Whether Normal Slab Rates Apply or Maximum Marginal Rate (MMR) as AOP/BOI
Case: Vindhya Trust v. DCIT, ITAT Delhi (2025)
ITA Nos. 2121 & 2122/Del/2025 | Order dated 28 November 2025
1. Core Issue:-Where a charitable trust does not avail exemption under section 11, and is therefore taxable like any other taxable entity, should its income be taxed at the normal slab rates applicable to an AOP, or at the Maximum Marginal Rate (MMR) by treating it as an AOP/BOI with “indeterminate shares”?
The AO/CPC had taxed the trust at a flat 30% MMR, with surcharge @ 37%, by invoking the AOP/BOI rule of “unknown member shares.”
The assessee argued that:
It is a charitable trust,
Its members do not have any beneficial share in its income,
It is not claiming section 11 relief,
Therefore, normal AOP slab rates (and lower surcharge) must apply.
2. Legal Framework
2.1 Section 167A & MMR Regime for AOPs
MMR applies only where:
The shares of members are indeterminate or unknown, and
Members are beneficially entitled to the income of the AOP.
If members are not entitled to any share, MMR is not attracted.
2.2 CBDT Circular No. 320 dated 11-01-1982:-key clarification by the CBDT:
Registered societies, trade associations, clubs, charitable or religious trusts where members/trustees are not entitled to any share in the income—shall NOT be taxed at MMR.
Such entities must be taxed at normal slab rates applicable to AOPs.
This circular remains binding on the Department.
2.3 Structure of Charitable Trusts
Under trust law:
Trustees hold income in fiduciary capacity;
Members of a charitable trust do not have individual beneficial rights in its income;
The entire income is applied to impersonal, public objects.
Hence, the “member-share” logic of an AOP does not apply to charitable trusts.
3. ITAT Delhi’s Findings (Vindhya Trust)
3.1 CPC’s Adjustment under s.143(1) Unjustified
The CPC mechanically applied 30% MMR,
Without considering trust status, CBDT circular, or nature of the assessee.
No opportunity was granted—violating natural justice.
3.2 CIT(A)’s Approach Incorrect
CIT(A) treated the assessee like a typical AOP where shares had to be “determined or verified.”
The ITAT held this approach as misdirected, because:
Charitable trusts do not distribute income to members.
Determinate share of members” is irrelevant in such cases.
3.3 CBDT Circular No. 320 is Fully Applicable
The Tribunal relied heavily on CBDT Circular 320, holding:
The assessee fits squarely within the categories mentioned (charitable trust with no member entitlement).
Therefore, MMR cannot be applied.
3.4 Tax to Be Levied at Normal Slab Rates :- The ITAT directed:
Apply normal slab rates for AOPs.
Apply surcharge as per the slab-rate structure, not 37%.
Later on, the appeal of the assessee was allowed.
4. Analytical Position of Law (Consolidated)
4.1 Charitable Trust ≠Commercial AOP
Charitable trusts are non-profit entities and Do not distribute income to any member. Therefore, “member-share” test in s.167A cannot be applied.
4.2 Absence of Section 11 Claim Does Not Attract MMR
Once a trust chooses to forgo s.11, it becomes taxable like an AOP but not like an indeterminate-share AOP.
4.3 CBDT Circular 320 is Binding
The Circular explicitly removes charitable trusts from MMR applicability.
4.4 CPC’s 143(1) Adjustment is Ultra Vires
Tax-rate determination involving legal interpretation cannot be adjusted under s.143(1). It is beyond the permitted scope of “arithmetical or apparent errors.
5. Final Conclusion
A charitable or religious trust not claiming section 11 is NOT automatically taxed at Maximum Marginal Rate.If the trustees or members are not entitled to the trust’s income, the trust should be taxed at the normal slab rates for AOPs, as elucidated in CBDT Circular 320.The ITAT Delhi (2025) upheld this view and struck down the CPC’s automatic MMR levy. It also held that surcharge must follow the normal individual/AOP slab rates, not the higher 37%.
By,
Ajay Kumar Agarwal, FCA
Sr. Partner
Ajay K. Agarwal & Associates Chartered Accountants, New Delhi
(N.B: All statements, opinions, and analysis presented in this article represent the independent personal views of the author and do not necessarily reflect the views of publication or its editorial team.)
