TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 112
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.... view of the identical facts involved in all the three cases and the decision rendered in ITA No.4789/Mum/2017 would apply with equal force for other two assessees also except with variance in figures. 3. The brief facts of this appeal for the A.Y.2010-11 are that the assessee did not file its return of income for the A.Y.2010-11. However, it was observed during the assessment proceedings for A.Y.2009-10 that assessee had earned interest income amounting to Rs. 3,54,62,465/- from HPCL during the period relevant to A.Y.2010-11. Accordingly, the assessee's case was reopened for the A.Y.2010-11 by issuance of notice u/s.148 of the Act. The assessee trust was created by IL&FS Trust Company Ltd. (Settlor) by putting initial corpus of Rs. 500/-. Subsequently, the beneficiaries of the trust, i.e. seven mutual funds contributed a large amount of Rs. 300,55,82,700/- and they were issued Pass Through Certificates (PTC) by the assessee for said investment. The said funds were then used for acquiring a loan transaction of Rs. 300 crores given by Yes Bank to HPCL carrying interest @ 9.18% p.a., which was acquired by the assessee at a premium of Rs. 55,82,700/-. As a result, the subsequent int....
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....T(A) erred in treating the assessee as Trust and not as AOP, merely following the decision of the Hon'ble ITAT in the case of Indian Corporate Loan Securitization Trust 2008-Series 14 vide order No. ITA 3986/'Mum/'2013 & ITA No. 4343/Mum/2013 passed on 17.02.2017. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the addition of Rs. 3,54,62,46s/- merely following the decision of the Hon'ble ITAT in the case of Indian Corporate Loan Securitization Trust 2008-Series 14 (Supra) vide order No. ITA 3986/Mum/2013 & ITA No. 4343/Mum/2013 passed on 17.02.2017 without discussing the matter on merits. 3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, even if the trust is held to be valid as claimed by the assessee, whether, still the income liable to be taxed at the maximum marginal rate in view of section 161(1 A) of the I T Act as the captioned income is evidently business income?." 5. Since, the entire matter is covered by the Co-ordinate Bench decision of this Tribunal wherein the entire facts and the decision rendered thereon are reproduced hereunder for the sake of....
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.... assigning the receivables from the loan advanced to HPCL to the assessee in such haste is an issue, on which Revenue has strongly relied upon in advancing its case. 2.1.4 In parallel, the assessee trust decided to issue Pass Through Certificates (PTCs). Such PTCs are securities that can be issued only to Mutual Funds (MFs), Banks and Non-Banking Financial Companies (NBFCs) as per RBI 'Guidelines on Securitization of Standard Assets'. Meanwhile, an Information Memorandum dated 20.05.2008 was jointly issued by the assessee and Yes Bank to MFs, inviting them to subscribe to the PTCs to be issued by the assessee, in terms of which, three different series of PTCs, i.e. Series A1, Series A2 and Series A3 were issued. These PTCs were subscribed by seven MFs, who are incidentally the beneficiaries of the trust, holding beneficial interest in the assessee. In terms of this subscription, the MFs transferred funds to the assessee towards purchase of these PTCs. Having received funds from the MFs, the assessee utilized these funds to pay the consideration to Yes Bank, towards the receivables taken over by it through the Assignment deed. 2.1.5 To achieve this loan securitization ....
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.... the beneficiaries and since the income of the beneficiaries was exempt from tax u/s 10(23D), the interest received by it for their benefit was not chargeable to tax in its hands in terms of provisions of section 160(1)(iv) read with section 161(1) of the Income-tax Act. Therefore, even if these were to be treated as income of the assessee in accordance with the provisions of Sec 161(1), which stipulates the tax to be levied upon representative assessee in like manner and to the same extent as it would be leviable upon the person represented, no tax is leviable upon the representative assessee since MFs income is exempt from tax. Therefore, it is the contention of the assessee that the impugned interest income is not chargeable to tax, either in the hands of the assessee trust or its beneficiaries or Yes Bank. Assessing Officer's (AO) stand 2.3.1 The AO did not agree with the assessee on two main grounds. The A.O held that the assessee was not a genuine trust. He based his decision on the premise that, "to constitute a valid a trust, the Settlor, the Contributor and the Beneficiary are required to be independent". In the case on hand, the Contributor and the Beneficiaries a....
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....the following reasons:- (i) A Corporate entity is not entitled to create a Trust. The amount settled is in the nature of 'Gift' and a corporate entity cannot make a gift in excess of Rs. 50,000/- as per section 293 of the Companies Act. As ITCL had gifted in excess of Rs. 50,000/- (considering the aggregate of the amounts settled by ITCL during the year to settle various trusts) the Trust is invalid. (ii) The beneficiaries have not been assigned any beneficial interest in the corpus of the assessee trust. (iii) A Trust cannot be a beneficiary of another Trust as per section 8 of the Indian Trusts Act, 1882 and as the Mutual Funds, who are the beneficiaries under the trust created by ITCL, the assessee is an invalid Trust. (iv) The initial corpus of Rs. 500 for settling the Trust was transferred by the Settlor to the Account of the assessee only on 14th January, 2009 and, hence, the Trust did not come into existence on 20th May, 2008 as there was no trust property which was transferred from the Settlor to the trustees. He also upheld the decision of the AO that the provisions of section 160(1)(iv) of the Act and section 161 as regards representative assessee did no....
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....cial activity; and vi. The share of each of the beneficiary in the income of the Trust is known and determinate. c. The Appellant prays that it be held that the Trust is a valid trust. II. Ground II: Holding that the Trust was not revocable a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in rejecting, the applicability of sections 61 to 63 of the Act on the ground that (i) there is no contribution by the Beneficiary to the trust and (2) it is only where through artefact arrangement, the income is shifted to other than the beneficial owner, the section would come into play. b. The CIT(A) failed to appreciate and ought to have held that: i. The Mutual Funds are the transferors of funds in the Trust and they are also the beneficiaries; and ii. Therefore, the income of the Trust ought to be charged to tax in the hands of the investors / beneficiaries, namely the Mutual Funds only in view of the clear provisions of section 61 to 63 of the Act. c. The Appellant prays that it be held that the income of the Trust is chargeable in the hands of the investors/beneficiaries, namely the Mutual Funds and not in the hands of the Trust. III. Grou....
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....eivables accrues on day to day and not as and when it becomes due. c. The CIT(A) failed to appreciate and ought to have held that: i. The Trust not being a corporate entity is free to accrue its income either under the cash or mercantile method and that mercantile method is not mandatory in law; and ii. Even under the mercantile method, the income by way of interest on receivables accrues as and when it is due and not on day to day basis. d. The Appellant prays that the gross interest as computed by the CIT(A) amounting to Rs. 238428493/- be reduced to a sum of Rs. 214972490/- as disclosed by the Appellant in its return and accordingly, the enhancement of Rs. 23456003/- be deleted. VII. Ground VII: Disallowance of expense on accrual basis Without prejudice to ground I & II above and assuming the CIT(A) is right in holding that the sum of Rs. 23456003/- was assessable as income of Assessment Year: a. CIT(A) erred in not allowing expense by way of interest / return on investment payable to the PTC holders on the same basis as applied by him for charging to tax the interest income on receivables. b. The CIT(A) failed to appreciate and ought to have held that: i. Whatev....
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....d by 9 members i.e. Yes Bank Limited., the Seven Mutual funds (PTC Holders) and IL&FS Trust Co. Ltd. ought to have quashed the assessment made by the AO on the AOP constituted by 8 members the Seven Mutual funds (PTC Holders) and IL&Fs Trust Co. Ltd. Ground VI: Enhancement of income by the CIT(A) a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in enhancing the income of the Appellant on the alleged ground that income by way of interest on receivables accrues on day to day and not as and when it becomes due. Ground VII: Without prejudice to grounds above and assuming the CIT(A) is right in holding that income by way of interest on receivables accrues on day to day basis and not as and when it becomes due: a. The CIT(A) erred in not allowing expense by way of interest / return on investment payable to the PTC Holders on the same basis as applied by him for charging to tax the interest income on receivables as there cannot be double standards for charging of income and for allowance of expense. Ground VIII: Levy of interest under section 234B of the Act a. The AO erred in levying interest u/s 234B of the Act. The Appellant denies its liabi....
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.... transaction between the originator and the SPV should be strictly on arm's length basis. Further, it should be ensured that any transaction with SPV should not intentionally provide for absorbing future losses (vi) The 'SPV' should be entirely independent of the originator and the originator should not have any ownership, proprietary or beneficial in the SPV. (vii) The originator should not hold any share capital in the SPV. The originator shall not exercise control, directly or indirectly, over the SPV and the trustees and shall not settle the trust deed. The originator shall not support the losses of the SPV except under the facilities explicitly permitted under these guidelines and shall also not be able to meet the recurring expenses of the SPV. (viii) The guidelines emphasize the requirement of true sale. It states that for enabling the transferred assets to be removed from the originator in a securitization process, the isolation of assets or 'true sale' from the originator to the SPV is an essential requirement. The sale should result in immediate legal separation of the originator from the assets which are sold to the SPV. The assets should stand ....
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....CL). (v) The Settler (i.e. ITCL) in the present case is empowered under its Memorandum of Association to carry on the Trusteeship business and to do all that may be essential for achieving the same object and hence it is essential to create a trust and act as its trustee as a commercial activity, and (vi) The share of each of the beneficiary in the income of the Trust is known and determinate. (c) The applicant prays that it may be held that the Trust is a valid trust. 6.2 Assessee's contentions During the course of the appellate proceedings before us, the learned Senior Counsel for the assessee made detailed oral and written submissions. The written submissions were given to the Revenue and the counter submitted by Revenue was made available to the assessee and the assessee, in the rejoinder, made submissions rebutting the Revenue's counter. The assessee also submitted detailed note on the various submissions made during the course of the entire proceedings. The copies of the various judicial pronouncements cited and relied upon have been perused. While all the judicial pronouncements have been considered, only those relevant and germane to the issue have been di....
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....tions of the breach of provisions of the Indian Trusts Act 1882 which was not an issue before the Supreme Court. Therefore, the decision relied by the Revenue has no bearing on the facts of the case on hand. 6.3.1 Per contra, the submission of Revenue is that the Income-tax Act is a self-contained code and the AO can determine the income of an entity under the Act. The gist of the submissions in this regard is as under: (i) The assessee's reliance on the decision in the case of Gangadhar Vishwanath Ranade (supra) was misplaced, as the question in that case was on the power of the Tax Recovery Officer to declare a transfer as void under section 281 of the Act, in a proceeding under Rule 11 of the Second Schedule to the Income-tax Act. In that context, it was held that the TRO cannot declare a transfer made by the assessee in favour of a third party void and the Revenue will have to file a suit under Rule 11(6) to have the transfer declare void. It was held that intricate questions of title cannot be decided in summary proceedings under Rule 11. However, the case in hand does not involve the title of any property and is mere determination of the income and tax arising from ce....
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....: 6.5.1 The assessee submitted that Section 7 of The Indian Trust Act, 1882, provides that a Trust can be created by any person who is competent to contract. Therefore, a corporate entity is competent to contract, i.e., ITCL was competent to settle a Trust. The settlement of the Trust by ITCL is for the purpose of acting as Trustees and, therefore, the Trust created is a valid Trust. In this regard, reliance was placed on the decision in the case of M.N. Chaya v. P.R.S. Mani[2005] 127 Comp. Cas. 863 (Bom.) 6.5.2 Section 293(1)(e) of the Companies Act, 1956, prohibits contributions to charitable and other funds in excess of 5% of the average net profits (during the three financial years immediately preceding). It was submitted that the provision of section 293(1)(e) of the Companies Act is not applicable to the facts of the present case for the following reasons: (i) There was no Contribution by ITCL. Settlement is not contribution. (ii) The contribution by ITCL is not to a charitable or other fund. The settlement is not to a charitable fund and the phrase "other fund" in section 293(1)(e) has also to be interpreted to mean a fund which is of a charitable nature. The assesse....
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....s incorrect. Reliance is placed on the decisions of the Hon'ble Apex Court in the case of Tulsidas Kilachand v. CIT[1961] 42 ITR 1 as well as the decision in the case of Moti Lal Chhadami Lal Jain v. CIT[1991] 190 ITR 1/56 Taxman 40 (SC). Thus, it was the contention of the assessee that all the legal requirements for creation of a valid trust has been fulfilled and the reasons given by the learned CIT(A) to hold the trust to be an invalid trust is not sustainable in law and the assessee trust cannot be regarded as an invalid Trust. 6.5.3 Besides the legal requirements, the assessee also put forth the following arguments: (i) When the parties have understood and interpreted the transaction in a particular way, it is not open to the AO to give another interpretation. Reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT v. Arun Dua[1990] 186 ITR 494/[1989] 45 Taxman 246 in this regard. In the case on hand, when all the parties have understood and interpreted the transaction as a valid securitization and assignment by Yes Bank in favour of trust, then it is not open to the AO to come to a contrary conclusion. (ii) Chapter XII-EA of the Inc....
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....ame for a fee/income. (iv) There was no intention to implement the scheme of securitization as envisaged in the RBI Guidelines 6.6.2 It is the contention of Revenue that securitization guidelines indirectly liberated the mutual funds from the prohibition from advancing loans. Banks also got an opportunity to rotate their loans, through the medium of a façade of a trust (SPV). The parent trust could earn money by floating a large number of trusts and lend its name for which it did not incur any expenditure. It was submitted that the Bank has not followed the rules of procedure and opened the Bank accounts without the mandatory basic information and the only inference is that Yes Bank, ICTL and the mutual funds are in collusion to effect this transaction. Therefore, the learned CIT(A) has rightly concluded that this is an association of persons (AOP) formed coming together to make quick profit. Securitization was an excuse for mutual funds to get over the SEBI Regulations and without proper check, made payment to an account of a trust which was not in existence. Revenue relied heavily and substantially on the decision of the Coordinate Bench of Mumbai Tribunal in the case ....
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....late that the securitization is to be carried out by the originator i.e. the Yes Bank. The Trust Deed refers to the trust being settled at the instance of the Yes Bank. Therefore, there is no doubt that the transaction has been initiated at the instance of Yes Bank. It doesn't matter at whose instance the transactions has been initiated, as long as parties have acted as per the transaction, the transaction has to be accepted as agreed by the parties. 6.7.3 The assessee has further submitted that: (i) A residuary beneficiary is one who is to get the trust property remaining after payments have been made to all the other beneficiaries. This ensures that no property of the trust remain undisposed of. There is no prohibition in law to have a residuary beneficiary and in fact, is a provision normally made out of abundant caution. (ii) Regarding the revocation clause, it is not for the Department to tell the settlor as to what to include and not to include in the trust deed. It is for the settlor to decide as to what should be the terms of settlement. The parties have not even objected to any provision in the Trust Deed nor can they. (iii) Yes Bank is providing services and a....
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....ibution received by the assessee and subsequent thereto, the deed of assignment is executed by the parties. This clearly shows that the guideline has been followed by the assessee as agreement to assign receivables is entered into before the PTCs are issued. * It is practically not possible to borrow money for purchase of acquiring the receivables and repay the borrowings after receipt of moneys from the PTC holders and such borrowing by the SPV is not even contemplated in the RBI Guidelines. * Also, the Guidelines are broad Guidelines for all types of securitization transaction. It is not necessary that all the clauses of the RBI Guidelines must be covered in all the securitization cases as the same is wholly impractical. Similarly, merely stating that certain clauses in the Trust deed are not provided in the Guidelines is of no consequence, unless it is shown that the clauses are contrary to the provisions of the Guidelines * Also, the various issues raised by the Revenue do not detract from the fact that a valid securitization has been made by Yes Bank and the assessee trust. The flaws mentioned do not render the securitization as invalid. * If the trust does not come in....
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.... have been the income of the Yes Bank and it would have got deduction of expenses incurred, including the interest paid by Yes Bank on its borrowings. If at all the above contentions of Revenue were to be accepted, the consequences thereof will be that all the transactions subsequent to the lending transaction by Yes Bank are made-up transactions, not reliable and therefore would have to be disregarded. That would mean that the formation of the trust itself is not acceptable and hence the question of assessing the assessee as AOP or trust itself will not survive. 6.8.3 The contention of the assessee is that the assessee trust is a valid trust which has complied with all the legal requirements that are required to be made. As against this, the contention of the Revenue is that the entire facade of securitization was orchestrated by Yes Bank, by wrongly taking advantage of the securitization process to subvert the entire system, leading to several violations. Revenue contends that the manner in which the securitization has been done has led to the following violations: (i) The Bank cannot normally access the Mutual funds for loans, By the securitization process, the Bank has gain....
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....ed as procedural defects and this alone is not enough to disregard the documents totally. It is a settled principle that a legal document has to be viewed in its entirety and mistakes in some of the clauses cannot, by itself, negate the existence of the documents. 6.8.5 The assessee had argued that there has been no violation of RBI Guidelines by Yes Bank and other parties in the securitization process. It was also argued that the investment made by the mutual funds were not in violation of SEBI Guidelines. Whether there has been any violation of RBI Guidelines/SEBI Guidelines are not of any significance in the proceedings before us. Even if there has been any such violations, that will not have any bearing on the validity of the trust or the characterization of its head of income. 6.8.6 Revenue has forcefully put forth its point that the trust is not a valid trust and the securitization process is only a facade by which all the parties to the process have made unfair gains. Assuming for a moment that the contention of the Revenue; that the trust is not valid and the securitization itself is a falsity, then it would imply that the trust does not exist. If the trust does not exist....
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....nsferors of funds in the Trust and they are also the beneficiaries; and ii. Therefore, the income of the Trust ought to be charged to tax in the hands of the investors/beneficiaries, namely the Mutual Funds only in view of the clear provisions of section 61 to 63 of the Act. c. The Appellant prays that it be held that the income of the Trust is chargeable in the hands of the investors/beneficiaries, namely the Mutual Funds and not in the hands of the Trust. 7.2 Before the learned CIT (A), the assessee argued that the contributions made by the mutual fund beneficiaries represented "revocable transfer" as envisaged u/s. 63 of the Act and therefore the income ought to be assessed in the hands of the beneficiaries. The learned CIT (A) rejected the assessee's contention, holding that there has been no contribution to the trust fund by the beneficiaries as they have only purchased PTCs. As per the learned CIT (A), section 63 of the Act can come into play only when the income is shifted to one other than the beneficiary owner by means of an arrangement. The CIT (A) was of the view that no such arrangement exists in this case. 7.3.1 It is against this decision of the learned CI....
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....Gadi Cheluvaraya Chetty v. CIT[1984] 150 ITR 60/16 Taxman 307 (Kar.) (c) K. Subramania Pillai v. Agricultural ITO[1964] 53 ITR 764 (Mad.) (d) Jyotendrasinhji v. S.I. Tripathi[1993] 201 ITR 611/68 Taxman 59 (SC) 7.3.4 It was submitted that the principles laid out in the aforesaid judicial pronouncements (supra) have been applied by a Bench of the ITAT Bangalore in the case of Dy. CIT v. India Advantage Fund VII[2014] 50 taxmann.com 350/[2015] 67 SOT 5 (URO), wherein on similar issues, the Tribunal has held that the Trust was a revocable trust and the income of the Trust would be taxed in the hands of the Beneficiaries. This decision has subsequently been followed in the case of ITO v. India Advantage Fund-I[2015] 62 taxmann.com 86 (Bang.-Trib) and, inter alia, by the Coordinate Bench of the ITAT Mumbai in the case of ITO v. Milestone Army Navy Trust [IT Appeal No. 4067/Mum/2014, dated 23-12-2015]. In view of this, it was submitted that this issue stands concluded in favour of the assessee. 7.4 Per contra, the learned counsel for the Revenue strongly supported the stand of the CIT (A). It was submitted that the judicial pronouncements relied upon by the assessee do not relate....
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....able transfer, as under:- '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". Section 62 of the Act provides that if a transfer is irrevocable for a specified period then section 61 will not apply. Section 63 defines as to what is "transfer" and "revocable transfer" for the purpose of sections 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 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 contention of the Assessee as can be seen from the reasons for filing revised return was that the monies given by the beneficiaries to the Trust was a revocable transfer and therefore any income arising from such revocable transfer will have to be necessarily ass....
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....ustee may extend the Term for two additional periods of one year each upon the prior recommendation of the investment Manager and the approval of 75% of the Contributors. 13.3 Premature termination of the Trust and revocation of Contributions: 13.3.1 The Trustee may at anytime before the expiry of the Term, terminate this Indenture with the prior written recommendation of the Investment Manager and upon obtaining the prior written consent of all the Contributors for such termination in writing. 13.3.2 Trustees may refund the Fund Contribution to the Contributor, without interest, within a period of 3 months from the date of receipt of first contribution, in the event the minimum fund commitment is not received. 13.4 Procedure on termination: In the event of the Trust being terminated in the circumstances above mentioned, the Trustee shall as soon as practicable thereafter. 13.4.1 take all practical steps to sell all the non-cash assets of the Trust Fund in the manner the Trustee deems fit or advisable; 13.4.2 shall commence arrangements to pay all the liabilities of the Trust; 13.4.3 return to the extent of the available cash in the Trust Fund, all outstanding interes....
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....tility and not on its accomplishment or attainment. The decisions of the Kerala and A.P. High Courts in CIT v. Cochin Chamber of Commerce and Industry(1973) 87 ITR 83 (Ker) : TC23R.239 and A.P. State Road Transport Corporation v. CIT 1975 CTR (AP) 43 : (1975) 100 ITR 392 (AP) : TC23R.248, in our opinion, lay down the correct interpretation of the last ten words in s. 2, cl. (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit." 27. It was pointed out by the learned counsel that the ratio laid down in the aforesaid decision if applied to the interpretation of the provisions of Sec.61 can only mean that it is the existence of the power to revoke the transfer that has to be seen and not the person at whose instance such revocation can be done. It was his submission that the reason behind the rule, bringing to tax income in the hands of the transferor, is existence of a power by which the transferor can derive the benefit of income....
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....in a document by which the investment manager appointed by the trust by virtue of powers conferred under the trust deed, would be sufficient to conclude that the transferor/beneficiary had deemed powers of revocation. 30. Our attention was drawn to the decision of the Hon'ble Supreme Court in the case of Jyothendrasinhji v. S.I. Tripathi & Ors., 201 ITR 611 (SC), wherein it was held that Sec. 63(1) of the Act does not say that the deed of transfer must confer or vest an unconditional or an exclusive power of revocation in the transferor. The fact that concurrence of the trustee had to be obtained by the transferor/settler for revocation will not make the trust an irrevocable transfer. In such circumstances it must be held that the deed contains a provision giving the transferor a right to re-assume power directly or indirectly over the whole or any part of income or assets within the meaning of s. 63(1)(ii) of the Act. 31. Our attention was drawn to clause-6 of the trust deed which provides for distribution of the Trust Fund and Income. Clause 6.3 of the trust deed provides as follows: "6. Validity of Decisions Made by the Trustee . . . . . . . . . . 6.3 Frequency of ....
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....nds of the transferee/representative assessee is not proper. 33. The learned counsel for the Assessee then drew our attention to Gr. Nos. 4 to 7 raised by the Revenue in which the Revenue has contended that :- (a) the names of the Beneficiaries are not identifiable in the original Trust Deed; (b) the shares of the beneficiaries are not mentioned in the trust deed; (c) the shares of the beneficiaries are not determinate on the basis of the trust deed; & (d) even the distribution of shares of the beneficiaries have not been made by the trust as per the formula laid down in the trust deed. 34. On the above stand of the revenue as reflected in Gr.Nos.4 to 7 the learned counsel for the Assessee drew our attention to Clause 1.1.13 of the Trust deed which reads thus: "1.1.13 "Contributors" or "Beneficiaries' means the Persons, each of whom have made or agreed to make Contributions to the Trust in accordance with the Contribution Agreement." 35. According to him the above clause in the Trust deed is enough to identify the beneficiaries. Our attention was also drawn by him to CBDT Circular No.281 dated 22.9.1980 wherein the CBDT has explained the scope of Sec.164 with re....
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....termination of the trust and therefore Sec.164 was not attracted. (2) CIT v. Manilal Bapalal [2010] 321 ITR 322 (Mad.) wherein the Hon'ble High Court had to deal with a case where the CIT in exercise of powers u/s. 263 revised an order of the assessment as erroneous and prejudicial to the interest of the revenue as the trust had not been treated as an AOP and taxed on that basis, as in his view the trust deed did not identify all the beneficiaries and the shares were also not determinate. That view of the CIT was found to be erroneous by the Tribunal and quashed. On further appeal by the Revenue, the Hon'ble High Court found that the beneficiaries of the trust included the prospective spouses of some of the beneficiaries. The trust deed also provided that in the event of a beneficiary dying before marriage or not marrying before the trust came to an end, that part of the benefit which was to be given to the spouse would be given to the heir of the beneficiary or to the beneficiary himself or herself. The Hon'ble High Court therefore came to the conclusion that the share to be allotted to the beneficiaries was determinate under the trust deed and the beneficiaries also....
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....hat these principles on revocable transfer have been followed by the Coordinate Bench of Mumbai Tribunal in the case of Milestone Army Navy Trust (supra). 7.6.5 In view of the discussion above and respectfully following the principles laid down in the above referred decision of the Bangalore Bench of the Tribunal in the case of India Advantage Fund-VII (supra) and the Mumbai Bench of ITAT in Milestone Army Navy Trust (supra) we hold that the assessee Trust is a revocable Trust and contribution by beneficiaries is a revocable transfer. Having held thus, it follows that the income shall be taxed in the hands of the beneficiaries, i.e. the Mutual Funds who purchase the PTCs from the assessee trust. In this view of the matter, we allow this ground of appeal No. II raised by the assessee. 8. Ground III: Diversion by overriding title 8.1 On this issue assessee raised the following grounds:- a. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that the income is not divested at source on the ground that an overriding title cannot be created by voluntary act of parties. b. The CIT (A) failed to appreciate and ought to have held that: i. ....
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.... assessee which has issued the PTC, which indicate a direct relation between the investor PTC holder and the receivables and, therefore, there is a diversion of income by overriding title in favour of the PTC holders." 8.2.3 The assessee had raised this ground of appeal before the learned CIT (A), but the learned CIT (A) rejected the assessee's contentions holding that an overriding title cannot be created by voluntary act of interested parties alone, by placing reliance on the decision of the Hon'ble Apex Court in the case of Moti Lal Chhadami Lal Jain (supra). 8.2.4 The contention of the Senior Counsel of the assessee is that the learned CIT (A)'s finding is misplaced. According to the assessee, in the judicial pronouncements cited (supra), the Hon'ble Apex Court was referring to "voluntary" as without consideration and not as of one's own will. The assessee asserted that an overriding title can be created by the voluntary act of the parties, if that act of the parties leads to a charge being created on the income paid to any person. The assessee also referred to several instances in the learned CIT (A)'s order which show that the learned CIT (A) has g....
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....ation of income by the assessee and not a case of diversion of income by overriding title. 8.4.1 In rejoinder to the above contentions of Revenue, learned Senior Counsel for the assessee argued that merely because the interest has come to the assessee or that the same has been credited to the Profit & Loss account, it cannot be a case of application of income. In this regard, the assessee relied on the decision of the Hon'ble Bombay High Court in the case of C.N. Patuck's case (supra), where, similar to the facts in the case on hand, the amount was credited in the assessee's account and still it was held that it is diverted at source by overriding title as the amount was held by the assessee, for and on behalf of the true owners. The assessee also submitted that the receipt of the amount of income or otherwise is completely irrelevant to determine the issue and relied on the decision of the Hon'ble Apex Court in the case of Moti Lal Chhadami Lal Jain (supra), wherein the amount was not received by the Assessee but was directly paid over to the Trust, still the Supreme Court held that it was not a case of diversion of income, as no charge was created. It was also s....
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....his cited case the Hon'ble Apex Court held that this was a case of application of income and not diversion of income on the peculiar facts of the case and therefore the same would not be applicable to the case on hand. (ix) CIT v. Madras Race Club[2002] 255 ITR 98/[2003] 126 Taxman 6 (Mad.) The facts of the cited case are different and therefore the same is not applicable on the facts of the case on hand. 8.5.1 We have heard rival contentions and perused and carefully considered the submissions made, the material on record and the judicial pronouncements cited by both parties. Evidently, the issue of whether or not it is a case of diversion of income at source by overriding title would depend upon the facts of each case. The facts of the case in hand are that the interest has come to the assessee and that the same has been credited to the Profit & Loss account. From the Books of the assessee, the money has travelled to the PTC holders. Therefore, the onus is on the assessee is to prove that there was a charge in favour of the PTC holders, notwithstanding the movement of money through the accounts of the assessee. In this regard, the assessee referred to the clauses in the....
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....t can be said that only the PTC holders had a claim on the money, if not an absolute charge. Hence, in our considered view, the principle of diversion of income at the source by overriding title is attracted in this case. In view of the above finding of fact rendered by us, we are of the considered opinion that by the principle of diversion of income by overriding title, the receivables are the income of the PTC holders, in this case the beneficiaries of the assessee trust and therefore, whether the status of the trust is to be characterized as Trust or AOP, the income passes on to the beneficiaries. In this view of the matter, the ground of appeal at III raised by the assessee is allowed. 9. Ground IV: Treating the status of the assessee as "AOP" 9.1 In this regard the assessee's grounds are as under:- 'a. On the facts and in the circumstances of the case and in law, the CIT (A) erred in holding that the status of the Appellant is that of an "Association of Person." b. The CIT (A) failed to appreciate and ought to have held that: i. The beneficiaries have not joined in a common venture or a joint enterprise but have made investments in the Trust individually; and....
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....ns between each of the mutual funds and assessee trust and there is no coming together by the mutual funds. (v) Since Yes Bank and the beneficiary Mutual Funds have no common share in the income or interest in the PTCs of the alleged AOP, the question of their constituting an AOP does not arise. (vi) It was submitted that the burden is on the Revenue to show that the assessee constitute an AOP, as held by the Hon'ble Supreme Court in the case of CIT v. Daulat Ram Rawatmull[1973] 87 ITR 349; which burden the Revenue has not been discharged. An AOP is not an entity which is authorized to do a securitization activity and hence to hold the assessee as AOP would amount to negating the action of the assessee. Only a juristic person can become a member of an AOP and Mutual Funds being trusts, i.e. a 'non-juristic person' cannot become a member to constitute an AOP. If there is no Trust, as claimed by the Revenue, then it can only be a joint ownership of the receivables by the Mutual Fund and not an AOP. (vii) An AOP is not an entity which is authorized to do securitization activity. In support of the arguments urged above, reliance was placed, inter alia, on the decision....
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....r party, on merits. 9.6.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. A common purpose or common action is a sine qua non for constitution of an AOP, to earn common income and profit. The assessee contends that the facts on record show that the beneficiary Mutual Funds have not joined together in common action. They have independently applied for and subscribed to the PTCs and derive income separately. All the PTC purchase transactions are separate and there is no coming together by the Mutual Funds. An AOP is not authorized to do securitization activity and hence holding the assessee trust as an AOP would negate the securitization activity itself. 9.6.2 Before us, Revenue has strenuously pointed out various activities and documents executed and lacunae therein to make out a case that all the stake holders have acted in tandem and that Yes Bank, the originator, has been the main person behind the securitization process and all others are only dummies who have only lent their names. In our view, based on the facts before us, all the Mutual Funds beneficiaries are shown to have pur....
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....on (residual category). The PAN issued to the appellant and recorded in the return had the fourth letter as "T" indicating that the status was returned as "Trust". The return is signed by the Trustee ('ITCL') as "trustee of the trust". This shows that the return was filed as a 'trust' and the ticking of "No" in reply of the query whether the return was being filed as a representative was an inadvertent error. A document is always to be read as a whole. 10.2.2 According to the assessee, the computation of income filed along with return of income for A.Y. 2009-10 states the status of the assessee as "Private Trust (Individual)" (pg. 103 of assessee's paper book, Vol. I). The AO passed the assessment order showing status as "AOP (as per return of income)"; which description, as stated in bracket, is clearly wrong and factually incorrect as the return of income was certainly not filed as an AOP. 10.2.3 It is further submitted that while the AO has held that the trust should be characterized as AOP of eight members, consisting of seven Mutual Funds (Beneficiaries) and ITCL (Trustee), the learned CIT (A) upheld the decision of the AO that the assessee has to be ....
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....as contended that the issue in that case was issue of jurisdiction under section 148 of the Act and has no relevance in this case". 10.4.1 In Rejoinder, the ld. Sr. Counsel for the assessee relied on the following decisions of the jurisdictional High Court wherein it has been held that a Trust is assessable in the status of an individual and not as an AOP/BOI:- (i) Shardaben Bhagubhai Mafatlal Public Charitable Trust No. 8 (supra) (ii) L.R. Patel Family Trust (supra) (iii) Marsons Beneficiary Trust (supra) 10.4.2 It was submitted that the wide and co-terminus powers of the learned CIT (A) does not extend to treating an 'AOP of eight members' as 'AOP of nine members'. The learned CIT (A) cannot change the assessee who has been assessed. An AOP of nine persons is different from an AOP of eight persons and the action of the learned CIT (A) is therefore, without jurisdiction and contrary to law. 10.5 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. In view of our holding in ground No. 1 of this appeal (supra) that the assessee, in the case on hand, is a valid Trust, ....
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....o receive relevant inflows (interest) on 1st April, 11, 2.1 2009; being the interest for March 2009. The interest for March 2009 accrued on 1st April, 2009, as income accrues when there is a right to receive the same. The same was not treated as accrued in the relevant assessment year. However, the learned CIT (A) enhanced assessee's income for A.Y. 2009-10 by an amount of Rs. 2,34,56,007/- by holding that interest income of loan accrues on day to day basis though it is receivable by the assessee on 1st April, 2009. 11.2.3 It is contended that income accrues only when the assessee has a right to receive the income. In the case on hand, the assessee had no right to receive the inflow of interest from Yes Bank until 1st April, 2009 and therefore, the interest for the month of March, 2009 cannot be said to have accrued in the financial year 2008-09 relevant to A.Y. 2009-10. In support of this proposition, reliance was placed in the case of DIT (International Taxation) v. Credit Suisse First Boston (Cyprus) Ltd.[2013] 351 ITR 323/[2012] 209 Taxman 234/23 taxmannn.com 424 (Bom.), wherein the Hon'ble Bombay High Court, relying on the decision of the Hon'ble Supreme Court, i....
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....assessee is entitled to receive the amount clearly provides that the assessee is entitled to receive the amounts on the 1st of the next month. 11.4.2 In rejoinder by the learned counsel of the assessee to the judicial pronouncements relied upon by the Revenue, submitted that the decisions in the case of Shri Goverdhan Ltd. (supra) and Morvi Industries Ltd. (supra), relied by the Revenue have been referred to in the decision of Credit Suisse First Boston (Cyprus) Ltd. (supra) by the Hon'ble Bombay High Court, and can be distinguished on facts on the case. Revenue's argument that the decision of the Hon'ble Bombay High Court in the case of Credit Suisse First Boston (Cyprus) Ltd. (supra) applied only to securities not to interest receivable under an instrument or an agreement is misplaced as such returns on PTCs is not interest on loan but on a tradable security. 11.5.1 While adjudicating the earlier grounds raised in this appeal by the assessee, we have already held that the assessee is a revocable Trust hence the income is taxable in the hands of the beneficiaries. Further, we have also held that this is a case of diversion of income by overriding title and therefor....
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....ce we have already held that the enhancement of the assessee's income on the interest income made by the learned CIT (A) is not tenable, the claim for disallowance of expenses on actual basis is now rendered infructuous, as it does not survive for consideration. The ground of appeal No. VII being infructuous is accordingly dismissed. 13. Ground No. VIII - Charge of interest under section 234B & 234C of the Act 13.1 In this ground the assessee denies its being liable to the charge of interest under section 234B and 234C of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala 252 ITR 1 (SC) and we therefore uphold the action of the AO in charging the said interest. The AO is, however, directed to re-compute the interest chargeable under section 234B and 234C of the Act, if any, while giving effect to this order. 14. Ground No. IX, being general in nature, no adjudication is called for thereon and the same is dismissed as infructuous. 15. In the result, the assessee's appeal for A.Y. 2009-10 is partly allowed as indicat....
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....est income and also without noting that the expenses is also disallowable u/s. 40(ba) of the Act, since the CIT (A) has held the assessee as an association of person. (4) Without prejudice to the above, on the facts and in the circumstances of the case and in law, even if the trust is held to be valid, as claimed by the assessee, whether, still, is the income liable to be taxed at the maximum marginal rate, in view of section 161(1A) of the IT Act, as the captioned income is evidently business income?" 16.2 Revenue vide letter dated 24.10.2016 has prayed for admission of additional grounds 2, 3 and 4 which is stated to arise from the impugned order of the learned CIT (A) which was inadvertently omitted to be raised earlier. It was further submitted as under:- '6. It is humbly submitted that the failure to raise the above additional grounds of appeal at the time of filing of original appeal was neither deliberate nor contumacious but are arising out of the legal position which goes to the root of the matter. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. 229 ITR 383 held that the Tribunal has jurisdiction to examine the question of law which d....
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....because it had not occurred either to the assessee or to the Department to raise and urge that point at earlier stages of the proceedings. In the matter under appeal it is not the case of the DR that necessary facts for deciding the controversy involved in the additional plea are not available on record. It is also not a case where facts are to be investigated rather it/s a pure legal issue that has been raised before us. So, in our opinion, merely because the plea in the additional ground was not taken by the assessee before the FAA, it could not be a ground to refuse the application for permission to raise an additional ground. So, additional ground raised by the assessee, is admitted." 8. The above legal position makes it clear that additional grounds are admitted in a case where the queries raised are emanating out of the records and the objections raised in those grounds go to the root of the matter. It is prayed that the inadvertent mistake by not raising these grounds earlier may not result in loss of substantial justice. Therefore, the department seeks the permission of the tribunal to admit the above additional grounds raised.' 16.3.1 Per contra, the assessee has p....