The Income Tax Appellate Tribunal (ITAT), Delhi, has clarified that charitable trusts not claiming exemption under Section 11 of the Income Tax Act, 1961 must be taxed at the slab rates applicable to individuals, rather than as an Association of Persons (AOP) under Section 167A. This ruling resolves a critical ambiguity in the taxation of trusts engaged in charitable activities for the public at large, ensuring they are not subjected to the maximum marginal rate (MMR) erroneously.
Background & Facts
The Dispute
The appellant, Yamuna Trust, is a charitable trust registered under the Income Tax Act but not availing exemption under Section 11. For the Assessment Year (AY) 2023-24, the Assessing Officer (AO) and the Learned Additional/Joint Commissioner of Income Tax (Appeals) ["Ld. JCIT(A)"] treated the trust as an AOP and levied tax at the MMR, instead of the individual slab rates. The trust challenged this assessment, arguing that it has no defined members or beneficiaries and that its activities benefit the public at large.
Key Facts
- The trust was assessed for AY 2023-24 under PAN: AAATY0028J
- It filed its return of income on 21.07.2022, declaring a total income of Rs. 4,13,45,280 and claiming a refund of Rs. 18,57,920
- The AO processed the return under Section 143(1) but levied tax at the MMR, resulting in a demand of Rs. 16,05,390
- The trust’s activities involve granting donations to other eligible trusts/institutions (e.g., Rs. 20,00,000 during the relevant period)
- The trust deed (pages 97-113 of the paper book) confirms its charitable nature and lack of defined members
- The Ld. JCIT(A) dismissed the appeal without issuing a hearing notice, relying solely on the grounds of appeal and statement of facts uploaded in Form No. 35
Procedural History
- 09.06.2025: Ld. JCIT(A) dismissed the appeal, upholding the AO’s order
- 25.02.2026: Appeal filed before ITAT Delhi (ITA No. 6623/DEL/2025) with a delay of 47 days
- 25.02.2026: ITAT condoned the delay, citing reasonable cause
- 29.04.2026: Final order pronounced by ITAT Delhi
Relief Sought
The appellant sought:
- A declaration that it is not an AOP but a charitable trust taxable at individual slab rates
- Deletion of the tax levied at the MMR
- Recalculation of tax liability in accordance with CBDT Circular No. 320 dated 11.01.1982
The Legal Issue
The central question was whether a charitable trust not availing exemption under Section 11 of the Income Tax Act should be taxed as an Association of Persons (AOP) under Section 167A (at the MMR) or as an individual at slab rates, given that it has no defined members or beneficiaries.
Arguments Presented
For the Appellant
- The trust is a charitable entity with no defined members, and its activities benefit the public at large
- Section 167A applies only to AOPs with indeterminate or unknown shares of members, which is not the case here
- The CBDT Circular No. 320 dated 11.01.1982 explicitly states that trusts like the appellant should be taxed at individual slab rates
- The Ld. JCIT(A) erred in interpreting the trustees’ details as "members" of an AOP
- The issue is squarely covered by coordinate bench decisions, including:
- Narmada Trust vs. ITO (ITA Nos. 2530 & 2531/Del/2025, order dated 30.12.2025)
- Jasmina Trust vs. DCIT (ITA Nos. 2209, 2210 & 2211/Del/2025, order dated 12.09.2025)
- Tulsi Trust vs. Dy.CIT (ITA No. 1410/Del/2025, order dated 28.08.2025)
- Vindhya Trust vs. DCIT (ITA Nos. 2121 & 2122/Del/2025, order dated 28.11.2025)
- Vihar Trust vs. DCIT (ITA Nos. 4372 to 4374/Del/2025, order dated 29.01.2026)
- Rose Trust vs. DCIT (ITA No. 725/Del/2025, order dated 31.10.2025)
For the Respondent
- The AO and Ld. JCIT(A) relied on the details furnished in the return of income, which listed trustees as "members" of an AOP
- The trust’s status as an AOP was upheld, justifying the levy of tax at the MMR under Section 167A
The Court's Analysis
The ITAT examined the CBDT Circular No. 320 dated 11.01.1982, which clarifies the scope of Section 167A. The circular states:
"So far as cases where income is receivable by the trustees, on behalf of an unrecognized provident fund or an unapproved 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 such business or profession are concerned, they will continue to be charged to tax in the manner prescribed by section 164(1)(iv) of the Income-Tax Act, as hitherto. Similarly in the cases of registered societies, trade and professional associations social and sports clubs, charitable or religious trusts etc., where the members or trustees are not entitled to any shares in the income of the association of persons, the provisions of new section 167A will not be attracted and, 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."
The ITAT observed that the appellant is a charitable trust not claiming exemption under Section 11 and has no defined members. The coordinate bench in Narmada Trust had already addressed an identical issue, holding:
"The assessee is a charitable trust engaged in carrying out charitable activities by granting donations to other trusts / institutions holding valid eligibility certificates and carrying on charitable activities for the public at large. The assessee had surrendered its certificate of registration granted to it under section 12A of the Act and had not claimed the benefit of exemption under section 11 of the Act. The return of income for the assessment year 2021-22 had been filed by the assessee in the capacity of „Association of Persons‟ (AOP) declaring total income of Rs 4,13,45,280/-. The said return was processed under section 143(1) of the Act determining refund of Rs 16,05,390/- as against the refund of Rs 185,7,920/- claimed in the return of income by the assessee. The said demand has arose as the tax has been levied on the entire income of the assessee at flat rate of 30% instead of normal slab rates applicable."
The ITAT further noted that the Ld. JCIT(A) had erred in interpreting the trustees’ details as "members" of an AOP. Since the appellant’s activities benefit the public at large and it has no defined members, Section 167A does not apply. The trust must therefore be taxed at the individual slab rates, as prescribed by the CBDT circular.
The Verdict
The ITAT allowed the appeal, setting aside the orders of the AO and Ld. JCIT(A). The key directions were:
- The trust is to be taxed at the individual slab rates, not as an AOP under Section 167A
- The tax liability is to be recalculated accordingly
- The appellant’s grounds of appeal were allowed in full
What This Means For Similar Cases
Charitable Trusts Without Defined Members Are Not AOPs
- Trusts engaged in charitable activities for the public at large, without defined members or beneficiaries, cannot be taxed as AOPs under Section 167A
- The CBDT Circular No. 320 provides clear guidance that such trusts must be taxed at individual slab rates
- Practitioners should argue that the circular’s interpretation prevails over any contrary assessment orders
Procedural Compliance Is Critical
- The Ld. JCIT(A) dismissed the appeal without issuing a hearing notice, violating principles of natural justice
- Courts and tribunals are likely to set aside orders passed in gross violation of procedural fairness
- Assessees should highlight such violations in appeals to strengthen their case
Precedent-Based Arguments Carry Weight
- The ITAT relied heavily on coordinate bench decisions, underscoring the importance of citing relevant precedents
- Practitioners should compile and cite judgments with similar factual matrices to bolster their submissions
- The following cases are now binding precedents for this issue:
- Narmada Trust vs. ITO (ITA Nos. 2530 & 2531/Del/2025)
- Tulsi Trust vs. Dy.CIT (ITA No. 1410/Del/2025)
- Vindhya Trust vs. DCIT (ITA Nos. 2121 & 2122/Del/2025)
- Vihar Trust vs. DCIT (ITA Nos. 4372 to 4374/Del/2025)
- Rose Trust vs. DCIT (ITA No. 725/Del/2025)
