Section 2(29C)

Section 2(29C) — the law in short

What the courts have decided on section 2(29C), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Araadhya Jain Trust v ITO ITATHelps taxpayer
  CPC charged surcharge at the top rate on my discretionary trust's small income. Is that right?
  No. The maximum marginal rate under s.164 takes the highest slab rate applicable to an individual, but surcharge is applied in a graded manner by reference to the trust's actual total income against the Finance Act thresholds. Below the first threshold, surcharge is nil.
• Statutory position — s.164: the maximum marginal rate where beneficiaries' shares are indeterminate, and every proviso that takes a trust out of it, in sequence CBDT Circulars & InstructionsCuts both ways
  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?
  Section 164(1) charges the relevant income at the maximum marginal rate where income for which a section 160(1)(iii) or (iv) representative is liable is not specifically receivable on behalf of any one person, or where the individual shares of the persons for whose benefit it is receivable are indeterminate or unknown. The FIRST PROVISO takes a case out of that rate — not into exemption, but into tax 'as if it were the total income of an association of persons' — in four situations, and only four: (i) none of the beneficiaries has any other income chargeable under the Act exceeding the maximum amount not chargeable to tax in the case of an association of persons, and none is a beneficiary under any other trust; (ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; (iii) the relevant income is receivable under a trust created before 1 March 1970 by a non-testamentary instrument which the Assessing Officer is satisfied was created bona fide exclusively for the benefit of the settlor's relatives, or, where the settlor is a Hindu undivided family, of the members of that family, in circumstances where they were mainly dependent on the settlor for support and maintenance; or (iv) the relevant income is receivable by trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in that business or profession. The SECOND PROVISO then cuts all four down where there is business income: where the income of a section 160(1)(iv) trustee consists of, or includes, profits and gains of business, the first proviso applies only if those 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.
• Statutory position — s.167B: when an association of persons or body of individuals is charged at the maximum marginal rate, and when only part of its income is CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  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).
• 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.