Circular No. 577

What it does

Keeps will trusts out of the maximum marginal rate in section 167B. That section generally charges the total income of an association of persons at the maximum marginal rate where the individual shares of the members are indeterminate or unknown, and the question was whether it also caught income under a trust declared by will where that is the only trust so declared, which is item (ii) in the first proviso to section 164(1). The Board says there was never any intention to tax such trusts at the maximum marginal rate, and that where the law makes a special provision on a matter which is beneficial to the taxpayer, that matter is governed by the special provision and not by the general one. Such income therefore continues to be charged as the first proviso to section 164(1) prescribes, as before. The Board extends the same answer to the other cases covered by the first proviso to section 164(1) and the first proviso to section 164(3), so that tax in those cases is at the rate ordinarily applicable to the total income of an association of persons, not at the maximum marginal rate.

Why it was issued

A question had been raised whether the newly worded section 167B overrode the beneficial treatment the first proviso to section 164(1) gave to a trust declared by will.

Who it reaches

Trustees of a trust declared by will where it is the testator's only such trust
Other trusts within the first proviso to section 164(1) or to section 164(3)
Beneficiaries whose shares are indeterminate or unknown
Assessing Officers applying the maximum marginal rate to such trusts

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.164	s.307
s.167B	s.309, s.311

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

SECTION 167B l ASSESSMENT WHERE SHARE OF BENEFICIARIES UNKNOWN
912. Whether section 167B would also apply to income under a trust declared by any person at will, where such trust is only trust so declared by him
1. A question has been raised whether the provisions of section 167B of the Income-tax Act, 1961, which generally provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown, would also apply to income under a trust declared by any person by will where such trust is the only trust declared by him. Such trusts, it would be noticed, are referred to at item No. (ii) in the first proviso to section 164(1) of the Act.
2. This matter has been examined in the Board. There was never an intention to subject the income of the aforesaid trusts to income-tax at the maximum marginal rate. It is also well-settled that where a specific provision has been made in the law in relation to any matter and where that provision is beneficial to the taxpayer, that matter is to be governed by that special provision and not by any other general provision relating to that subject. Therefore, the income of a trust declared by any person by will, where such trust is the only trust so declared by him, will continue to be charged to tax in the manner prescribed in the first proviso to section 164(1), as hitherto.
3. Similarly, other cases covered by the first proviso to section 164(1) and the first proviso to section 164(3) would also not attract the provisions of section 167B. Accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate.
Circular : No. 577, dated 4-9-1990.

What to watch

The protection for a will trust holds only where it is the only trust declared by that person by will, which is the condition in the proviso itself.
The relief is not from assessment as an association of persons but from the maximum marginal rate; tax is at the ordinary rate for such an association.
The reasoning is that the special beneficial provision prevails over the general one, so it stands or falls with the case being within a first proviso.
A trust outside those provisos is not helped by this circular.

Where you meet it

In the assessment of a discretionary or testamentary trust charged at the maximum marginal rate, and in the appeal against that rate.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 20/2020 [F. No.189/3/2020-ITA-I] / SO 1189(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 20 March 2020
Circular No. 320 — Section 167A l Assessment Where Shares of Members Unknown 11 January 1982
Circular No. 157 — Section 164/166 l Assessment of Trust Where Share of Beneficiaries Unknown 26 December 1974

← Circular No. 578 · Circular No. 575 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.

What this is