Revocable trust classification under income tax upheld for a SARFAESI asset reconstruction structure, not an association of persons.

A trust formed under the SARFAESI framework for acquisition and reconstruction of stressed financial assets was treated as a valid revocable trust and not an association of persons. The Tribunal followed its co-ordinate bench rulings on similar ARCIL trusts, holding that common identity between contributors and beneficiaries does not invalidate the trust under the Indian Trust Act, 1882 and does not, by itself, create an AOP. It also found the contribution arrangement revocable within sections 61 to 63 of the Income-tax Act, 1961, and noted that the security receipt holders' shares were known from inception, so the trust was not indeterminate. Income was therefore assessable in the hands of the beneficiaries.

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Issues: Whether the assessee trust constituted a valid revocable trust and not an association of persons, and whether the income was assessable in the hands of the beneficiaries under the Income-tax Act, 1961.

Analysis: The trust was created under the SARFAESI framework for acquisition and reconstruction of stressed financial assets, and the Tribunal followed its earlier co-ordinate bench decisions on identical ARCIL trusts. It held that the same persons being contributors and beneficiaries does not invalidate the trust under the Indian Trust Act, 1882, and does not by itself create an association of persons. The Tribunal also found that the contribution arrangement was revocable within the meaning of sections 61 to 63 of the Income-tax Act, 1961, and that the shares of the security receipt holders were known from inception, so the trust could not be treated as indeterminate. The material did not show a concerted common objective so as to characterise the arrangement as an AOP.

Conclusion: The assessee was held to be a valid revocable trust and not an association of persons, and the income was directed to be assessed in the hands of the beneficiaries under sections 61 to 63 of the Income-tax Act, 1961. The Revenue appeals failed, and the assessee's appeal succeeded to the extent of the core issue.

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