AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2024 (6) TMI 1542
X X X X Extracts X X X X
X X X X Extracts X X X X
....16-17 ITA No.3050/Mum/2023 Order dated 05/07/2023 passed by learned CIT(A) for the assessment year 2016-17 2. In the present appeals, the assessee are in the business of Asset Reconstruction - securitization of debts and processing of such debts of banks and institutional lenders. The assessee are created by Assets Reconstruction Company India Limited ("ARCIL") for the purpose of liquidating/recovering/realizing the Non-Performing Assets ("NPAs"), taken over by the assessee. ARCIL is a registered with Reserve Bank of India u/s 3 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") as a Securitization Company and Reconstruction Company ("ARCs"). ARCs are regulated by the Reserve bank of India. Pursuant to SARFAESI Act and RBI Guidelines, ARCIL acquires financial assets that are classified as NPAs from the banks, financial institutions and housing finance companies operating in India. The concerned bank/financial institutions, which intend to transfer the financial assets to ARCs, must ensure that the same are classified as NPA in accordance with the guidelines of RBI in this regard. Accordingly, ARCIL a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d in the strict sense of the terms, the provisions of Sections 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. The sums earned by the assessee on account of various investment/activities has been shown as its income, therefore, it is rightly and appropriately taxable in its own hands and the trust is legally bound to include in the same in the computation of its income." 4. We find that in all the assessment orders passed u/s 143(3) of the Act, in the present appeals before us, the assessee claim was rejected by the AO....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in arriving at conclusion that the contributories had paid taxes in their Returns with regard to the subject mentioned transactions with the assessee and hence, it is exonerated from its taxation." 7. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in ignoring the findings of AO on details of income offered by beneficiaries and non-production of taxes paid and failure to establish income derived from the Trust." 8. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has ignored the fact of the Circular No, 13/2014, in which CBDT 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, have to be treated as falling within section 164(1) 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." 9."On the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7/- (being 30% of amount as reflected in clause 21(B)(ii) of the Form 3CD at Rs. 1,40,559/-)." 8. We find that recently the Co-ordinate Bench of the Tribunal in the case of a Trust set-up by the ARCIL pursuant to provisions of SARFAESI Act and RBI Guidelines, in ARCIL Retail Loan Portfolio 004 B Trust Vs. ITO, in ITA No.256/Mum./2024, vide order dated 28/05/2024, for the assessment year 2016-17, after following the judicial precedents rendered on the similar issue observed as under: - "5. The Assessing Officer ("AO") vide order dated 26/12/2018 passed u/s 143(3) of the Act did not agree with the submissions of the assessee and held that in the present case, the beneficiaries in the assessee trust are the various QIBs who contributed funds in the trust and are also the beneficiaries. Thus, in the instant case, the settlor and beneficiaries are the same and identical. The AO further held that the trust has three constituents, i.e. settlor, contributor and beneficiary and all the three constituents are independent and distinct whereas in the present case, contributors are also the beneficiaries. Thus, so called trust has been created for the sole motive to the benefit of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....butors cannot revoke their contribution on their own land revocation can occur only if the contributors holding 90% 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. The sums earned by the assessee on account of various investment/activities has been shown as its income, therefore, it is rightly and appropriately taxable in its own hands and the trust is legally bound to include in the same in the computation of its income." 6. Accordingly, in view of the aforesaid findings, the AO computed the total income of the assessee at Rs. 1,64,98,960/-. 7. In its appeal before the learned CIT(A), the assessee placed reliance upon various decisions of the Tribunal, wherein in the case of similar trust created by ARCIL, this issue has been decided in favour of the assessee by treating the tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations we concur with the CIT(A) that the observations of the A.O that the assessee trust was not a valid trust, for the reason, that its contributors and beneficiaries were the same, clearly militates against the express provisions of the Indian Trust Act, 1882, and thus, cannot be accepted. As a matter of fact, we find that as observed by the CIT(A), all the necessary ingredients for the formation and existence of the trust had been fulfilled, and the RBI guidelines had duly been followed by the assessee trust. Interestingly, we find that in case the claim of the A.O that the assessee is not a valid trust and its creation was only a façade for evasion of taxes was to be accepted, then it would be imply that the trust does not exist at all. If that be so, then we concur with the CIT(A) that there would be no legal sanction to treat the trust as an AOP, as had been advocated by the A.O. Under such a situation, the only transaction that would subsist will be the direct investment by the beneficiaries in the financial assets, and therefore, the question of assessing the assessee trust as an AOP or under any other head of income would be totally out of question. Accordingly, in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Sec. 61 to 63 of the Act. Insofar, the view taken by the A.O, that as the revocation of the contributions is conditional upon the consent of the contributors holding 75% of the units, we are afraid that the same would not render the contributions as irrevocable. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Bombay in the case of Behramji Sorabji Lalkaka Vs. CIT (1948) (16 ITR 301) (Bom). In the aforesaid case, it was observed by the Hon'ble High Court that the words "revocable transfer" are well understood in law and a transfer does not cease to be revocable because the power of revocation cannot be exercised by the settlor without the consent of the named individuals or any of them. As observed by the Hon'ble High Court, a transfer is nonetheless revocable even if it can be revoked only with the consent of any named person or persons. As such, on the basis of our aforesaid observations we are persuaded to subscribe to the view taken by the CIT(A), who had rightly concluded that the assessee trust is a revocable trust, and thus, the provisions of Sec. 61 to 63 of the Act would be applicable to it." 11. Insofar as the findings of the Revenue ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es carried on by the trustee in managing the trust, had made their respective investments based on the offer documents, and on the basis of their investments made in the trust were allotted the SRs which represented their undivided and proportionate interest in the corpus of the trust. We are unable to comprehend as to on what basis the A.O had concluded that the motive behind creation of the trust was the income earning asset reconstruction activity and handling of NPAs. On a perusal of the records, we find that the two beneficiaries viz. (i) ARCIL; and (ii) ICICI Bank Ltd., had made investments based on the offer document separately, and not jointly, on the basis of which they had been allotted the security receipts (SRs) representing their undivided and proportionate interest in the corpus of the trust. In our considered view, as the A.O had failed to place on record any material which would even remotely suggest that there was a concerted effort by the beneficiaries to earn income jointly, therefore his unsubstantiated view that the assessee was to be treated as an AOP cannot be sustained and has rightly been vacated by the CIT(A)." 12. The Co-ordinate Bench, further, ....