Charitable trust taxation under section 164(1): normal AOP rates apply, not Maximum Marginal Rate, for non-discretionary income.

A public charitable trust whose income could not be distributed to members or trustees and was confined to charitable objects was not liable to tax at the Maximum Marginal Rate under section 164(1) merely because it was unregistered under sections 12AA/12AB and did not claim exemption under sections 11 to 13. Section 164(1) applies to discretionary trusts with indeterminate shares, and cannot be invoked mechanically where no beneficiary has a share in the income. Relying on CBDT Circular No. 320, the ITAT Bangalore held that such a trust is taxable at the normal rates applicable to an Association of Persons, and the Revenue's reliance on private discretionary trust cases was rejected.

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Issues: Whether a public charitable trust, not registered under sections 12AA/12AB and not claiming exemption under sections 11 to 13, is liable to tax at the Maximum Marginal Rate under section 164(1) of the Income-tax Act, 1961, or at the normal rates applicable to an Association of Persons.

Analysis: The assessee was a public charitable trust whose income could not be distributed among members or trustees and was deployable only towards its charitable objects. Section 164(1) is intended to address discretionary arrangements where income is receivable for beneficiaries with indeterminate or unknown shares, and it cannot be mechanically applied merely because the trust is not entitled to exemption or because no beneficiary share is specified. CBDT Circular No. 320 dated 11.01.1982 clarified that in cases of charitable or religious trusts where members or trustees are not entitled to any share in the income, tax is payable at the rate ordinarily applicable to an Association of Persons and not at the Maximum Marginal Rate. The trust was therefore distinguishable from a private discretionary trust, and the Revenue's reliance on authorities concerning such discretionary trusts was held inapposite.

Conclusion: Section 164(1) was held inapplicable, and the income was directed to be taxed at the normal rates applicable to an Association of Persons, with consequential relief to the assessee.

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