Section 164 is the charging section by itself and all that it says is that the ‘maximum marginal rate’ of tax is to be applied on the computed income. “Maximum marginal rate” is defined as the rate of tax applicable in relation to the highest slab of income provided for association of persons in the relevant Finance Act. The definition is not capable of any doubt, and the only meaning that it admits of is that the rate on the maximum slab of income for AOP is to be treated as the maximum marginal rate of tax for the purposes of section 164. When the statute says that the “maximum marginal rate” is the rate applicable on the highest slab of income, there is no scope for enquiry on the meaning of “marginal” - CIT v. C.V. Divakaran Family Trust [2002] 254 ITR 222/122 Taxman 405 (Ker.).
Maximum marginal Rate for the AY 2010-11 – Sec. 2(29C)
Under certain situations, in the case of a trust or AOP, income is stipulated to be chargeable to tax at maximum marginal rate implying that there will not be any exemption limit or slab rate. Section 2(29C) of the Income Tax Act, 1961 defines "Maximum Marginal Rate" to mean the rate of income tax (including surcharge on income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, AOP or BOI, as the case may be, as specified in the Finance Act of the relevant previous year. The maximum marginal rate for the Assessment Year 2010-11 is 30.90% for all assessees other than company assessees. In respect of company assessees, the maximum marginal rate shall be 33.99% which includes tax, surcharge and education cess.