TaxTMI 
TaxTMI 
2023 (1) TMI 1485
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....wing the binding Jurisdictional Bombay High Judgement in the Appellant's own case with respect to its taxability of income. On the facts and in the circumstances of the case and in the law, the Ld. AO erred in passing the final order and the Ld. DRP grossly violated the principles of judicial discipline by not following the binding Jurisdictional Bombay High Court judgement dated 28 October 2021 in the Appellant's own case in respect of taxability of income earned by the Appellant from its investments made in India. 2. Ground No. 2: The Appellant is a valid trust and is subject to the provisions of the Income-tax Act, 1961 ('Act'). Without prejudice to ground 1, on the facts and in the circumstances of the case and in law, the Ld. AO erred in passing the final order and the Ld. DRP erred in upholding the draft assessment order passed by the Ld. AO which held that the provisions of the Act are not applicable to the Appellant. In doing so, the Ld. DRP failed to appreciate that: (a) the Appellant is a valid trust and fulfils the conditions of a trust both as envisaged under the Indian Trusts Act, 1882 and the Trusts (Jersey) Law....
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.... assessee of ADIA, tax can be levied on the Trustee only in the like manner and to the same extent as would have been leviable upon and recoverable from ADIA (b) Accordingly, by the virtue of the provisions of section 161 of the Act read with the provisions of Article 24 of the India-UAE Treaty, no tax is leviable in the hands of the Trustee (ETJL) 5. Ground No. 5: On the facts and circumstances of the case and law, the Ld. AO erred in levying interest under section 234B of the Act amounting to Rs. 5.53,08,325- Without prejudice to ground to 4 above, on the facts and in the circumstances of the case and in law, the LA. AO has erred in computing interest under section 234B of the Act amounting to Rs. 5,53,08,325 6. Ground No. 6: Initiating penalty proceedings under section 271(1)(c) of the Act On the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. 7. Ground No. 7: Short Grant of TDS credit amounting to Rs. 43,43,533 On the facts and in the circumstances of the case and in law, the LA AO has erre....
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....ssing officer observed that the writ petition was still not admitted before the Hon'ble High Court, therefore, in accordance with ruling of AAR the assessing officer taxed the interest income as per Sec. 115AD of the Act. 4. Against the draft assessment officer the assessee has filed its objections with the DRP-1, Mumbai on 28.09.2021 in the prescribed form 35A. Before the DRP assessee vide letter dated 25.01.2022 referred the decision of the Hon'ble Bombay High Court dated 28.08.2021 on the writ petition filed by the assessee against the ruling of AAR dated 18.03.2022. The Hon'ble Bombay High Court held that the income earned by GMT assessee trust is not chargeable to tax in India either by virtue of application of Section 61 r.w.s 63 of the Act or an application of Sec. 161 of the Act, conjointly with the provision of Article 24 of the India-UAE Tax Treaty. Since, the Hon'ble Bombay High Court has quashed the ruling dated 18.03.2022 of AAR, therefore, assessee submitted before the DRP to set aside the draft assessment order passed by the assessing officer. Before the DRP the assessee also submitted that income of the trust is taxable in the hands of the trustee in the same and....
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....of the assessee by the decision of Hon'ble jurisdictional Bombay High Court in the case of the assessee itself vide writ petition no. 709 of 2021 dated 12.11.2021. On the other hand, the ld. D.R supported the order of the lower authorities. 10. With the assistance of the ld. Representative we have gone through the order of the Hon'ble High Court as supra. The relevant operating part of the order is reproduced as under: "We do not agree with the conclusions arrived at by AAR. 24 As regards to the reasoning given by AAR that the trust is registered in jersey, there is no treaty between India and Jersey and Section 61 and 63 of the Act would apply only to those trust which fall under the Indian Trust Act 1882, it has to be noted that Shri Kotangale himself agreed that there is no provision in the Act which provides that these provisions shall apply only to Indian Trust. Section 61 of the Act provides that any income arising to any person by virtue of revocable transfer shall be chargeable to tax as the income of the transferor. The Deed of Settlement and particularly clauses from the Deed of Settlement quoted earlier, show that there is a revocable transfer by ....
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....r the Act or General Clauses Act, 1897. The word trust has to be interpreted as per its general meaning. The trust is defined under Section 3 of the Indian Trust Act to be an obligation annexed to the ownership of the 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. A trust can be an Indian Trust or a Foreign Trust. There is nothing in Sections 61 and 63 of the Act to restrict its applicability only to trust settled in India and, therefore, one cannot rule out their applicability to a Foreign Trust. Even if the definition of the trust under the Indian Trust Act can be held to say that it does not cover 'The Trust', i.e., Green Maiden A 2013 Trust, still the word trust in Section 63 covers all trust within its ambit. Hague Trust Convention referred to by AAR does not decide the issue one way or the other. There is nothing to even suggest in the ruling of AAR as to how the ratification of Hague Trust Convention would affect the status of Foreign Trust in India. If we accept what AAR has opined that Foreign Trust can be recognised in India only if and after India rati....
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.... all the Act does not make any such provision. Secondly, there is no provision under the Indian Trust Act also which debars the settlor from being beneficiary. In the case of Bhavna Nalinkant Nanavati (supra), the settlor of the trust was also the sole beneficiary in the Deed of Settlement. The Gujarat High Court, while interpreting Section 3 of the Indian Trust Act observed as under: ................. "The ownership of trust property has to be for the benefit of a person or more than one person of whom the settlor may himself be one but never for the benefit of an owner alone, viz the trustee. There cannot be a case where the creator of the trust would also be the trustee and also the sole beneficiary, because in such cases a man cannot enforce a trust against himself." Thus, it follows that the settlor cannot be the trustee and sole beneficiary. In the present instance, the settlor is not the trustee but is the sole beneficiary which is clearly permissible. 28 As regards AAR's view that Sections 60 to 64 are designed to overtake and circumvent the counter design by a taxpayer to reduce its tax liability by parting its property in such a way tha....
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...., the Deed of Settlement dated 22nd July 2013, whereby the trust was set up, contained specific clauses which established the revocable nature of the trust. As the ADIA has settled the trust on the terms mentioned in the Deed of Settlement, the contribution made by it to the trust would be a transfer as defined in Section 63 of the Act. As Section 63 does not anywhere specify that a trust covered by it must necessarily be a trust falling under the Indian Trust Act 1882 and as per Section 63(b) of the Act, any settlement or trust is included within the meaning of 'transfer' and Section 63(b) does not provide that the trust described therein needs to be an Indian Trust, the provisions of Sections 61 to 63 of the Act are applicable to the case at hand. As the term 'trust' is not defined either in Section 63 or Section 2 of the Act 'trust' would clearly be a trust as one understands the term in its common parlance. Even if one has to have recourse to the definition of the term "trust" in Section 3 of the Indian Trust Act 1882, i.e., an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owners, or declared and accepted by him,....
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.... be attracted. Even if for a moment we say that for any reason the provisions of Section 61 are not applicable, then also the trustee can only be assessed in a representative capacity and, accordingly the provisions of Section 160(i)(iv) will be applicable. Therefore, even if the income is taxed in the hands of the trustee in terms of Section 161(1), it will be taxed in the "like manner and to the same extent" as the beneficiary. Once again, ADIA is the sole beneficiary of the trust, the income assessed in the hands of the trustee will take colour of that of ADIA's income and thereby, the benefit of India-UAE DTAA must be granted. 33. As there is no bar to the settlor and beneficiary being the same person and in view of the judgment in Bhavana Nalinkant Nanavati (supra) where the court has interpreted Section 3 of the Indian Trust Act, 1882 as creating a fiduciary relationship between the trustee and the beneficiary, where the ownership of the trust property has to be for the benefit of another person which can include the settlor himself, if one reads Sections 61 and 63 of the Act, it is quite clear that Section 61 is independent of Section 63 of the Act and a transfer ca....
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....t aside the final order passed by the assessing officer. Accordingly, ground of appeal no. 1 to 4 of the assessee are allowed. 13. Ground No. 5 relating to levy of interest u/s 234B is consequential, therefore, the same is not required any adjudication the same stand dismissed. 14. Ground No. 6 relating to initiating of penalty under provision of Sec. 271(1)(c) is premature at this stage, therefore the same stand dismissed. Ground No. 7 relating to short grant of TDS credit amounting to Rs. 43,43,533/- : 15. After discussion with both the parties we restore this issue to the file of the assessing officer for deciding afresh after verification of the relevant material on record. Therefore, this ground of appeal the assessee is allowed for statistical purposes. Ground No. 8: Not grant of refund: 16. After discussion with both side this issue is also restored to the file of the assessing officer for deciding afresh after verification of the relevant material on record. Therefore, this ground of appeal is also allowed for statistical purposes. 17. In the result, the ground of appeal no. 1 to 4 are allowed and ground no. 5 & 6 are dismissed ....