Revocable trust treatment under SARFAESI asset reconstruction meant income was taxable in security receipt holders' hands.

A trust formed under the SARFAESI asset reconstruction framework was treated as a valid revocable trust because the security receipt holders retained a revocable interest in their contributions. On that basis, the income from the trust fund was taxable in the hands of the transferors under the revocable transfer provisions, not in the hands of the trust. The structure also did not create an association of persons, since there was no inter se arrangement among beneficiaries and their shares were known from inception. The trust was therefore not regarded as indeterminate, and the Revenue's challenge failed.

---

---

Issues: Whether the assessee trust, constituted for acquisition and recovery of stressed assets under the SARFAESI framework, was a valid trust taxable in the hands of the trust as an association of persons, or whether the contribution received from security receipt holders constituted a revocable transfer attracting taxation in the hands of the contributors.

Analysis: The trust was created pursuant to the SARFAESI regime and RBI guidelines for asset reconstruction. The trust deed and transaction structure showed that the contributors retained a revocable interest in the contributions made through security receipts. On that footing, the income arising from the trust fund was governed by the provisions dealing with revocable transfers, under which such income is taxable in the hands of the transferors and not in the hands of the trust. The Tribunal also accepted that there was no inter se arrangement among the beneficiaries to constitute an association of persons, and that the shares of the beneficiaries were known from inception, so the trust could not be treated as indeterminate.

Conclusion: The assessee was correctly treated as a valid revocable trust, not as an association of persons, and the income was taxable in the hands of the security receipt holders. The Revenue's challenge failed.

---