TaxTMI 
TaxTMI 
2014 (10) TMI 614
X X X X Extracts X X X X
X X X X Extracts X X X X
....he trustee was empowered to call for contributions from the contributors which will be invested by the Trustee in accordance with the objects of the trust. The objective of creation of the trust was to invest in certain securities called mezzanine instruments and to achieve commensurate returns to the contributors. The fund collected from the contributors together with the initial corpus was to be handed over to the trustees under the provisions of the Indian Trust Act, 1882. The trust was to facilitate investment by the contributors who should be resident in India and achieve returns to such contributors. The trust deed provides that the contributors to the fund will also be its beneficiaries. 3. The trustees had power to appoint investment managers to manage the trust fund. The Settlor was to be appointed as the investment manager. The terms of the appointment of the Settlor as investment manager are set out in an investment management agreement dated 25.9.2006 between the Assessee represented by the Trustee and Settlor. 4. The Settlor as investment manager issued memorandum to prospective investors on a confidential basis for them to consider an investment in mezzanine Fun....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of income. 7. The reason as to why the revised return of income was filed are set out by the Assessee in a letter dated 23.11.2010 addressed to the AO. The same reads thus:- "In this regard, we wish to submit that the Fund has declared an income of Rs. 1,81,68,357 in its revised return of income for the AY 2008-09. We wish to submit that the aforesaid declaration was made by the Fund out of extreme precaution and in good faith to provide complete information and details about the income earned by the Fund and offered to tax by the beneficiaries. As stated in our earlier submissions, while the Fund has disclosed the total income in its return of income, pursuant to the provisions of section 61 to section 63 of the Act, the same has been included in the return of income of the beneficiaries and offered to tax directly by them. In order to enable the beneficiaries of the Fund to include their share of income and tax deducted at source in the Fund, in their return of income, the Fund on a period basis, provides them with the allocation of each beneficiary share of taxable income vide an allocation letter. In this regard, we have provided below the table detailing the taxable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idual shares of the persons on whose behalf and for whose benefit the income is receivable are indeterminate or unknown, such income, again, will be taxed at the "maximum marginal rate". (c) In certain other circumstances, set out in the proviso to s. 164(1), the relevant income will be assessable not at the maximum rate but at the rate applicable to it as if it were the total income of an AOP. 10. Sec.166 of the Act provides that the provisions relating to making assessment in the hands of a representative assessee, income of person on whose behalf or for whose benefit income is received or receivable by the representative assessee, shall not prevent either the direct assessment of the person on whose behalf or for whose benefit income therein referred to is receivable, or the recovery from such person of the tax payable in respect of such income. 11. Under Section 61 of the Act "All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income". Sec.62 of the Act provides that if a transfer is irrevocable for a specified period than Sec.61 will not apply....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an association of persons income-tax shall not be payable by the assessee in respect of his share in the income of the association, if the association is chargeable to tax on its total income at the maximum marginal rate or any higher rate under any of the provisions of this Act. The AO also held that the Assessee and the beneficiaries joined in a common purpose or common action, the object of which was to produce income, profits and gains and therefore constituted an AOP. The AO also referred to the fact that the Assessee had obtained PAN in the status of an AOP (Trust) and filed its E-Return of income by quoting the status as AOP/BOI. Consequently the income in question has to be brought to tax in the hands of AOP at the maximum marginal rate. In this regard the AO made reference to the decision of the Hon'ble Supreme Court in the case of ITO Vs. Ch. Atchaiah 218 ITR 239 (SC) wherein, in the context of assessment of income of an AOP, it was held by the Hon'ble Supreme Court that income has to be brought to tax in the hands of right person. The Assessee had before the AO relied on the following judicial pronouncements in support of its stand that there was no AOP in existe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from that of the beneficiaries. For the above proposition reliance was placed on the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Food Corporation of India Contributory Provident Fund 318 ITR 318 (Del) wherein the question for consideration was as to whether Assessee which was a trust and whose beneficiaries were individuals is liable to deduct tax at source u/s.194A of the Act, which did not apply to individuals. The Hon'ble Delhi High Court upheld the plea of the trust that its beneficiaries were individuals and therefore it should also be regarded as individual and the provisions of Sec.194A of the Act should be held to be not applicable to the Assessee trust. 16.2 Sec.2(31) of the Act defines the term "Person". The definition includes "Association of Persons"(AOP). There is no definition of the expression AOP occurring in the 1922 Act. By a series of decisions, the meaning of this expression was precisely defined and tests were laid down in order to find out when a conglomerate of persons could be held to be an AOP for the purposes of section 3 of the 1922 Act. While interpreting this expression occurring in section 3 of the Indian IT Act, 1922, th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Trustee") as initial corpus to be applied and governed by the terms and conditions of the indenture dated 25.9.2006. The trustee was empowered to call for contributions from the contributors which will be invested by the Trustee in accordance with the objects of the trust. The objective of creation of the trust was to invest in certain securities called mezzanine instruments and to achieve commensurate returns to the contributors. The fund collected from the contributors together with the initial corpus was to be handed over to the trustees under the provisions of the Indian Trust Act, 1882. The trust was to facilitate investment by the contributors who should be resident in India and achieve returns to such contributors. The contributors to the fund are its beneficiaries; (ii) the trustees had power to appoint investment managers to manage the trust fund. The Settlor was to be appointed as the investment manager. The terms of the appointment of the settlor as investment manager are set out in an investment management agreement dated 25.9.2006 between the Assessee represented by the Trustee and Settlor; & (iii) the Settlor as investment manager issued memorandum to prospectiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The Assessee pointed out that from the above list, the Assessee is left with no other option but to choose the option of AOP (Trusts) to obtain the PAN. (v) With regard to the status mentioned in the ROI, the Assessee pointed out that the provisions of Rule 12 of the Income- tax Rules, 1962 provides different forms for filing the ROI based on the status and nature of income of the persons. The CBDT has notified the following forms: ITR Form 1 - 4 is applicable to Individuals / HUF's; ITR 6 is applicable to Companies; ITR 7 is applicable to Persons being a company under section 25 of the Companies Act, 1956, Charitable or Religious trusts, Political parties, etc.; ITR 5 is applicable in the case of a person not being an individual or a HUF or a company or a person to whom ITR 7 applies. The Assessee pointed out that ITR 5 is a residual form and used by any category of persons other than an Individual, HUF, Company etc. Since, there is no specific form prescribed in the case of Trusts / representative assessee, the Assessee had used ITR 5. Further, the Assessee had electronically filed the return for the subject assessment year. In the section where the status of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erence to the order of the Court or the instrument of trust or wakf deed on the date of such order, instrument or deed. 17.2 With regard to ascertainment of share of the beneficiaries, it was contended that Article 6.5 of the Trust Deed clearly specifies the manner in which the income of the Assessee is to be distributed. The said clause details formula with respect to the share of each beneficiary. It is not the requirement of law that trust deed should actually prescribe the percentage share of the beneficiary in order for the trust to be determinate. It is enough if the shares are capable of being determined based on the provisions of the trust deed. In the case of the Assessee the trustee have no discretion to decide the share of each beneficiary and are bound by the provisions of the trust deed and is duty bound to follow the distribution mechanism specified in the trust deed. 17.3 Sec. 161(1) lays down that income received by a trustee on behalf of the beneficiary shall be assessed in the hands of the trustee as representative assessee and such assessment shall be made and the tax thereon shall be levied upon and be recovered from the representative assessee "in like ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed itself, it may lead to absurdities. When the Trust deed authorises addition of further contributors to the trust at different points of time in addition to initial contributors, it is not possible to say that the share income of the beneficiaries cannot be determined or known from the trust deed. 18. OTHER GENERAL ARGUMENTS: 18.1 The Assessee contended before CIT(A) that the Assessee was set up as a revocable trust and the scheme of the Act clearly indicates that income of the fund has to be assessed in the hands of the beneficiaries being the contributors/transferors. Reference in this regard was made to Section 61 of the Act which provides that "All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income- tax as the income of the transferor and shall be included in his total income". Sec.62 of the Act provides that if a transfer is irrevocable for a specified period than Sec.61 will not apply. Section 63 defines as to what is "transfer" and "revocable transfer" for the purpose of Sec.61 & 62 of the Act. It provides that:-(a) a transfer shall be deemed to be revocable if-(i) it contains any provision for the re-transfer direc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are admitted. The AO of the trustee will have no control to scrutinize as to whether any expenditure or set off of loss is claimed by the beneficiaries in their returns against the share income. To avoid all these things, the right and correct person to be taxed is the trustee as representative assessee on the whole of income consisting of profits and gains of business. The AO in this regard placed reliance on the decision of the ITAT Madras Bench in the case of DCIT Vs. Manilal Bapalal Family Benefit Trust 66 ITD 179 (Mad) wherein the provisions of Sec.161(1A) of the Act were applied. DECISION OF THE CIT(A): 20. The CIT(A) in the impugned order has narrated the whole of the written submission of the Assessee, the remand report of the AO and rejoinder of the Assessee to the remand report and finally gave his conclusion as follows: "24. In view of the above discussion, after careful consideration of the facts and circumstances of the case, I am convinced that the appellant trust is a revocable trust. It need not be subjected to tax as the tax obligations have been fully discharged by the beneficiaries of the appellant trust. Therefore the AO is directed to treat the income ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... specific status of Trust is available in Section 2(31). 10. The CIT (A) ought to have appreciated the fact that Income tax Act envisages that the income of a person has to be assessed in the correct and appropriate status. Merely, because someone else has been assessed and has paid tax, though by mistake on the same income, the entity in whose hands the income is actually assessable cannot be excluded from assessment. 11. The appellant craves for permission to add or delete the grounds of Appeal at the time of hearing the case." 22. The learned DR reiterated the stand of the revenue as contained in the order of assessment and as set out in the remand report of the AO filed before CIT(A). Besides the above, the learned DR brought to our notice CBDT Circular No.13/2014 whereby the CBDT had clarified that Alternative Investment Funds which are subject to The SEBI (Alternative Investment Funds) Regulations, 2012 which are not venture capital funds and which are non-charitable trusts where the investors name and beneficial interest are not explicitly known on the date of its creation- such information becoming available only when the funds starts accepting contribution from th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ue before the Tribunal in the grounds of appeal. On ground No.3 raised by the Revenue in which the revenue has attacked the findings of the CIT(A) that the Assessee trust is a revocable trust and it need not be subjected tax as the tax obligation have been fully discharged by the beneficiaries of the Assessee trust, the learned counsel for the Assessee drew our attention to Sec.61 and 63 of the Act. Section 61 of the Act provides that "All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income". Section 63 defines as to what is "transfer" and "revocable transfer" for the purpose of Sec.61 of the Act. It provides that:- (a) a transfer shall be deemed to be revocable if - (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement. The first....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o in specie." 26. It was submitted by him that the above power of revocation which is a general power of revocation is sufficient for construing the transfer in the present case as a revocable transfer. According to him it is not necessary that the power of revocation should be at the instance of the contributors/beneficiaries and it can be at the instance of any person either the settlor, trustee or the beneficiaries. According to him the provisions of Sec.61 of the Act does not contemplate a power of revocation only at the instance of the transferor. In support of the above contention the learned counsel for the Assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of Addl.CIT Vs. Surat Art Silk Cloth Mfrs. Association 121 ITR 1 (SC) at page-17, wherein the Hon'ble Supreme Court had to examine the question as to whether the expression " advancement of any other object of general public utility not involving the carrying on of any activity for profit" would mean that the charitable organisation cannot carry on any business. The Hon'ble Supreme Court observed as follows:- "It is clear on a plain natural construction of the language used....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e provisions of Sec.63 of the Act. Consequently the income arising by virtue of the transfer has to be brought to tax only in the hands of the transferor/beneficiary and not in the hands of the trustee/transferee. 28. His next submission was that even if it is assumed for the sake of argument that there is no direct specific power to revoke Transfer, the provisions of Sec.63 defining "revocable transfers" will apply and consequently income has to be brought to tax only in the hands of the beneficiary/transferor. In this regard our attention was drawn to the document in the form of prospectus inviting contribution from contributors wherein the following clauses are found: "The Fund is expected to terminate seven years from the date of the Indenture of Trust. The process of redemption/termination shall be completed within a period of twelve months to completely liquidate its assets. However, in the event that the investments in the Portfolio Companies are not realised at the end of seven years from the date of the Indenture of Trust, its term may be extended for two additional periods of one year each, upon the recommendation of the Investment Manager and the approval of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t have a right to retain pursuant to the terms of this Indenture, the Private Placement Memorandum or the Contribution Agreements will be distributed as soon as practicable after such gains are realized. The Trustee may retain Income, gains and/or other receipts of the Fund to satisfy current or anticipated liabilities of the Fund. However there may be times when the Trust may not distribute any income. The Trust may also declare special distributions, if any, on as-needed basis. Further, to the extent of any un-drawn Capital Commitments, the Fund may, at the discretion of the Investment Manager, apply any Distribution Proceeds (as defined below) towards any purpose, which could otherwise have been funded by a Drawdown from Contributors. However the distribution will be at the discretion of the Trustee in consultation with the Investment Manager." 32. Our attention was drawn to the order of the CIT(A) in which the remand report of the AO filed before CIT(A) is extracted in the order of the CIT(A). In para-17.5 of the CIT(A)'s order the remand report of the AO on the aspect of the trust being revocable has been set out. It was pointed out by the learned counsel for the Assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... should be actually named in the order of the Court or the instrument of trust or wakf deed, all that is necessary is that the beneficiary should be identifiable with reference to the order of the Court or the instrument of trust or wakf deed on the date of such order, instrument or deed. He also drew our attention to the following decisions:- (1) CIT Vs. P.Sekar Trust 321 ITR 305 (Mad) wherein the Hon'ble Madras High Court held that so long as the trust deed gives the details of the beneficiaries and the description of the person who is to be benefited, the beneficiaries cannot be said to be uncertain, merely because wife/children cannot be known until the marriage and begetting of children by the stated beneficiaries. The Hon'ble Court noticed in the above case that the Beneficiaries were five in number for the period from 1st April, 1986 to 31st March, 1989 and the respective share of each beneficiary was in different percentage as stated in the deed itself. From 1st April, 1989 onwards the beneficiaries were seven in number and their shares in the income was equal. As per trust deed, as and when B and P are married, their spouses would automatically become beneficiar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ner in which the beneficiaries are to be ascertained and also the share to which each of them would be entitled without ambiguity, then it cannot be said that the Trust deed does not name the beneficiaries or that their shares are indeterminate. The persons as well as the shares must be capable of being definitely pin-pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author either at his discretion or in a manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time in addition to initial contributors, than the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share income of the beneficiaries cannot be determined or known from the trust deed 36. The learned counsel for the Assessee then addressed arguments on grounds 8 & 9 raised by the Revenue in its grounds of appeal in which the revenue has questioned the order of the CIT(A) whereby the CIT(A) held that :- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary for coming into existence of AOP. (2) State of Madras Vs. Subramania Iyer 61 ITR 613 (Mad) wherein it was held that to constitute an association of individuals, it is necessary to prove that as between themselves, the individuals had associated together and decided upon the common exploitation of their lands for common benefit and that it was only in pursuance of that agreement a single person was selected to carry out the common purpose of joint cultivation. The mere factum of common cultivation by a single manager of different parcels of land owned by different persons could not by itself be held to be sufficient to constitute the owners as association of individuals. (3) CIT Vs. Indira Balakrishnan 39 ITR 546 (SC). 39. The learned counsel for the Assessee thereafter took up ground No.10 raised by the Revenue for consideration. The Revenue therein has raised issue that income has to be brought to tax in the hands of the right person in the right status. In this regard our attention was drawn to the following decisions:- (1) CIT Vs. David Joseph 214 ITR 658 (Ker) wherein the Hon'ble Kerala High Court found that the Tribunal in the impugned order before the Hon'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed of by the IT Department in directly assessing beneficiary in respect of the income, the other was no longer available to the Department. It was contended on behalf of the Revenue that the option was of the ITO who was assessing the trust to decide whether he would assess the income in the hands of the trustees or directly in the hands of the beneficiary. This contention was rejected by the Hon'ble High Court which held that Sec. 41 was a special enabling provision which permitted the assessment in the hands of the trustees but did not preclude the direct assessment in the hands of the beneficiaries. There is nothing in s. 41 which would indicate that the choice between the alternative methods provided therein has to be made only at the time of the assessment of the trustees or that the choice only belongs to the ITO who is assessing the trust. 40. Our attention was also drawn to Circular No.157 dated 26.12.1974 of CBDT wherein the CBDT has clarified on assessment of trust where share of beneficiaries unknown. It has been clarified therein as follows: "According to the scheme of the IT Act of 1961, even as it was under the IT Act of 1922, the general principle is to cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that income, the Revenue had to make appropriate adjustments; otherwise, the assessment made in respect of that income on the HUF would be contrary to the provisions of the Act, particularly s. 14(1) of the Act. We, therefore, hold that if the assessment proceedings initiated under s. 34 of the Act culminated in the assessment of the HUF, appropriate adjustments have to be made by the ITO in respect of the tax realised by the Revenue in respect of that part of the income of the family assessed on the individuals of the said family. To do so is not to re-open the final orders of assessment, but in reality to arrive at the correct figure of tax payable by the HUF." 42. We have given a very careful consideration to the rival submissions. The Assessee, as we have already seen, is the Assessee is a trust constituted under an instrument of trust dated 25/9/2006. M/S. ICICI Venture Funds Management Company Limited (hereinafter referred to as "Settlor") by an indenture of Trust dated 25.9.2006 transferred a sum of Rs. 10,000/- to M/S. The Western India Trustee and Executor Company Limited (hereinafter referred as the "Trustee") as initial corpus to be applied and governed by the terms a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment Manager to whom without any option the management of the trust fund had to be entrusted. It is like any other form of business organization mobilizing funds for investments and promising returns to the contributors. Can such objective be achieved by forming a trust? 45. Similar questions arose for consideration before the Authority for Advance Ruling in the case of XYZ, In Re 224 ITR 473 (AAR). We need to look at the facts of the said case before we set out the ruling given by the AAR. An American company in collaboration with an Indian financial services company proposed to set up another fund. For this purpose a trust was created whereby the Indian Financial services company was the author of the trust and another Indian Trust company was appointed as Trustee. The funds of the Trust were to be invested in Indian companies and projects in India. The Indian financial service company was to act as the principal Investment Adviser in India to the trust under an advisory agreement. By an Indenture of trust, the Indian financial service company made an initial settlement of Rs. 1 lakh on the trustees on trust. This along with contributions that may be made to the trust fund by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....whether there could be any valid objections to the constitution of a trust in this manner. The authors of the trust are the IC, the Indian financial service company and others contributing to the trust by the date of the trust deed. Indeed even institutional investors contributing to the trust, in helping the CT achieve its target of 50 million dollars can be considered as supplemental authors of the trust, the CA constituting r/w the trust deed, the instruments constituting the trust in their cases. The purposes of the trust are, as stated in the TD, to invest the trust funds and distributing the proceeds to the beneficiaries. This is, in a sense, nothing more than an arrangement by which certain parties agreed to contribute funds for a common purpose and divide the profits amongst themselves. No doubt the same objective could be achieved by the constitution of a firm or a company but, equally, there seems to be no valid objection if the parties wish to do it in the form of a trust which, under the Trust Act, merely represents certain obligations annexed to the ownership of property in the form of the contributed funds. The purposes of the trust cannot be said to be forbidden b....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... income to a particular beneficiary or beneficiaries. The beneficiaries have no interest in possession under the trust. There are various reasons why a settlor prefers to establish a discretionary trust rather than a fixed trust. Some of the important one's being - to protect the beneficiary against creditors; to continue to exercise control over young or improvident beneficiaries; to make adjustment according to circumstances. "When a trust is set up, there is no way of knowing how the beneficiaries will fare in the future; which of them will be most in need, which will be deserving, which spendthrift, which inebriate, which will marry millionaires and which missionaries". The trustee can take all these factors into consideration in making their decisions. 49. When it comes to tax on income received by the Trust on behalf of the beneficiaries, there are some implications depending on whether the trust is a discretionary trust or a non-discretionary trust. As we have already seen in terms of Sec.164(1) a trust is assessed as a representative assessee in respect of income which it receives on behalf of its beneficiaries and if the beneficiaries are not certain or shares of be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be chargeable to income-tax on such income at the flat rate of 65% or the rate which would be applicable if such income were the total income of an AOP, whichever course would be more beneficial to the Revenue. 51. When the Explanation was added in 1980, the CBDT issued the following circular [see (1980) 123 ITR (St) 159] [The quotation has been taken from the Memorandum explaining the provisions of the Finance (No. 2) Bill, 1980 and not from the relevant circular, which is Circular No. 281 dt. 22nd Sept., 1980 reported in (1981) 131 ITR (St) 4, though the Circular uses similar language--Ed.] : "49. xxx xxx xxx (iv) Under the existing provisions, the flat rate of 65% is not applicable where the beneficiaries and their shares are known in the previous year, although such beneficiaries or their shares have not been specified in the relevant instrument of trust, order of the Court or wakf deed. This provision has been misused in some cases by giving discretion to the trustees to decide the allocation of the income every year and in other ways. In such a situation, the trustees and beneficiaries are able to manipulate the arrangements in such a manner that a discretionary t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to resume power directly or indirectly over such income or asset, the settlement should be deemed to be revocable. 54. In Chapter X of the private placement memorandum issued by the investment manager inviting contribution from investors, the tax considerations in making investments as understood by them have been set out. The contents thereof in brief are that the contribution by the contributors are akin to "revocable transfer" u/s.61 of the Act read with Sec.63 of the Act and therefore income arising from the transfer are assessable in the hands of the contributors. The contributors are therefore informed that in respect of their pro-rata share of income received by the Fund it is the contributors who will be liable to tax and not the Trust/Fund. The nature of income that is likely to arise from the revocable transfer has also been set out therein and the same is referred to as (1) Dividend declared by companies whose shares are held by the Trust, are exempt in the hands of the shareholders and therefore the dividend earned by the Trust from investment would be exempt from tax and therefore there would be no tax implications in the hands of the beneficiary. (2) Interest on l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n under Clause13 of the Deed of Trust is a general power of revocation and the same would be sufficient for construing the transfer in the present case as a revocable transfer. As rightly contended by the learned counsel for the Assessee it is not necessary that the power of revocation should be at the instance of the contributors/beneficiaries/ transferor and it can be at the instance of any person either settlor, trustee, transferee or the beneficiaries. Provisions of Sec.61 of the Act do not contemplate a power of revocation only at the instance of the transferor. In this regard the reliance placed by the learned counsel for the Assessee on the observations of the Hon'ble Supreme Court in the case of Surat Art Silk Cloth Mfrs. Association (supra) support the plea taken by him. As rightly contended by him the existence of a power to revoke the transfer that has to be seen and not the manner in which/ or at whose instance such revocation is brought about. 58. The alternative submission of the learned counsel for the Assessee that the provisions of Sec.63(a) of the Act, which deems existence of power of revocation in certain circumstances, are also acceptable. In this regard....
X X X X Extracts X X X X
X X X X Extracts X X X X
....c.164(1) lays down that where any income or any part thereof in respect of which the persons mentioned in cl. (iv) of sub- section (1) of Section 160 is liable as representative assessee or any part thereof (i) is not specifically receivable on behalf or for the benefit of any one person; or (ii) where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Explanation 1 to Sec.164 lays down that any income or part thereof to which Section 164(1) applies shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the Court or the instrument of trust or wakf deed, as the case may be, and is identifiab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iced in the above provisions. The first aspect is the identification of the beneficiaries. The second aspect is with regard to ascertainment of the share of the beneficiaries. 64. On the aspect of identification of the beneficiaries, it is the plea of the learned counsel for the Assessee that so long as the trust deed gives the details of the beneficiaries and the description of the person who is to be benefited, the beneficiaries cannot be said to be uncertain. CBDT Circular No.281 dated 22.9.1980 wherein the CBDT has explained the scope of Sec.164 with regard to stating the name of the beneficiaries in the trust deed. In the said circular the provisions of Expln.-1 to Sec.164 of the Act regarding identification of beneficiaries has been explained to the effect that for identification of beneficiaries it is not necessary that the beneficiary in the relevant previous year should be actually named in the order of the Court or the instrument of trust or wakf deed, all that is necessary is that the beneficiary should be identifiable with reference to the order of the Court or the instrument of trust or wakf deed on the date of such order, instrument or deed. We find that Clause 1.1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....than the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share income of the beneficiaries cannot be determined or known from the trust deed. In view of the aforesaid decision of the AAR, with which we respectfully agree, we hold that the provisions of Sec.164(1) of the Act would not be attracted in the present case. We also find that the Hon'ble Madras High Court in the case of P.Sekar Trust (supra) and Manilal Bapalal (supra) has taken a view that identity by reference to the terms of the trust deed is sufficient and it is not necessary that the beneficiaries should be specifically named in the deed of trust. Consequently Grounds 4 to 7 raised by the Revenue are held to be without merit. 66. In ground No.8, the Revenue has challenged the order of the CIT(A) whereby the CIT(A) held that the Assessee cannot be assessed as an "AOP". In Ground No.9 the Revenue has contended that there is no separate status of Trust for making assessment envisaged under the Act. In this regard the definition of person u/s. 2(31) of the Act which does not sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....5.9.2006. The trustee was empowered to call for contributions from the contributors which will be invested by the Trustee in accordance with the objects of the trust. The objective of creation of the trust was to invest in certain securities called mezzanine instruments and to achieve commensurate returns to the contributors. The fund collected from the contributors together with the initial corpus was to be handed over to the trustees under the provisions of the Indian Trust Act, 1882. The trust was to facilitate investment by the contributors who should be resident in India and achieve returns to such contributors. The contributors to the fund are its beneficiaries. (ii) The trustees had power to appoint investment managers to manage the trust fund. The Settlor was to be appointed as the investment manager. The terms of the appointment of the settlor as investment manager are set out in an investment management agreement dated 25.9.2006 between the Assessee represented by the Trustee and Settlor. (iii) The Settlor as investment manager issued memorandum to prospective investors on a confidential basis for them to consider an investment in mezzanine Fund. An investor who wis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tified contains a column for status as "Trust". Therefore the argument of the revenue that all "Trusts" are AOPs is not correct. If the contention of the Revenue as raised in Ground No.9 is accepted than the provisions of Sec.161(1) of the Act would become redundant. The charge to tax in the hands of the representative Assessee has to be in accordance with Sec.161(1) of the Act and therefore the status of the Assessee cannot be that of AOP. Ground No.9 raised by the Revenue is therefore held to be without any merit. 70. In ground No.10 the Revenue has raised issue that income has to be brought to tax in the hands of the right person in the right status. In this regard there are circulars dt. 24th Feb., 1967, 26th Dec., 1974 and 24th Aug., 1966 on the issue wherein it has been opined that once the choice is made by the Department to tax either the trust or the beneficiary, it is no more open to the Department to go behind it and assess the other at the same time. 71. In the case of David Joseph (supra) the Hon'ble Kerala High Court after making a reference to the above circulars held that once a beneficiary is assessed and his assessment is completed prior in point of time....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iciaries are unknown. It has been clarified therein that the ITO should at the time of raising the initial assessment either of the trust or the beneficiaries adopt a course beneficial to the Revenue. Having exercised his option once, it will not be open to the ITO to assess the same income for that assessment year in the hands of the other person (i.e., the beneficiary or the trustee). In CBDT Circular No.13/2014 dated 28.7.2014 the Board has however given instructions that as per the SEBI (Alternative Investment Funds) Regulations, 2012 funds which are not venture capital funds and which are non-charitable trusts where the investors name and beneficial interest are not explicitly known on the date of its creation- such information becoming available only when the funds starts accepting contribution from the investors, have to be treated as falling within Sec.164(1) of the Act and the fund should be taxed in respect of the income received on behalf of the beneficiaries at the maximum marginal rate. 73. The reliance placed on the aforesaid circular, in our view, will not be of any use for the reason that the said Circular was not in force at the relevant AY when the assessment w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses of Total No investor Profit on Income the Fund TDS on Interest Sale of Income Mutual Fund Units 1 ICICI Venture 530,838 3,120,922 (1,816,836) 1,816,836 610,397 Funds Management Co. Ltd. 2 Life Insurance 530,289 3,117,696 (1,833,028) 1,814,958 609,766 Corporation of India 3 SIDBI 530,289 4 Oriental Bank of 530,289 3,117,696 3,117,696 (1,833,028) 1,814,958 609,766 (1,833,028) 1,814,958 609,766 Commerce 5 Central Bank of 274,335 1,612,880 (948,281) 938,933 315,451 India 6 S. Gopalakrishnan 548,670 3,225,759 (1,896,562) 1,877,866 630,901 7 Hemendra Kothari 137,167 3,225,759 (474,141) 469,467 157,725 8 Riday Pradeep 41,150 241,932 (142,242) 140,840 47,318 Nakhate 9 Debashis 27,433 161,288 (94,828) 93,893 31,545 Chatterjee 10 Devashish Chopra 27,433 161,288 (94,828) 93,893 31,545 11 Kapila Malhan 27,433 161,288 (94,828) 93,893 31,545 12 Lalita D Gupte 27,433 161,288 (94,828) 93,893 ....