at the maximum marginal rate?
Yes. Section 167B(2)(i) is a separate and often-overlooked trigger: even where the members' shares are determinate, if the total income of ANY member for the previous year — excluding his share from the association or body — exceeds the maximum amount not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax is charged on the total income of the association or body at the maximum marginal rate. Sub-section (1) is the more familiar trigger: where the individual shares of the members are indeterminate or unknown, tax is charged on the total income of the association or body at the maximum marginal rate, and its proviso pushes that up to a member's higher rate where any member is chargeable above the maximum marginal rate. Section 167B(2)(ii) deals with the split case where a member is chargeable at a rate higher than the maximum marginal rate: his relatable portion goes at the higher rate and the balance at the maximum marginal rate. Companies, co-operative societies and societies registered under the Societies Registration Act, 1860 or a corresponding State law are excluded from sub-section (1).
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 1989-04-01, reported as Income-tax Act, 1961, s.167B, inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1 April 1989, as printed on departmental pages stamped Year 1991, 1992, 1993, 1997, 2000, 2002 and 2009. It bears on section 167B, section 167B(1), section 167B(2), section 2(31), section 2(29C), section 86, section 67A of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Co-operative Societies matters.
The commercial significance is that an association of persons cannot be made safe merely by writing determinate shares into its constitution. Sub-section (2)(i) looks past the association altogether and at each member's own income, and the threshold it uses is not a round figure but 'the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year' — so it varies member by member and year by year, and a member who is a senior citizen, or who is himself a non-individual, may have a different threshold. Note the exclusion of that member's share from the association when the test is applied: the comparison is his OTHER income against his exemption limit. The Explanation is the second trap. Shares are deemed indeterminate or unknown if they are indeterminate or unknown 'on the date of formation of such association or body or at any time thereafter' — so an association whose shares were once uncertain does not cure the defect by later agreement, and the words 'or at any time thereafter' mean a mid-year change can bring sub-section (1) into play. The excluded bodies in sub-section (1) are worth reading precisely: a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 or under any corresponding State law. A trust, an unregistered association, a joint venture and a consortium are all outside that exclusion.
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Section 167B, as printed on the Year 2000 departmental page and identically on the Year 2009, 2002, 1997, 1993, 1992 and 1991 pages: '(1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate : Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate. (2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],— (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate. Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.'
Where the members' individual shares in the whole or any part of the income of an association of persons or body of individuals are indeterminate or unknown, its total income is charged at the maximum marginal rate, or at a member's higher rate if any member is chargeable above the maximum marginal rate. Where the shares are determinate, the total income is nevertheless charged at the maximum marginal rate if any member's total income for the previous year, excluding his share from the association or body, exceeds the maximum amount not chargeable to tax in his case under the Finance Act of the relevant year; and where a member is chargeable at a higher rate, the portion relatable to his share is taxed at that higher rate and the balance at the maximum marginal rate. Shares are deemed indeterminate if they were indeterminate on the date of formation or at any time thereafter. A company, a co-operative society and a society registered under the Societies Registration Act, 1860 or a corresponding State law are outside sub-section (1).
Not applicable — this is a statement of statutory text and of the insertion footnote printed on the same departmental page. No judicial reasoning is involved.
the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
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Handle my notice → Ask a CA on WhatsAppYes. Section 167B(2)(i) is a separate and often-overlooked trigger: even where the members' shares are determinate, if the total income of ANY member for the previous year — excluding his share from the association or body — exceeds the maximum amount not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax is charged on the total income of the association or body at the maximum marginal rate. Sub-section (1) is the more familiar trigger: where the individual shares of the members are indeterminate or unknown, tax is charged on the total income of the association or body at the maximum marginal rate, and its proviso pushes that up to a member's higher rate where any member is chargeable above the maximum marginal rate. Section 167B(2)(ii) deals with the split case where a member is chargeable at a rate higher than the maximum marginal rate: his relatable portion goes at the higher rate and the balance at the maximum marginal rate. Companies, co-operative societies and societies registered under the Societies Registration Act, 1860 or a corresponding State law are excluded from sub-section (1). This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 167B, section 167B(1), section 167B(2), section 2(31), section 2(29C), section 86, section 67A of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.167B, inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1 April 1989, as printed on departmental pages stamped Year 1991, 1992, 1993, 1997, 2000, 2002 and 2009. The commercial significance is that an association of persons cannot be made safe merely by writing determinate shares into its constitution. Sub-section (2)(i) looks past the association altogether and at each member's own income, and the threshold it uses is not a round figure but 'the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year' — so it varies member by member and year by year, and a member who is a senior citizen, or who is himself a non-individual, may have a different threshold. Note the exclusion of that member's share from the association when the test is applied: the comparison is his OTHER income against his exemption limit. The Explanation is the second trap. Shares are deemed indeterminate or unknown if they are indeterminate or unknown 'on the date of formation of such association or body or at any time thereafter' — so an association whose shares were once uncertain does not cure the defect by later agreement, and the words 'or at any time thereafter' mean a mid-year change can bring sub-section (1) into play. The excluded bodies in sub-section (1) are worth reading precisely: a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 or under any corresponding State law. A trust, an unregistered association, a joint venture and a consortium are all outside that exclusion. If it applies to you, the first step is this: Test sub-section (2)(i) member by member every year, using each member's own maximum amount not chargeable to tax under the Finance Act for that year, and excluding his share from the association when you compute his other income.
Section 167B, as printed on the Year 2000 departmental page and identically on the Year 2009, 2002, 1997, 1993, 1992 and 1991 pages: '(1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate : Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate. (2) Where, in the case of an association of persons or body of individuals as aforesaid [not being a case falling under sub-section (1)],— (i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate; (ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate. Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter.' The matter was decided on 1989-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Where the members' individual shares in the whole or any part of the income of an association of persons or body of individuals are indeterminate or unknown, its total income is charged at the maximum marginal rate, or at a member's higher rate if any member is chargeable above the maximum marginal rate. Where the shares are determinate, the total income is nevertheless charged at the maximum marginal rate if any member's total income for the previous year, excluding his share from the association or body, exceeds the maximum amount not chargeable to tax in his case under the Finance Act of the relevant year; and where a member is chargeable at a higher rate, the portion relatable to his share is taxed at that higher rate and the balance at the maximum marginal rate. Shares are deemed indeterminate if they were indeterminate on the date of formation or at any time thereafter. A company, a co-operative society and a society registered under the Societies Registration Act, 1860 or a corresponding State law are outside sub-section (1).
Not applicable — this is a statement of statutory text and of the insertion footnote printed on the same departmental page. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;"
It was decided by the CBDT Circulars & Instructions on 1989-04-01 and is reported as Income-tax Act, 1961, s.167B, inserted by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1 April 1989, as printed on departmental pages stamped Year 1991, 1992, 1993, 1997, 2000, 2002 and 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 167B, section 167B(1), section 167B(2), section 2(31), section 2(29C), section 86, section 67A, 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 the members' individual shares in the whole or any part of the income of an association of persons or body of individuals are indeterminate or unknown, its total income is charged at the maximum marginal rate, or at a member's higher rate if any member is chargeable above the maximum marginal rate. Where the shares are determinate, the total income is nevertheless charged at the maximum marginal rate if any member's total income for the previous year, excluding his share from the association or body, exceeds the maximum amount not chargeable to tax in his case under the Finance Act of the relevant year; and where a member is chargeable at a higher rate, the portion relatable to his share is taxed at that higher rate and the balance at the maximum marginal rate. Shares are deemed indeterminate if they were indeterminate on the date of formation or at any time thereafter. A company, a co-operative society and a society registered under the Societies Registration Act, 1860 or a corresponding State law are outside sub-section (1). It arises in Assessment & Scrutiny, How Tax Law Is Read and Co-operative Societies matters, on section 167B, section 167B(1), section 167B(2), section 2(31), section 2(29C), section 86, section 67A 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. Get written confirmation from each member of his other income before filing the association's return; the trigger is a fact about the member, and the association will be assessed on it. Check the Explanation against the constitution documents and against what actually happened. Shares indeterminate at formation, or at any time afterwards, put you in sub-section (1). If the body is a company, a co-operative society, or a society registered under the Societies Registration Act, 1860 or a corresponding State law, sub-section (1) does not apply to it at all — establish the registration and put it on record. Where a member is chargeable at a rate higher than the maximum marginal rate, work sub-section (2)(ii) rather than conceding the whole: only that member's relatable portion goes at the higher rate. Do not state a figure for the maximum marginal rate; it is defined in section 2(29C) by reference to the Finance Act of the relevant year and must be computed for the year in issue. Read this with the section 86 / section 67A machinery on a member's share, which decides what the member does with the share once the association has been taxed.
Validity check could not be completed. Validity check could not be completed. Seven departmental pages spanning Year 1991 to Year 2009 print the section identically, so the text is well established for that span; but I could not locate any page for this section stamped later than Year 2009, no Finance Act text was read, and no judicial treatment was checked. An amendment between 2010 and 2026 cannot be excluded on this evidence, and a later pass should establish the current departmental page before this entry is relied on for a recent year. 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 1989, the COMMENCEMENT DATE of the section recorded in footnote 66 on the Year 2000 departmental page — 'Inserted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1-4-1989'. It is not a decision date; 'bench' is 'Not applicable — statutory text' and 'favours' is null. THE CURRENCY OF THIS ENTRY IS ITS WEAKEST POINT AND I STATE IT PLAINLY. I transcribed the section from SEVEN year-stamped departmental pages — /w/section-167b-8 (Year: 1991), -11 (Year: 1992), -13 (Year: 1993), -20 (Year: 1997), /w/section-167b (Year: 2000), -4 (Year: 2002) and -1 (Year: 2009) — all of which print the heading 'Charge of tax where shares of members in association of persons or body of individuals unknown, etc.' and the same text. But the LATEST page I could locate is stamped Year 2009. /w/section-167b-60 and /w/section-167b-61 both return 404, /w/section-164-a returns 404, and I had no web-search budget left to find the suffix of a current page, so I cannot certify the text for any year after 2009. Two transcription artefacts on the older pages, recorded so that nobody mistakes them for substance: the Year 1992 and Year 1993 pages print the Explanation as 'indeterminate or known' where the Year 1997, 2000, 2002 and 2009 pages print 'indeterminate or unknown', and the Year 1993 page prints 'heigher' for 'higher' in the proviso — plain typographical errors on the departmental pages, and I have used the later spelling. The Year 2000 page also carries footnote 67, 'See also Circular No. 577, dated 4-9-1990', followed by a pointer to a commercial publisher's guide; I did NOT retrieve that circular and I say nothing about its contents. I state NO figure for the maximum marginal rate — see section 2(29C), which I did not retrieve 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.) 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 the members' individual shares in the whole or any part of the income of an association of persons or body of individuals are indeterminate or unknown, its total income is charged at the maximum marginal rate, or at a member's higher rate if any member is chargeable above the maximum marginal rate. Where the shares are determinate, the total income is nevertheless charged at the maximum marginal rate if any member's total income for the previous year, excluding his share from the association or body, exceeds the maximum amount not chargeable to tax in his case under the Finance Act of the relevant year; and where a member is chargeable at a higher rate, the portion relatable to his share is taxed at that higher rate and the balance at the maximum marginal rate. Shares are deemed indeterminate if they were indeterminate on the date of formation or at any time thereafter. A company, a co-operative society and a society registered under the Societies Registration Act, 1860 or a corresponding State law are outside sub-section (1).
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