TaxTMI 
TaxTMI 
2026 (1) TMI 1415
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....section 61 read with section 63 of the Act and also claimed credit of TDS of Rs. 1,39,587/-. The return was processed under section 143(1) and the case was selected for complete scrutiny under CASS. 2.2 During the course of assessment proceedings the Assessing Officer noted that the assessee was constituted as a trust by Asset Reconstruction Company (India) Ltd. (ARCIL) pursuant to the provisions of the SARFAESI Act, 2002 and RBI Guidelines, for the purpose of acquisition and resolution of Non-Performing Assets. Funds were raised by issuance of Security Receipts (SRs) to Qualified Institutional Buyers. ARCIL functioned as settlor, trustee and asset manager of the trust. From the financial statements, the AO recorded that during the year the assessee had earned interest income of Rs. 14,11,256/- and surplus on realization of NPAs amounting to Rs. 30,19,34,691/-, against which protection, preservation and insurance expenses of Rs. 2,69,70,724/- were claimed. The net surplus of Rs. 27,63,75,223/- was claimed as exempt by the assessee. 2.3 The assessee submitted before the AO that it was a revocable determinate trust, that the income was taxable only in the hands of the SR holder....
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....nate benches of the Tribunal on identical facts. Relying on such binding precedents, the CIT(A) held that the assessee could not be treated as an AOP and that the income was not taxable in its hands. Accordingly, the entire addition of Rs. 30,33,45,950/- made by the AO was directed to be deleted. The grounds relating to levy of interest under sections 234B and 234D were held to be consequential. Thus, the appeal of the assessee was allowed in full. 4. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us and has raised following revised grounds: 1. The CIT(A) is not justified in deleting the entire addition of Rs. 30,33,45,947/- made on account of business income, income from other sources, disallowances of Protection preservation, Insurance Expenses and Management Charge and interest income. 2. The CIT(A) has not appreciated the fact that the assessee is not are vocable trust since contributors have practically no over the income arising out of the activities of the fund and the contribution can be revoked only with the consent of the contributors holding 75% of the units and thus the assessee will not be eligible for the benefit of section ....
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.... at the discretion of the trustee. 7. The AR placed reliance on the Budget Speech of the Hon'ble Finance Minister while presenting the Finance Bill, 2016, wherein securitisation trusts, including those set up by ARCs, were expressly recognised as trusts and granted pass-through status. The relevant extract relied upon reads as under: "I propose to provide complete pass through of income-tax to securitization trusts including trusts of ARCs. The income will be taxed in the hands of the investors instead of the trust." 8. It was submitted that the amendment introduced by the Finance Bill, 2016 was clarificatory in nature with respect to taxability and did not alter the classification of such entities. Reliance was also placed on the Memorandum to the Finance Bill, 2016, which states that the income of securitisation trusts shall continue to be exempt. 9. The learned Authorised Representative further submitted that the issue involved in the present appeal is no longer res integra and stands squarely covered in favour of the assessee by a series of decisions rendered by the co-ordinate Benches, on identical facts in the case of ARCIL securitisation trusts. It was subm....
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....n the present case, the trust deed does not provide for any re-transfer of income or assets to the transferor, nor does it confer a right upon the transferor to re-assume power over the income or assets in the manner contemplated by section 63(a). It was further contended that, in the absence of a valid revocable transfer within the meaning of section 63, the assessee cannot seek to escape assessment in its own hands by invoking sections 61 to 63. 12. The learned DR, further, submitted that the Assessing Officer has rightly held that the assessee trust is not entitled to pass-through treatment and that the income has been correctly assessed in the hands of the assessee by treating it as an Association of Persons, having regard to the nature of activities carried on and the manner in which income is generated. The learned DR, therefore, submitted that the order of the Assessing Officer deserves to be restored and the order passed by the learned CIT(A) deleting the addition be set aside. 13. In rejoinder, the learned AR invited our attention to the specific provisions of the Trust Deed governing revocation of contributions, and submitted that the contention of the learned DR th....
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....on 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 62 of the Act provides that if a transfer is irrevocable for a specified period then section 61 will not apply. Section 63 defines as to what is "transfer" and "revocable transfer" for the purpose of sections 61 & 62 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. In this regard, I agree with the Ld. AR that the provisions of the I.T. Act nowhere state that if the transfer is "explicitly revocable", the provisions of section 61 and section 63 would not apply. I have also carefully gone through the relevant clauses of the trust deed, as highlighted by the Ld. AR." 16.1 On a plain readin....
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....ning instrument is sufficient. Collective revocation does not dilute the revocable character of the transfer. 20. The learned CIT(A), in our view, has rightly relied upon the aforesaid co-ordinate Bench decisions, including paras 9.4, 18-19 and 7.6.4-7.6.5 of the decision in ITO v. Scheme A1 of ARCIL CPS 002 XI Trust (ITA No. 2293/Mum/2018). 21. The Assessing Officer has further sought to assess the assessee as an Association of Persons, invoking section 164 on the premise that beneficiaries are indeterminate and that the trust carries on business with a profit motive. We are unable to agree with this approach. 22. Firstly, the formation of the assessee trust is statutorily mandated under the SARFAESI Act and RBI Guidelines. The trust is not a voluntary association of persons coming together for a common purpose, but a regulatory vehicle created for securitisation. The trustee functions independently and exclusively in accordance with the Trust Deed. There is no joint management, no sharing of responsibilities, and no common volition among Security Receipt Holders so as to constitute an AOP. 23. Secondly, the beneficiaries are clearly identifiable with reference to the Tru....