Section 165 — Case Where Part of Trust Income is Chargeable
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part C of Chapter XV. Apportionment rule.
Subject: Where part only of the income of a trust is chargeable under the Act, that proportion of the income receivable by a beneficiary which the chargeable part bears to the whole income is deemed to be derived from the chargeable part.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. A pure apportionment provision
Section 165 is a short apportionment rule. Where only part of a trust's income is chargeable to tax (for example, where the rest is exempt), the section deems the chargeable part to be spread rateably across what each beneficiary receives: the proportion of a beneficiary's receipt that is treated as derived from the chargeable part is the same proportion that the chargeable part bears to the whole income of the trust. The object is to prevent both the artificial loading of the exempt part onto particular beneficiaries and the converse manipulation, by fixing a single, mechanical ratio.
2. No reported jurisprudence; cognate principle
Section 165 has not been the subject of reported merits litigation; it is mechanical and self-applying. The doctrinal companion is the representative-assessment and apportionment line under sections 161 and 164 (Nizam's Family Trust; Marsons Beneficiary Trust), which explains how a trustee's assessment tracks the beneficiaries' shares — the same logic of rateable attribution that section 165 codifies for the chargeable/exempt split. These are cited as cognate only; no direct section 165 authority is asserted.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
165. Where part only of the income of a trust is chargeable under this Act, that proportion only of the income receivable by a beneficiary from the trust which the part so chargeable bears to the whole income of the trust shall be deemed to have been derived from that part.
C. AUTHORITIES
Candour rule. No reported decision construes section 165 on the merits; it is a mechanical apportionment provision. The cognate authorities are the section 161/164 representative-assessment line.
Cluster A — Cognate authority
Cited as cognate only: CWT v. Nizam's Family Trust (108 ITR 555 SC) and CIT v. Marsons Beneficiary Trust (188 ITR 224 Bom) on rateable representative assessment, set out under sections 164 and 161.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.
CHAPTER XV — LIABILITY IN SPECIAL CASES
Section 165 — Case Where Part of Trust Income is Chargeable
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part C of Chapter XV. Apportionment rule.
Subject: Where part only of the income of a trust is chargeable under the Act, that proportion of the income receivable by a beneficiary which the chargeable part bears to the whole income is deemed to be derived from the chargeable part.
Finance Act, 2026: No change. Chapter XV is untouched by the Finance Act, 2026; the section stands as amended up to the Finance Act, 2025.
A. SECTION COMMENTARY
1. A pure apportionment provision
Section 165 is a short apportionment rule. Where only part of a trust's income is chargeable to tax (for example, where the rest is exempt), the section deems the chargeable part to be spread rateably across what each beneficiary receives: the proportion of a beneficiary's receipt that is treated as derived from the chargeable part is the same proportion that the chargeable part bears to the whole income of the trust. The object is to prevent both the artificial loading of the exempt part onto particular beneficiaries and the converse manipulation, by fixing a single, mechanical ratio.
2. No reported jurisprudence; cognate principle
Section 165 has not been the subject of reported merits litigation; it is mechanical and self-applying. The doctrinal companion is the representative-assessment and apportionment line under sections 161 and 164 (Nizam's Family Trust; Marsons Beneficiary Trust), which explains how a trustee's assessment tracks the beneficiaries' shares — the same logic of rateable attribution that section 165 codifies for the chargeable/exempt split. These are cited as cognate only; no direct section 165 authority is asserted.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
165. Where part only of the income of a trust is chargeable under this Act, that proportion only of the income receivable by a beneficiary from the trust which the part so chargeable bears to the whole income of the trust shall be deemed to have been derived from that part.
C. AUTHORITIES
Candour rule. No reported decision construes section 165 on the merits; it is a mechanical apportionment provision. The cognate authorities are the section 161/164 representative-assessment line.
Cluster A — Cognate authority
Cited as cognate only: CWT v. Nizam's Family Trust (108 ITR 555 SC) and CIT v. Marsons Beneficiary Trust (188 ITR 224 Bom) on rateable representative assessment, set out under sections 164 and 161.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the Income-tax Act, 1961 (text as printed in the local Act, base text amended up to the Finance Act, 2025), with the publisher's footnote apparatus and amendment-marker brackets removed; three asterisks (***) denote words or a provision omitted by amendment and retained only to mark the omission. The Finance Act, 2026 amends no section of Chapter XV of the Income-tax Act, 1961 (its Part-A amendments touch ss.92CA, 139, 140B, 144B, 144C, 147A, 148, 150, 153, 153B, 220, 222, 234, 245, 245MA, 254 and 270A-276 only). Citations are stated as reported; orders of the Tribunal and High Courts are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.