Section 167B — Charge of Tax Where Shares of Members in AOP/BOI Unknown, etc.
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part DD of Chapter XV. The maximum-marginal-rate charge on associations of persons and bodies of individuals.
Subject: Where the individual shares of the members of an AOP/BOI are indeterminate or unknown, tax is charged on the total income of the AOP/BOI at the maximum marginal rate (sub-section (1)); and where the total income of any member (excluding his share from the AOP/BOI) exceeds the basic exemption limit, the AOP/BOI is charged at the maximum marginal rate (sub-section (2)), with a higher rate where a member is itself chargeable at a rate higher than the MMR.
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.
Section 167B is to associations of persons and bodies of individuals what section 164 is to trusts. It has two limbs. Sub-section (1) charges the whole income of the AOP/BOI at the maximum marginal rate where the members' individual shares are indeterminate or unknown. Sub-section (2) charges the AOP/BOI at the MMR (or higher) where, though the shares are determinate, the total income of any member (excluding his share from the AOP/BOI) exceeds the maximum amount not chargeable to tax. The object is anti-avoidance: to neutralise the rate advantage that could be gained by routing income through an association whose members' shares are obscure, or by aggregating in an AOP income that, in the hands of a high-income member, would bear a higher rate.
2. The threshold question: is there an AOP/BOI at all?
Section 167B presupposes an association of persons or body of individuals. Whether a combination is an AOP is governed by the classic test in Indira Balkrishna (reaffirmed in Meera & Co.): two or more persons must join in a common purpose or common action with the object of producing income — mere co-ownership or co-heirship is not enough. Only once the AOP/BOI threshold is crossed does the section 167B rate question arise.
3. 'Indeterminate or unknown' shares; 'share of profits' must be a true share
Under sub-section (1), the shares are indeterminate or unknown where the members' entitlement to the net profit (their participation in profit and loss) cannot be ascertained. A guaranteed return fixed without reference to profit or loss is a charge against profits, not a share in profits, and points to indeterminacy (Herve Pomerleau, on an Indo-foreign consortium where a guaranteed percentage attracted the foreign-company MMR). The same idea — that only a true share in profits (after deducting expenses) qualifies — informs the interaction of section 167B(2) with the section 86 exemption, addressed by the Supreme Court in Sanand Properties.
4. Sub-section (2): the member-income trigger
Sub-section (2) operates not on indeterminacy but on the income level of the members: if the total income of any member (apart from his AOP/BOI share) exceeds the basic exemption limit, the AOP/BOI's income is charged at the MMR (Air Force Navy Farm Owners Welfare Association). Where a member is itself taxable at a rate higher than the MMR (for example a foreign company), the higher rate applies to the corresponding portion.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate :
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid not being a case falling under sub-section (1),—
(i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter. Liability of partners of limited liability partnership in liquidation.
C. AUTHORITIES
Section 167B is genuinely litigated, with a 2026 Supreme Court decision on the section 167B(2)/section 86 interface, ITAT authority on both limbs, and the foundational AOP-definition authorities. All citations are web-verified.
Cluster A — Section 167B(2): member's 'share of profit' and the maximum-marginal-rate trigger
CIT III v. Sanand Properties Pvt. Ltd.
Citation: 2026 LiveLaw (SC) 488 (SC)
Facts: An AOP development agreement gave one member 35% of gross sale collections, the balance retained for expenses; the member bore no share of expenses or losses and claimed the 35% as an exempt 'share of profit' under section 86 read with section 167B(2).
Held: For the section 86 / section 167B(2) exemption, the receipt must be a true 'share in profits' — i.e. after deduction of expenses; a fixed percentage of gross revenue, not contingent on the AOP's profit and immediately withdrawable, is a business receipt taxable in the member's hands (applying the diversion-by-overriding-title test in Sitaldas Tirathdas).
Relevance: The first Supreme Court pronouncement engaging section 167B(2)'s interaction with section 86; defines the boundary of the 'share of profit' that escapes member-level tax.
Air Force Navy Farm Owners Welfare Association v. ITO
Citation: (2020) 183 ITD 611 (Del)(Trib)
Facts: An association of Air Force/Navy officers managing farmhouses was assessed as an AOP and the maximum marginal rate applied under section 167B.
Held: Under section 167B(2), if the total income of any member (excluding his share from the association) exceeds the basic exemption limit, the AOP's total income is charged at the maximum marginal rate; the trigger is the member's income level, not indeterminacy of shares.
Relevance: Cleanly illustrates the section 167B(2) member-income limb, distinct from the indeterminate-shares limb in section 167B(1).
Cluster B — Section 167B(1): indeterminate/unknown shares
Herve Pomerleau International CCCL Joint Venture v. ACIT
Citation: ITAT Chennai, ITA Nos. 1008/Chny/2017 & 17-19/Chny/2019 (2019)
Facts: An Indo-foreign consortium taxable as an AOP; the agreements were silent on the profit ratio but guaranteed the foreign company 2% of the contract price (the obligation lying on the Indian member).
Held: A 'share of net profit' implies participation in profits and losses; a guaranteed 2% of project cost payable regardless of profit or loss is a charge against profits, not a share in profits, so the members' shares were indeterminate/unknown, attracting section 167B(1) and the maximum marginal rate at the foreign-company rate.
Relevance: Leading recent authority on what makes AOP shares 'indeterminate or unknown' under section 167B(1).
Cluster C — Foundational AOP-definition authorities (cognate but indispensable)
CIT, Bombay v. Smt. Indira Balkrishna
Citation: (1960) 39 ITR 546 (SC)
Facts: A widow and others received income from inherited property; whether they were assessable as an 'association of persons'.
Held: An AOP means two or more persons who join in a common purpose or common action with the object of producing income, profits or gains; mere co-ownership or co-heirship without a joint income-producing venture is not an AOP.
Relevance: The bedrock definition that governs whether section 167B can apply at all.
Meera & Co. v. CIT
Citation: (1997) 224 ITR 635 (SC)
Facts: Question of AOP status and assessment.
Held: Reaffirmed Indira Balkrishna — an AOP is an association formed by the volition of the parties to produce income; a combination engaged in a joint income-earning enterprise though not a partnership.
Relevance: Modern Supreme Court restatement of the AOP test underpinning section 167B's threshold question.
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 167B — Charge of Tax Where Shares of Members in AOP/BOI Unknown, etc.
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Provision: Live. Part DD of Chapter XV. The maximum-marginal-rate charge on associations of persons and bodies of individuals.
Subject: Where the individual shares of the members of an AOP/BOI are indeterminate or unknown, tax is charged on the total income of the AOP/BOI at the maximum marginal rate (sub-section (1)); and where the total income of any member (excluding his share from the AOP/BOI) exceeds the basic exemption limit, the AOP/BOI is charged at the maximum marginal rate (sub-section (2)), with a higher rate where a member is itself chargeable at a rate higher than the MMR.
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. The AOP/BOI mirror of section 164
Section 167B is to associations of persons and bodies of individuals what section 164 is to trusts. It has two limbs. Sub-section (1) charges the whole income of the AOP/BOI at the maximum marginal rate where the members' individual shares are indeterminate or unknown. Sub-section (2) charges the AOP/BOI at the MMR (or higher) where, though the shares are determinate, the total income of any member (excluding his share from the AOP/BOI) exceeds the maximum amount not chargeable to tax. The object is anti-avoidance: to neutralise the rate advantage that could be gained by routing income through an association whose members' shares are obscure, or by aggregating in an AOP income that, in the hands of a high-income member, would bear a higher rate.
2. The threshold question: is there an AOP/BOI at all?
Section 167B presupposes an association of persons or body of individuals. Whether a combination is an AOP is governed by the classic test in Indira Balkrishna (reaffirmed in Meera & Co.): two or more persons must join in a common purpose or common action with the object of producing income — mere co-ownership or co-heirship is not enough. Only once the AOP/BOI threshold is crossed does the section 167B rate question arise.
3. 'Indeterminate or unknown' shares; 'share of profits' must be a true share
Under sub-section (1), the shares are indeterminate or unknown where the members' entitlement to the net profit (their participation in profit and loss) cannot be ascertained. A guaranteed return fixed without reference to profit or loss is a charge against profits, not a share in profits, and points to indeterminacy (Herve Pomerleau, on an Indo-foreign consortium where a guaranteed percentage attracted the foreign-company MMR). The same idea — that only a true share in profits (after deducting expenses) qualifies — informs the interaction of section 167B(2) with the section 86 exemption, addressed by the Supreme Court in Sanand Properties.
4. Sub-section (2): the member-income trigger
Sub-section (2) operates not on indeterminacy but on the income level of the members: if the total income of any member (apart from his AOP/BOI share) exceeds the basic exemption limit, the AOP/BOI's income is charged at the MMR (Air Force Navy Farm Owners Welfare Association). Where a member is itself taxable at a rate higher than the MMR (for example a foreign company), the higher rate applies to the corresponding portion.
B. STATUTORY POSITION (verbatim text)
The text of the section, as it stands in the Act (FA-2025 base), is set out below.
167B. (1) Where the individual shares of the members of an association of persons or body of individuals (other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India) in the whole or any part of the income of such association or body are indeterminate or unknown, tax shall be charged on the total income of the association or body at the maximum marginal rate :
Provided that, where the total income of any member of such association or body is chargeable to tax at a rate which is higher than the maximum marginal rate, tax shall be charged on the total income of the association or body at such higher rate.
(2) Where, in the case of an association of persons or body of individuals as aforesaid not being a case falling under sub-section (1),—
(i) the total income of any member thereof for the previous year (excluding his share from such association or body) exceeds the maximum amount which is not chargeable to tax in the case of that member under the Finance Act of the relevant year, tax shall be charged on the total income of the association or body at the maximum marginal rate;
(ii) any member or members thereof is or are chargeable to tax at a rate or rates which is or are higher than the maximum marginal rate, tax shall be charged on that portion or portions of the total income of the association or body which is or are relatable to the share or shares of such member or members at such higher rate or rates, as the case may be, and the balance of the total income of the association or body shall be taxed at the maximum marginal rate.
Explanation.—For the purposes of this section, the individual shares of the members of an association of persons or body of individuals in the whole or any part of the income of such association or body shall be deemed to be indeterminate or unknown if such shares (in relation to the whole or any part of such income) are indeterminate or unknown on the date of formation of such association or body or at any time thereafter. Liability of partners of limited liability partnership in liquidation.
C. AUTHORITIES
Section 167B is genuinely litigated, with a 2026 Supreme Court decision on the section 167B(2)/section 86 interface, ITAT authority on both limbs, and the foundational AOP-definition authorities. All citations are web-verified.
Cluster A — Section 167B(2): member's 'share of profit' and the maximum-marginal-rate trigger
CIT III v. Sanand Properties Pvt. Ltd.
Citation: 2026 LiveLaw (SC) 488 (SC)
Facts: An AOP development agreement gave one member 35% of gross sale collections, the balance retained for expenses; the member bore no share of expenses or losses and claimed the 35% as an exempt 'share of profit' under section 86 read with section 167B(2).
Held: For the section 86 / section 167B(2) exemption, the receipt must be a true 'share in profits' — i.e. after deduction of expenses; a fixed percentage of gross revenue, not contingent on the AOP's profit and immediately withdrawable, is a business receipt taxable in the member's hands (applying the diversion-by-overriding-title test in Sitaldas Tirathdas).
Relevance: The first Supreme Court pronouncement engaging section 167B(2)'s interaction with section 86; defines the boundary of the 'share of profit' that escapes member-level tax.
Air Force Navy Farm Owners Welfare Association v. ITO
Citation: (2020) 183 ITD 611 (Del)(Trib)
Facts: An association of Air Force/Navy officers managing farmhouses was assessed as an AOP and the maximum marginal rate applied under section 167B.
Held: Under section 167B(2), if the total income of any member (excluding his share from the association) exceeds the basic exemption limit, the AOP's total income is charged at the maximum marginal rate; the trigger is the member's income level, not indeterminacy of shares.
Relevance: Cleanly illustrates the section 167B(2) member-income limb, distinct from the indeterminate-shares limb in section 167B(1).
Cluster B — Section 167B(1): indeterminate/unknown shares
Herve Pomerleau International CCCL Joint Venture v. ACIT
Citation: ITAT Chennai, ITA Nos. 1008/Chny/2017 & 17-19/Chny/2019 (2019)
Facts: An Indo-foreign consortium taxable as an AOP; the agreements were silent on the profit ratio but guaranteed the foreign company 2% of the contract price (the obligation lying on the Indian member).
Held: A 'share of net profit' implies participation in profits and losses; a guaranteed 2% of project cost payable regardless of profit or loss is a charge against profits, not a share in profits, so the members' shares were indeterminate/unknown, attracting section 167B(1) and the maximum marginal rate at the foreign-company rate.
Relevance: Leading recent authority on what makes AOP shares 'indeterminate or unknown' under section 167B(1).
Cluster C — Foundational AOP-definition authorities (cognate but indispensable)
CIT, Bombay v. Smt. Indira Balkrishna
Citation: (1960) 39 ITR 546 (SC)
Facts: A widow and others received income from inherited property; whether they were assessable as an 'association of persons'.
Held: An AOP means two or more persons who join in a common purpose or common action with the object of producing income, profits or gains; mere co-ownership or co-heirship without a joint income-producing venture is not an AOP.
Relevance: The bedrock definition that governs whether section 167B can apply at all.
Meera & Co. v. CIT
Citation: (1997) 224 ITR 635 (SC)
Facts: Question of AOP status and assessment.
Held: Reaffirmed Indira Balkrishna — an AOP is an association formed by the volition of the parties to produce income; a combination engaged in a joint income-earning enterprise though not a partnership.
Relevance: Modern Supreme Court restatement of the AOP test underpinning section 167B's threshold question.
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.