Section 164A

Section 164A — the law in short

What the courts have decided on section 164A, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Statutory position — s.160: the five, and only five, classes of representative assessee, and what Explanations 1 and 2 do to an unwritten trust CBDT Circulars & InstructionsCuts both ways
  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?
  Section 160(1) is an exhaustive list of five classes and nobody outside it can be made a representative assessee: (i) the agent of a non-resident, in respect of income of the non-resident specified in section 9(1), including a person treated as an agent under section 163; (ii) the guardian or manager of a minor, lunatic or idiot who is entitled to receive or is in receipt of the income on that person's behalf; (iii) the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under an order of a court; (iv) a trustee appointed under a trust declared by a duly executed instrument in writing, whether testamentary or otherwise, including a wakf deed valid under the Mussalman Wakf Validating Act, 1913; and (v) a trustee appointed under an oral trust. Section 160(2) then says that every representative assessee shall be deemed to be an assessee for the purposes of the Act, so yes — you are an assessee, with an assessee's rights of appeal as well as an assessee's exposure.
• Statutory position — s.161(1A): one rupee of business profit in a private trust puts the WHOLE of the trust income at the maximum marginal rate, and only the will-trust proviso saves it CBDT Circulars & InstructionsCuts both ways
  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?
  Yes, and the fact that the shares are determinate is irrelevant. Section 161(1A) opens 'Notwithstanding anything contained in sub-section (1)', so the beneficiary-rate protection in section 161(1) is displaced entirely: where any income in respect of which a person mentioned in section 160(1)(iv) is liable as representative assessee 'consists of, or includes, profits and gains of business', tax is charged on the WHOLE of the income in respect of which he is so liable at the maximum marginal rate. The single proviso is narrow and cumulative — it disapplies the sub-section only where the profits and gains are receivable under a trust declared by a person BY WILL, exclusively for the benefit of a relative dependent on him for support and maintenance, and that trust is the ONLY trust so declared by him. Sub-section (1A) was inserted by the Finance Act, 1984 with effect from 1 April 1985.
• 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 CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  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).

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.