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2020 (2) TMI 112
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.....4789/Mum/2017 may be taken as a lead case in 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....
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....cts and in the circumstances of the case and in law, the Ld CIT(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 fa....
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....vables under the aforesaid loan to the Assessee for a consideration of Rs. 300,55,82,700/-. This transaction of Yes Bank 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 conside....
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....s were distributed to the beneficiaries of the assessee Trust, i.e. the MF beneficiaries through the PTCs, in proportion to their investment. It is the claim of the assessee that it received the interest for and on behalf of the benefit of 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 th....
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....that the assessee constituted an AOP, not of eight members as held by AO, but consisting of nine members - the bank (Yes Bank), the trustee and seven mutual funds who were the beneficiaries. In support of his decision that the assessee is not a valid trust, the CIT(A) gave 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....
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.... iv. The circumstances relied upon by him do not render invalid creation of the trusts by IL&FS Trust Company Ltd; v. The Settlor in the present case is empowered under its Memorandum of Association to carry on the Trusteeship business and to do all that may he essential for achieving the said object and hence it is entitled 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 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 ....
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....S Trust Co. Ltd. b. The CIT(A) failed to appreciate that once he has come to the conclusion that the members of the AOP is not the same as what has been treated as the members of the AOP by the AO, the assessment made by the AO ought to be quashed as the said assessment is on a non existing entity. VI. Ground VI: Enhancement of income by 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. b. The CIT(A) erred in holding that income by way of interest on receivables 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 di....
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....he CIT(A) erred in holding that the income of the Appellant is not diverted at source to the Beneficiaries/PTC Holders on the alleged ground that an overriding title cannot be created by voluntary act of parties and, hence, not chargeable to tax in the hands of the Appellant. Ground IV: Treating the status of the appellant as "AOP" a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding the status of the Appellant as that of an "Association of Person" constituted by Yes Bank Limited, the Seven Mutual fund (Beneficiaries/PTC Holders) and L&FS Trust Co. Ltd. Ground V: Invalidity of assessment order without prejudice to ground above: a. The CIT(A) having held that the AOP is constituted 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 Appella....
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....ingle asset or pooling and sale of pool of assets to a bankruptcy remote SPV in return of an immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset or pool of assets to third party investors by issuance of tradable debt securities. (iii) 'SPV' is special purpose vehicle set up during the process of securitization to which the beneficial interest in the securitized assets are sold/transferred on a without recourse basis. The SPV may be a partnership firm, a trust, or a company. (iv) 'Service Provider' means a bank that carries out on behalf of the SPV (a) administrative functions relating to the cash flows of the underlying exposure or pool of exposures of a securitization; (b) fund management; and (c) servicing the investors. (v) Any 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 sh....
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....ts in growth of retail loan portfolios in Banks/NBFCs. On the demand side, the capital available with mutual funds and other institutions is put to gainful use. Now we proceed to discuss the Grounds of appeal raised by the assessee. 6. Ground No. 1 6.1 Holding the trust to be not a valid trust and consequently that section 161(1) of the Act is not applicable: (a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in ruling that Trust is not a valid Trust. (b) The CIT(A) failed to appreciate and ought to have held that: (i) All the essentials for creation of a valid trust were fulfilled. (ii) Provisions of section 6 or 8 of the Indian Trusts Act have not been breached. (iii) There is no violation of the provisions of section 293(1)(a) of the Companies Act, 1956. (iv) The circumstances relied upon by CIT(A) do not render invalid creation of the trusts by IL&FC Trust Company Ltd. (ITCL). (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 ....
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.... placed on the decision in the case of DHFL Venture Capital Fund v. ITO [2016] 66 taxmann.com 35/157 ITD 60 (Mum.) wherein it was held that when SEBI has granted registration to the venture capital fund, it is not open to the AO to go into the validity of the said registration as the same is not within the domain of the AO. 6.2.2 It was also submitted that the RBI Guidelines on Securitization provide that securitization can be undertaken by company, trust or firm. The assessee has undertaken the securitization as a 'trust', which is valid and which was duly reported to the RBI and the RBI has not raised any objections to the securitization. It was also submitted that the reliance placed by Revenue on the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Jt. CIT[2010] 187 Taxman 346 too is misplaced. It was submitted that, in the quoted case, the Hon'ble Supreme Court was concerned with taxability under the Act of the provision created as per the RBI Directions, whereas in the case on hand, there are allegations of the breach of provisions of the Indian Trusts Act 1882 which was not an issue before the Supreme Court. Therefor....
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.... of income, other than what was claimed by the assessee, of course, after marshalling the facts properly and furnishing proper reasons. Merely by computing the interest accrued as income of the assessee instead of non taxable as claimed,, the inter-se rights of the assessee under any other statutory framework does not get affected. There is no requirement under the Income Tax Act that the AO has to get an order of the court for income determination. The requirement u/s 281 of the Act to get a suit initiated to annul a transfer of property before effecting attachment is totally different and has no connection to this issue. The Income Tax Act is a self-contained Act and the AO is entitled to determine the head of income under which the income of a particular assessee is to be assessed. The decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd (supra) squarely applies to the facts of this case. The assessee's appeal on this issue is dismissed. Now we proceed to examine the other issues raised in Ground No. I. 6.5 A corporate entity is entitled to settle a Trust: 6.5.1 The assessee submitted that Section 7 of The Ind....
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.... (b) Dr. D. E. Anklesharia v. CIT[1994] 207 ITR 1068/76 Taxman 417 (Guj.) (c) CIT v. Sinivali Trust[2004] 267 ITR 165/139 Taxman 28 (Guj.) (vi) The reference by the learned CIT(A) to the decision of Pestonji Jalbhoy Chichgar v. Jalbhoy Jehangir Chichgar AIR 1934 Bom. 64 is erroneous as it has no relevance to the facts of the present case. (vii) The initial contribution of Rs. 500/- is for the benefit of the initial investors who are also the beneficiaries of the Trust. Hence the conclusion of the CIT(A) that there is no beneficiary at the time of the settlement of the Trust is invalid and incorrect. (viii) Section 6 of the Trust Act inter alia provides that transfer of trust property to the trustee is pre requisite for creation of a valid trust, except when the author of the Trust is the trustee himself. 6.5.2A In view of all of the above, it was contended that it is sufficient that the Trust was settled with Rs. 500/- and the actual transfer of the said amount to the trustee was not necessary. Therefore, the finding by the CIT(A) that the trust was invalid as the initial corpus of Rs. 500/- was transferred to the account of trus....
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....nd since it has complied with all the required statutory approvals and procedures, it cannot be considered as an invalid trust, for income tax purposes. 6.6.1 Per contra, the learned counsel for Revenue strongly argued that the assessee is not a valid trust. In detailed arguments, both oral and written submissions, the learned counsel for Revenue strongly relied on the documents created for the transactions that went into the securitization process to contend that the trust was only a facade, if not a farce. The submissions of Revenue as regards the mistakes in the documentation related to the securitization process are elaborately outlined therein. The sum and substance of the contentions of the Revenue regarding the mistakes infirmities are summarized as under:- (i) The assessee trust is not a valid trust. (ii) Even before the trust was formed, the loan from Yes Bank has been assigned and all the procedures/ formalities related to the securitization had been completed. Therefore, the entire securitization process is only a façade and a farce. (iii) It was the Yes Bank which has been responsible for all the transactions and has controlled....
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.... (i) Neither the AO nor the learned CIT(A) have held that the various documents executed are bogus or to be disregarded. Both the AO and the learned CIT(A) have accepted these documents and based their findings on the same. This argument put forth is an afterthought by the Department. (ii) The Agreement to give the loan by Yes Bank to HPCL was executed on 15th May, 2008, which provided for a standard format agreement to be executed. Hence, it is not correct to say that the agreement was executed after the securitization process was completed. The loan agreement provides that the loan agreement would be effective from 15th May, 2008. (iii) The loan agreement refers to the Demand Promissory Note to be executed by HPCL in favour of Yes Bank. In the Trust Deed instead of mentioning "to be executed on 21 Day of May, 2008" it has been stated as "dated 21st Day of May, 2008". Merely because a clause has not been properly drafted does not mean that the document or the agreement is null and void. (iv) If the proposed trustees have made the bank opening application before the settling of the Trust knowing that the Settlor is going to be trustees, it cannot ha....
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....lso be treated as asset backed loan as there is a provision for creation of a security in case of default. 6.7.5 As regards the point of breach of RBI Guidelines for securitization of standard assets, it was submitted that securitization transaction is a two-stage process. In the first stage there is sale of single asset to the SPV in return for an immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset to third party investors by issuance of tradable debt securities. It is the contention of the Revenue that the assessee has executed the transaction in the reverse order i.e. they have executed the second step first and then the first step and, therefore, the assessee has breached the RBI Guidelines. It is wholly unrealistic to hold that the trust must itself first finance the securitization and then issue the PTCs to the mutual funds contributors. * All Clauses of the RBI Guidelines are required to be read in entirety. RBI Guidelines emphasize on transfer of assets from the Originator to SPV, issue of PTC by receiving contributions from the PTC holders and payment of ca....
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....mitted that the assessee must be regarded as a valid Trust. 6.8.1 We have heard the rival contention and perused and carefully considered the submissions made, the judicial pronouncements cited by both the parties and the rebuttal submitted by each of the parties to the arguments of the other. That HPCL, the borrower, had borrowed the loan from Yes Bank is not disputed. After this loan transaction, HPCL is totally out of all other transactions in connection with securitization. In fact, even after all the securitization transactions, HPCL repays the loan and interest to Yes Bank only. All the other transactions have been initiated and virtually controlled by Yes Bank. In fact, it is fairly accepted by the assessee that all the transactions are initiated and regulated by the Bank, by claiming that the RBI Guidelines envisage the lender to be the Originator. 6.8.2 The main contention of Revenue is that all the transactions related to securitization are a facade worked out by the Bank and the assessee trust is not a valid trust. The bank, the assessee trust, the mutual funds beneficiaries, and trustees, have worked closely together in putting up the facade of the tru....
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....be carried out by the originator; Yes Bank in this case. Therefore, no adverse inference can be drawn of the point strenuously put forth by the Revenue that the originator has been the guiding force of the securitization process. Most of the infirmities/defects pointed out in the documents by the Revenue is mainly on the point that all the securitization transactions were carried out between 16.05.2008 and 20.05.2008 whereas the loan agreement was signed on 21.05.2008. The agreement between HPCL and Yes Bank was first signed on 15.05.2008, which provided that the standard format agreement will be signed. The standard format agreement was signed on 21.05.2008. All the procedures and documents related to the securitization process was carried out on 20.05.2008. The insistence of Revenue that only the standard format agreement has to be reckoned and not the agreement dated 15.05.2008 does not appear to be tenable. Even assuming that the agreement dated 15.05.2008 was only in the nature of a letter of intent, it cannot be disputed that the lender, Yes Bank had full knowledge of the loan and had disbursed the amount. Therefore, it is very likely that Yes Bank had initiated the securitiz....
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....s on Yes Bank loan to HPCL. The documents, though they may be having marginal mistakes, have to be accepted in order to give a legal framework to the flow of funds. 6.8.7 Considering the totality of the factual and legal matrix of the issue, as discussed above, we are inclined to hold that the learned CIT (A) was wrong in holding that the assessee trust was not a valid trust. In our considered view all the necessary ingredients for the formation and existence of the trust have been fulfilled and all these documents, processes and money trail cannot be disregarded, only due to the marginal mistakes in the clauses in the documents and also the timing of signing of these documents. Accordingly we hold that the assessee Trust is a valid Trust. 6.8.8 Consequently, this portion of ground of appeal No. 1 is decided in favour of the assessee by holding the assessee to be a valid trust. 7. Ground II: Holding the trust was not a revocable trust/contribution by beneficiaries was not a revocable transfer: 7.1 In this regard, the assessee has raised the following grounds of appeal:- a. On the facts and in the circumstances of the case and in law, the CIT (A) ....
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....upport its stand. It was submitted that Section 10.02 of the Trust Deed provides that the trust may be terminated with consent of all the beneficiaries, who are the PTC holders. Section 10.04 thereof provides that when the PTC holders unanimously agree and decide to transfer the receivables, the Trustee shall revoke the Trust at the request of the beneficiaries/PTC holders, and shall assign legal ownership in the receivables and in the Other Benefits to the PTC holders in the proportion in which the amounts payable to them under the PTCs held by each of them bears to the aggregate amount of all the receivables remaining outstanding at that time and thereupon the assessee shall stand extinguished and revoked. 7.3.3 It was submitted that these two sections in the Trust Deed show that the assessee Trust is a revocable trust and the income of the Trust would be chargeable to tax in the hands of the Beneficiaries. It was also submitted that the contributions by the PTC holders are revocable transfer as per section 63(a)(i) of the Act, as there is a provision for retransfer of the receivables, i.e. the income as well as the contributions made by the transferor/PTC holders. There....
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....submitted that there cannot be friendly or adverse provisions in law and any provisions of law should be applied to all the parties equally and not in favour of or against any party. If the law had intended to make such restriction, it is specifically provided. As no such restriction is provided in section 61 to section 63 of the Act, such a restriction cannot be read into these sections. Sections 61 to 63 of the Act and the wordings employed therein lay down absolute rules which have to be applied in all cases which come within the scope of these provisions irrespective of (a) who benefits (b) what is the reason for the transfer being dubbed as revocable (c) the intention of the parties (d) whether the circumstances which render the transfer revocable has actually taken place. Reliance for this proposition was placed on, inter alia, the decision of the Hon'ble Calcutta High Court in case of Tarunendra Nath Tagore v. CIT[1958] 33 ITR 492 and few more judicial pronouncements. 7.6.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the Bangalore Bench of ITAT, in the ....
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....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 aspect pointed out by him was that the beneficiaries transfer funds to the trust in accordance with the terms of the trust deed and therefore there is a transfer within the meaning of Sec.61 of the Act. It was his contention that the Sec.61 talks of a specific p....
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....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 settler, 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 v. 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 by the legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public ....
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....f 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 75% of the Contributors. In addition, 75% of the Contributors, if unsatisfied with the performance of the Fund, by a writt....
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....enture, 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 Assessee that the AO has not disputed in his remand re....
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....r 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 v. P. Sekar Trust321 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 ben....
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....AR) held that if the trust deed sets out expressly the manner 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.' 7.6.4 From an appreciation of the above extracted paragraphs of the decision of the Bangalore Bench of ITAT in India Advantage Fund - VII (supra), in our v....
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....sets. c. The Appellant prays that it be held that the income of the Trust is divested at source by overriding title and is not chargeable in the hands of the trust." 8.2.1 In this ground, the assessee's contention is that the amounts received by the assessee from Yes Bank under the Deed of Assignment dated 20th May, 2008 are diverted at source by an overriding title to the PTC holders (Mutual Funds) and therefore the amount of Rs. 21,49,72,486/- handed over to the assessee and paid to the PTC holders in proportion to their respective investments is not income of the assessee for the A.Y. 2009-10. It was submitted that 'irrespective of whether the assessee is regarded as a 'Trust' or an 'AOP' the doctrine of diversion at source by overriding title will apply so as to render the amount as not being taxable as the assessee's income. 8.2.2 The assessee submits that there is a diversion of income by overriding title for the following reasons:- (i) "Series A1/A2/A3 Pass Through Certificate" is defined in the Trust Deed as evidencing an undivided share in the right and the beneficial interest of the holder in the Trust Proper....
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.... 10, pg. 34 of the impugned order). It is argued that having accepted in substance the submission on "diversion", the learned CIT (A) did not take the matter to its logical conclusion; but instead held that diversion by overriding title cannot take place by voluntary act of parties. In support of the propositions/arguments put forth assessee relied on the following judicial pronouncements wherein it was held that overriding title can be created by voluntary act of parties:- (i) CIT v. C. N. Patuck[1961] 71 ITR 713 (Bom.) (ii) Rajkot District Gopalak Co-op. Milk Producers' Union Ltd. v. CIT [1993] 204 ITR 590/[1994] 77 Taxman 346 (Guj.) (iii) CIT v. Tollygunge Club Ltd. [1977] 107 ITR 776 (SC) (iv) CIT v. A. Tosh & Sons (P.) Ltd. [1987] 166 ITR 867/30 Taxman 516 (Cal.) (v) CIT v. Raja Ram Jaiswal[1992] 195 ITR 834/[1991] 57 Taxman 225 (All.) 8.3 Per contra, the learned senior standing counsel for Revenue, relying on various judicial pronouncements, emphatically contested the assessee's claim of diversion of income by overriding title. It was submitted that the interest income is received by the assessee and then the same ....
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....ility of income and reilied on the decision of the Hon'ble Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. v. CIT[1971] 82 ITR 363. 8.4.2 The Learned Senior Counsel for the assessee sought to distinguish, as not applicable, the decisions cited by Revenue, as under:- (i) CIT v. Sitaldas Tirathdas[1961] 41 ITR 367 (SC) - (Department's paper book, Vol. II - Exhibit 22 - pg. 199) It is argued that in the cited case an overriding charge was not created whereas in the case on hand, a charge has been created on the property and income of the assessee and therefore the cited case is not applicable. (ii) Moti Lai Chhadami Lal Jain (supra) It was held that a charitable trust had been created and there was diversion of income unlike in the first transaction where a part of the rent payable to the lessor was to be paid to a trust. This case is factually different and accordingly not applicable. (iii) Provat Kumar Mitter v. CIT[1961] 41 ITR 624 (SC) The facts in the case on hand are clearly different from the cited case, as the PTC holders have an undivided proportionate interest in the asset i.e. the receivable and ha....
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....e clauses in the various documents to press home the point that there was diversion by overriding title. It was submitted that the recitals in the recital "A" of the Deed of Assignment states clearly that the PTC's represent undivided interest of the holder of the PTC in the receivables. The Deed of Assignment is the first document in the securitization process and since the undivided interest of the PTC holder is indicated in that document, we find that there is merit in the argument that the ultimate recipient was always intended to be the PTC holders and there was a charge in favour of them. Further, the PTC is defined in the trust deed as evidencing an undivided share in the right and the beneficial interest of the holder in the trust property; in this case, the loan and interest thereon (i.e. the receivables). 8.5.2 Even otherwise, the scheme of securitization is so devised that, by definition, the funds are to travel to the PTC holders. PTC is defined as an instrument issued by a SPV (the assessee in this case) which possessed any receivable assigned to the assessee and acknowledging the beneficial interest of the investors in the receivables. In the context of e....
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....oint enterprise but have made investments in the Trust individually; and ii. The fact as to whether one Mutual Fund knows which other Mutual Funds are the beneficiaries under the Trust is not decisive of the legal relationship and a mere co-investor or co-beneficiaries cannot be regarded as having formed an Association of Persons in law. c. The Appellant prays that it be held that the Appellant is not an "AOP." ' 9.2.1 Revenue's main contention on this issue is that all the players in the securitization process have acted together and in unison and have carried out an adventure in the nature of trade to earn income, which is in the nature of "business". Therefore, all the stake holders have to be assessed together as "AOP". 9.2.2 According to the learned Senior Counsel, the assessee cannot be treated as an AOP, both on facts of the case and in view of the judicial pronouncements rendered in this regard. The gist of the assessee's submissions on the facts of the issue are as under:- (i) An AOP is constituted when people join in common purpose or common action, the object of which is to produce common income, profits and gains.....
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....n entity which is authorized to do securitization activity. In support of the arguments urged above, reliance was placed, inter alia, on the decision of the Bangalore Tribunal in the case of India Advantage Fund VII (supra) and a few other judicial pronouncements. 9.2.3 Submissions were also put forth by the learned Senior Counsel on the implications of holding the assessee to be AOP and not a trust, to press home the point that it cannot be an AOP:- (i) The alleged AOP would not have any income as the Deed of Assignment has not been entered into by the AOP. The Deed of Assignment has been entered into by the ITCL as trustees of the assessee Trust, it cannot be regarded as having been entered into by the AOP. (ii) Interest has been received by the assessee Trust for being made over to the PTC holders and the same cannot be said to have been received by the AOP. (iii) There is no authorisation from the members of the AOP in favour of the Trustees to Act on their behalf and, therefore, there is no question of the alleged AOP having any taxable or even non-taxable income does not arise. 9.3 Per contra, the main contention advanced by learne....
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.... 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 purchased the PTCs separately and not together by a concerted action to earn income jointly. We find that the various averments made by the learned counsel for Revenue that there has been some concerted and coordinated action on the part of the beneficiaries in completing the securitization process, has not travelled beyond the stage of suspicion and surmise and therefore in our view Revenue has not discharged the onus of establishing the existence of an AOP in the case on hand. Even otherwise, since we have already held that the assessee trust is a valid trust, the controversy regarding treating the assessee as AOP does not arise. Consequently, this ground No. IV raised by the assessee is allowed. 10. Ground V: Invalidity of assessment and the confirmation by the CIT (A) 10.1 The assessee has raised the following detailed grounds:- "a. The CIT (A) having held that the AOP is constituted by Yes Bank Limited (originator), the Seven Mutual fund ....
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.... 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 characterized as AOP, but held that the AOP shall have nine members namely, seven Mutual Funds (Beneficiaries), ITCL (Trustee) and Yes Bank (seller). In this regard, the assessee contends that an AOP of eight members is different from an AOP of nine members. Since the original order made by the AO was on an AOP of eight members, the order passed by the AO becomes invalid and the CIT (A) ought to have cancelled/struck down the original order made by the AO as invalid and bad in law. In this regard reliance is placed in the case of CIT v. Ashok Kumar Bharati & Vijay Kumar Goel[2006] 282 ITR 496/[2005] 149 Taxman 247 (All.) where a notice was issued to an AOP said to consist of three members the assessment made on an AOP of two members was held to be illegal by the Hon'ble Allahabad High Court. 10.2.4 The assessee further submits that having made the assessment on the AOP, the AO in the assessment orde....
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....rned 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, the questions raised in this ground as to whether or not the assessee being assessed as an AOP comprising of eight or nine members is valid is now only of academic interest. In these circumstances, as narrated above, we are of the view that since we have held the assessee to be a valid Trust, there is no question of the assessee being assessed in the capacity of an 'AOP', and therefore there is no requirement for adjudicating this ground No. V as the same has been rendered infructuous and is accordingly dismissed. 11. Ground VI: Enhancement of Income 11.1 Assessee has raised the following grounds in this connection:- "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. b. The CIT (A) erred in holding that income by way of intere....
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....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, in the case of E.D. Sasson & Co. Ltd. v. CIT[1954] 26 ITR 27, held that when an instrument or an agreement stipulates interest to be payable on a specified date, interest does not accrue to the assessee on any date prior thereto. In view of the above, it is the contention of the assessee that the income accrued only when there was a right to receive the income, as mentioned in the Deed of Assignment, namely on 1st April, 2009 for the month of March, 2009. 11.3.1 Per contra, the learned senior standing counsel for Revenue countered the submissions of the assessee, by referring to para 3.5 of the Loan Agreement, wherein it is stated that interest has to be computed on number of day basis using 365 days as a year basis. He urged that this clause implies that the ....
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....t 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 therefore interest received is not taxable in the hands of the assessee. Hence the issue relating to accrual of income and consequential enhancement of income made by the learned CIT (A) are only be academic in nature. 11.5.2 Even otherwise, after having heard the rival contentions and perused and carefully considered the submissions, including the judicial pronouncements cited we find that the dispute before us is essentially on the interpretation of the relevant paragraph 3.5 of the Loan Agreement. Para 3.5 of the Loan Agreement states that interest has to be computed on number of day basis using 365 days as a year basis. The above wordings cannot be stretched to mean that the interest has to be charged on day to day basis. Also, ....
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....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 indicated above. 16. Revenue's appeal in ITA No. 4343/Mum/2013 for A.Y. 2009-10 16.1 In this appeal, Revenue, after raising and withdrawing of the grounds of appeal on a number of occasions have finally raised the following consolidated grounds of appeal:- "Consolidated grounds of appeal 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing deduction of Rs. 20,61,55,3101- in computing the taxable income ignoring the following facts: (a) When the assessee had not claimed deduction of any such expenditure either in the return filed u/s. 139(1) of the Act or rev....
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....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 did not arise before the lower authorities but arose before it from the facts as found by the lower authorities and having a bearing on the tax liability of the assessee. The said decision of the Hon'ble Supreme Court was rendered in a case where the additional ground was filed by the assessee, however, the ratio of the judgement is equally applicable in a case where the department filed additional grounds. The Hon'ble Supreme Court in the case of Jute Corporation of India Ltd.187 ITR 688 held that the Act does not contain any express provision debarring an asse....
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....ld 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 placed on record its objections to admission of the aforesaid additional grounds raised by Revenue. It has, inter alia, pointed out in tabular form the sequence of filing, withdrawing, modifying and re-filing of additional grounds as under:- "Insofar as the Revenue's appeal is concerned they have at different stages taken contradictory stands, withdrawn grounds and sought to re-insert the same, raised additional grounds raised and withdrawn, sought to modify additional grounds, etc. This shows complete non-....