TaxTMI 
TaxTMI 
2020 (10) TMI 613
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the section 167B of the IT Act is applicable on the assessee instead of section 164 (1) of the IT Act b) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact that in this case investors/ contributors are also the beneficiaries and at the date of creation of trust, beneficiaries were not identifiable. (c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact of the Circular, No. 13/2014, in which board has clarified that the trusts which are non-charitable trusts where the investors name and beneficial interest are not explicitly known on the date of its creation - such information becoming available only when the funds starts accepting contribution from investors, hfwe to be treated as falling within section 164 (l) of the Act and the fund should be taxed in respect of the income received on behalf of the beneficiaries at the maximum marginal rate. 2. a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 1,04,37,543/ - o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td. 0.3% 19. Rajasthan Financial Corporation 0.1% Total Non-sponsors Shareholding (B) 54% Total Shareholding (A+B) 100% On a perusal of the records, it was observed by the A.O that the assessee was created under the guidelines of the Reserve Bank of India for fast recovery of Non-Performing Assets of the Banks/FIs and principally derived income from Asset Reconstruction Activity and handling of Non-Performing Assets of Banks/financial institutions. As the assessee had receipts of Rs. 3.66 crores on account of sales made during the year on which no tax was paid, the A.O therefore called upon it to explain as to on what basis the said receipts were claimed as not exigible to tax. Further, the assessee was called upon to explain as to under which head of income the receipts generated by it during the year under consideration would fall. Also, the assessee was called upon to put forth an explanation as to why its income may not be taxed in the hands of the trust/AOP. In reply, it was submitted by the assessee as under: "....The Trust is created by the assets reconstruct/op Company namely ISARC for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bank of India. 4. We need to draw your kind attention to the fact that ours is an asset reconstruction activity to handle non-performing assets of banks and /Financial Institutions as opposed to standard assets, for which Securitization Companies- Trusts are being created. ISARC Trust is created to handle/liquidate the non-performing assets, to' help bank/Fl,: under the guidance of Reserve bank of India. 5. Our Trust is a revocable trust, We invite your attention to Clause 5.2.1 of the Trust Deed, a copy of which is already furnished to you. Clause 5.2.1 reads as under: The Security Receipt Holders shall be entitled to revoke the Contributions made by them, at any time during the term of this Deed, in accordance with the terms and, conditions contained herein, for any reason, including but not limited to circumstances resulting from any adverse tax consequences(for the Trust or the Security Receipt Holders) or any direction of any Statutory Authority, provided that no such revocation shall take effect unless the consent of the Security Receipt Holders holding' Security Receipts representing not less than 7591o' of the total face valu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entity and as such the receipt of Rs. 3.66 crores' as stated in your letter to be sales proceeds of financial assets, is not at all an income of the Trust. 11. In fact the said receipt of Rs. 66,30,005/- is the sales proceeds/ recovery of the financial assets (non-performing assets taken over from banks) over the two years period i.e. 2011-12 and 2012-13. The Purchase Consideration for the financial assets ('non-performing assets taken over from banks) were Rs. 27,92,04,000/-. 12. During the year.2011-12 the Trust had realized Sum of R. 32, 00, 000/- and for which the Trust had paid Recovery Commission of Rs. 1,32875/- in the year 2011- 12 apart from trust management fees paid to Asset. Management Company namely India SME Asset Reconstruction Company Limited a sum of Rs. 35,53,409/-. Further, you must consider the fact that the trust had Incurred other expenses of Rs. 6,54,458/- during the year 2011-12, the details of which have already been furnished to you under the cover of our letter dated 22/07/2015. 13. Similarly, for the year 2012-131 the Trust had realized a sum of Rs. 3,34,30,005/- and for which Trust had paid Recovery Commission....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssignment/offer document on 28.06.2011 for the sole purpose of taking NPAs for sale at a profit. Such an entity can be at best be classified as an AOP created jointly by several persons for earning profits. 3. Capital contribution is a revocable transfer by the transferors, but the income 'arising out of the activities of the fund is an ascertained income and the contributors have no control over it, and in the strict sense of the terms, the provisions of section 61 & 63 of the Act are not applicable to the assessee's case. 4. The Clause relied Upon by the assessee makes it clear that individual contributors cannot revoke their contribution on their own and revocation can occur only if the contributors holding 75% of the units consent together, then only can the contributions be revoked. Such restrictions point out to the fact that the entity is not a 'revocable trust'. The members lack any direct power or revocation under the instrument of transfer. 5. Any claim of assessee to the effect that the income has been taxed in the hand of the beneficiaries would not help. Income has to be taxed in the right hands, at the right rates of taxation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017, wherein identical facts were involved, therein concluded that the A.O had rightly assessed the income of the assessee in the status as that of an AOP, i.e at the maximum marginal rate. 4. As for the quantification of the income of the assessee was concerned, it was observed by the CIT(A) that the A.O had assessed the total income of the assessee at Rs. 2,73,71,372/- as against the nil income declared by it. On a perusal of the assessment order, it was observed by the CIT(A) that the A.O had computed the income of the assessee by considering the receipts of Rs. 3,34,30,005/- on liquidation of NPAs and the expenses to the tune of Rs. 60,58,633/- as shown in the profit & loss account. As noticed by the CIT(A), the assessee had submitted that it was a pass through entity, and thus, the receipts had to be first applied towards the redemption of the SRs of the investors who had funded the acquisition of the NPAs, and also, to meet the expenses and management fees. As such, it was the claim of the assessee th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....there was no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil. 5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal it was submitted by the ld. Authorized representative (for short "A.R") for the assessee, that the issues involved in the present appeal were squarely covered by the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & others, vide order dated 04.09.2019 (copies placed on record). As a perusal of the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & Others revealed, that both the assessee and revenue had assailed the order of the CIT(A) before the Tribunal, therefore, a query was raised by the bench to the ld. counsel for the assessee that as to whether any cross-appeal was filed....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ii) Upside income should be recognized only after the full redemption of Security Receipts. (iii) Management fees may be recognized on accrual basis..........." As observed by the CIT(A), his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order dated 08.02.2017 passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, had after drawing support from the aforesaid RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014 observed, that the income of the assessee before him was to be assessed at Rs.nil, for the reason, viz. (i) that the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of Rs. 3.12 crores to tax; and (ii) that there was no 'upside income' accrued to the assessee during the year. Accordingly, the CIT(A) was of the view that in the present appeal before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2013 amounting to Rs. 24.26 crores. Further, it was noticed by the CIT(A) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uestion, therefore, its income was to be assessed at Rs. Nil. In fact, we find that the issues raised by the revenue in te present appeal before us are squarely covered by the consolidated order passed by the Tribunal in the case of M/s. ISARC 14/2010-11 Trust & others, vide its order dated 04.09.2019, as had been relied upon by the ld. A.R before us. (copies placed on record). To sum up, we uphold the view taken by the CIT(A), to the extent he had concluded that as there was a shortfall of recovery over purchase consideration till 31.03.2013 of Rs. 24.26 crores, and there was also no receipt of management fees as per the profit and loss account, hence no upside income could have been recognized in the hands of the assessee in terms of the guidelines laid down in the Circular No. RBI/2013-14/571 DNBS (PD) CC No.38/SERC/26.03.002/2013-14,dated 23.04.2014, issued by the RBI, therin providing the Uniform Accounting Standard for revenue recognition for ARCs, and also in the backdrop of the view taken by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern, for A.Y.2012-13, vide his order dated 08.02.2017 passed in Appeal No. CIT(A)-32/IT-211....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cognition by ARCs, which read as under (relevant extract): "Revenue Recognition i). Yield should be recognized only after the full redemption of the entire principal amount of Security Receipts. ii). Upside income should be recognized only after the full redemption of Security receipts. iii). Management fees may be recognized on accrual basis....." It was observed by the CIT(A) that the facts involved in the appeal of the present assessee for the year under consideration i.e A.Y. 2014-15 remained the same as were there before his predecessor in its own case for A.Y. 2012-13, that was disposed off by his predecessor vide his order passed in appeal no. CIT(A)-32/IT- 211/23(1)(2)/2015-16, dated 08.02.2017. Accordingly, relying on the aforesaid order of his predecessor, and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the CIT(A) concluded that in the case before him no upside income could be recognized in the hands of the assessee company as there was a shortfall of recovery over purchase consideration till 31.03.2014 of Rs. 1/-. Also, as observed by the CIT(A), there was no receipt of ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CIT(A). It was observed by the CIT(A) that the issues involved in the appeal before him were covered by the order that was passed by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order dated 08.02.2017 in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16,, wherein it was held that assessee's income was to be assessed at Rs. Nil for the reasons viz.(i) that the A.O had not considered the purchase consideration while bringing the realisation (net of expenses) during A.Y. 2012.13 of Rs. 0.59 crore to tax; and (ii) that there was no 'upside income' accrued to the assessee during the year. Also, the CIT(A) relied on the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, which laid down the Uniform Accounting Standard at ARCs for recognition of revenue. Relying on the aforesaid circular, it was observed by the CIT(A) that ARCs recognised the upside income only after full redemption of security receipts. Observing, that as in the case before him there was a shortfall of recovery over purchase consideration till 31.03.2014 of Rs. 2,54,23,611/-, the CIT(A) was of the view that....