TaxTMI 
TaxTMI 
2022 (3) TMI 566
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....DPS024-I. The said Trust is registered under section 3 of the SARFAESI Act, 2002 by Reserve Bank of India. The trust has the following partners /members /shareholders. S. No. Name of share holders Percentage of equity shares held 1. Asset Reconstruction Company (India) Ltd., 30.07% 2. Oriental Bank of Commerce 69.93% Total Shareholding 100% 3. The assessee has been 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 Securitization/Reconstruction of Asset. The claim of the assessee is, it is a pass through entity (Trust) and the income is not taxable in its hands. However, the Assessing Officer treated assessee as an Association of Persons (AOP) and taxed the income in the hands of the assessee. Against the above view, the assessee has made detailed submissions before the Assessing Officer and the summary is as under: - "a) ARCIL is registered with RBI under section- 3 of the SARFAESI Act, 2002 as a Securitisation Company and Reconstruction Company (SR/RC or ARC). SR/RCs are regulated by RBI. ARCIL declares the trusts and acts as a trustee of the trust in pursu....
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....here are two members (shareholders) in the Trust who has contributed the funds towards its capital. As per trust deed, ARCIL-SBPS024-I Trust has been appointed as a Settlor as 63 well as trustee also c) The Indian Trusts Act. 1882 defines 'Trust as an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him, for the benefit of another or of another and the owner. The fundamental principle of a trust is that the Trustees of the Trust act in a fiduciary capacity for the benefit of the beneficiaries. In an ideal condition, Trusts are created by a settlor and the settlor ought to contribute its assets/property in the Trust called the trust property for the benefit of the persons, referred to as beneficiaries. Here, there is no trust property to which the trustee needs to manage. A trustee is appointed to manage the affairs of the trust. d) In the case of a real trust, the three constituents i.e. Settlor, trustee and beneficiaries would never be the same persons. In the instant case, the settlor and the beneficiaries are the same and identical, e) A Trust has three constituents i.e Sett....
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....rust. m) The claim of the 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 the taxation. The sums earned by the assessee on account of various investment/activities has been shown as its income, hence it is rightly and appropriately taxable in its own hands and the trust is legally bound to include the same in the computation of income. n) The assessee has not established. that the income earned by the beneficiaries have been offered for taxation by each of the beneficiaries in their respective return of income at the correct rates. o) Even if it is presumed that the assessee is a representative assessee not liable to be taxed in view of the provisions of section 161(1). However, in view of the provisions of section 161(1A), the same is liable to be taxed in the hands of the assessee at maximum marginal rate. p) The trust deed shows that the shares of the beneficiaries are not mentioned and hence section 164 will get attracted for the reason that the beneficiaries are not identifiable. Hence assessee would be assessed at maximum marginal rate. q) Benefici....
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....ideline permit creation of trust, it cannot be said as smokescreen f) Entire arrangement of securitization is under the observation of the Central Govt. g) The validity of the trust formed pursuant to RBI guidelines on Standard assets has also been upheld by ITAT, Mumbai in case of Indian Corporation Loan securitization Trust -2006 series 14 [ ITA NO. 3986/Mum/2013] h) The SR holders are entitled to revoke contribution made by them. Relevant clauses [5.1 & 5.2] were reproduced. i) Section 61 to 63 does not say that right to revoke should be without any conditions. In support of this view, relevant para of decision of the ITAT, Mumbai in case of Indian Corporate Loan Securitization Trust-2008 series 14 [ITA NO. 3986/Mum/2013] was reproduced. The ITAT while reaching the above conclusion relied on the decision of the Bombay High Court in case of Behramji Sorabji Lal kaka vs. CIT 16 ITR 301 wherein it was hold that even if the transfer is conditionally revocable, the income still needs to be taxed in the hands of the transferor as long as transfer is revocable, The ITAT, Mumbai had also drawn support from the decision of Bangalore Bench of ITAT in case of India Advantage Fund V....
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....is clear that there is no prohibition in the Trust Act on the; settlor becoming beneficiary. Hence, the AO is wrong in holding that the appellant trust is not a valid trust since contributors and beneficiaries are the same. b) The Appellant Trust has been set up under SARFAESI Act following guidelines of RBI. Therefore, its validity is beyond doubt. c) In this regard, I find that the reliance of the appellant on the decision of Hon'ble Karnataka High Court and Bangalore ITAT in case of DCIT vs India Advantage Fund - VII (supra) is in order. d) I agree with the contention of the appellant that section 61 to 63 does not in any manner imply that the right of revocation should be without any conditions. In the instant case, in terms of Clause 5.2.1 and 5.2.2 of the trust deed, the contribution made by the SR holders is "revocable" as the power of re-assumption or re-transfer of the assets or income is retained by the SR holders. e) The Ld. AR has relied upon Hon'ble Bombay High Court judgment in the case of Behramji Sorabji Lalkaka v CIT 16 ITR 301 where Hon'ble jurisdictional High Court held that even if the transfer is Conditionally revocable the income still need....
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....ansfer all the provisions of the relevant Financing Documents and the Assignment Agreements shall apply mutatis mutandis to the Security Receipt Holders or their designee, and the Security Receipt Holders or their designee shall be entitled to all rights and remedies of the Trustee and shall be obliged to perform all its duties and obligations under the relevant Financing Documents and the assignment Documents and the assignment Agreements. as if the Security Receipt Holders or their designee were party to the Financing Documents and the Assignment Agreements as the date thereof. g) The above clauses of the trust deed make it clèar that the contribution made by the SR holders is "revocable" and hence the income needs to be taxed in the hands of the SR holders as per the provisions of section 61 to 63 of the LT. Act. Moreover, I find that the decision of Hon'ble Mumbai Tribunal in the case of Indian Corporate Loan and Securitisation Trust- 2008 Series 14 in ITA no. ITA Nos. 3986 & 4343/Mum/2013 dated 17.02.2017 is fully applicable to the facts of the instant case. Even the decision of DCIT vs India Advantage Fund VII (supra) will be applicable to the facts of the appell....
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....aforesaid facts and findings, the appellant is held as revocable Trust and not an AOP and in view of provisions of Section 61 to 63 of the Income Tax Act, it is held that the income is not taxable in the hands of the appellant but the same is taxable in the hands of the contributors. The grounds are allowed. 8. Ground No.2 of the appellant is on account of non-grant of TDS The said ground is reproduced as under The learned AO has erred in not granting the credit of TDS claimed in the Return of income." 8.1 In this regard, the AO is directed to allow TDS credit after verification as per law. 9. In result, appeal of the appellant for A.Y.2013-14 is allowed." 7. Aggrieved revenue is in appeal before us raising following grounds in its appeal: - "1. Whether on the facts and in circumstances of the case and in law, the Ld.CIT (A) erred in changing the status of assessee as "Trust" and not an "AOP" and allowing expense of Rs. 9,84,49,330/- which was made by the assessee for protection, preservation, insurance expenses and management fees from such investment activity upon redemption of the principal amount of Security Receipts (SR)" 2. "Whether on the facts and in circumstan....
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....reproduced in Page No. 14 of the Assessment Order and submitted that the assessee is a taxable AOP and not a trust as pleaded by the assessee. Therefore, this issue is fall u/s. 61, 62 and 63 of the Act does not have any merit. He also supported the finding of the Assessing Officer that the trust is indeterminate nature and section 164 is applicable in the case of the assessee. In conclusion, he brought to our notice the summary of arguments made by the Assessing Officer in the Assessment Order and he heavily supported the finding of the Assessing Officer. He brought to our notice Page No. 10 of the Ld.CIT(A) order and vehemently argued that Ld.CIT(A) has come to wrong conclusion and therefore he submitted that First Appellate Order maybe set aside. 10. On the other hand, Ld. AR of the assessee brought to our notice Page No. 7 of the Ld.CIT(A) order and supported the finding of the Ld.CIT(A). Further, he brought to our notice decision of the ITAT Mumbai Bench in the case of ITO v. M/s. Scheme A1 of ARCIL CPS 002 XI Trust in ITA.No. 2293/Mum/2018 dated 10.09.2020. Further, he brought to our notice facts of M/s. Scheme A1 of ARCIL CPS 002 XI Trust (supra) case and the assessee's ca....