TaxTMI 
TaxTMI 
2026 (6) TMI 1161
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....t to the provisions of Securitization and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (SARFAESI Act) and the guidelines of RBI to acquire financial assets of the borrowers classified as non-performing assets (NPAs) ARCIL is registered with RBI under Sec. 3 of SARFAESI Act as a Securitization and Reconstruction Company. ARCIL acts as a trustee of the assessee in pursuance to the provisions of the aforesaid Act and the RBI guidelines. Accordingly, ARCIL acquires stressed financial assets that are classified as NPAs from the banks / Financial Institutions. The assessee derived income from asset reconstruction activity and handling of NPAs of banks and Financial Institutions. The assessee declared Nil Income in its return of income. During assessment proceedings, Ld. AO called upon the assessee to explain as to on what basis it had claimed its receipts as not liable to tax in its hand. Also, the assessee was directed to put forth an explanation as to why the income/loss derived by it may not be taxed in its hands in the status as that of a trust/AOP. 3. In reply, it was explained that ARCIL was a registered entity with RBI to acquire financial asse....
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....t natural that income should obviously be taxed in the hands of the transferor. Thus, under these sections, where a transfer of asset (in this case contribution by the Security Receipt holders) is made, but a power of re-assumption or retransfer of the assets or income is retained by the transferor (i.e. security holders), it is treated as a case of revocable transfer. In such a case, the income is to be assessed in the hands of the transferor i.e. the security receipt holders. Thus, if the trust is a revocable trust, the income is taxable in the hands of the transferor (i.e. SR holders). Hence, there is no income chargeable to tax in the hands of the trust and is taxable entirely in the hands of SR Holders. It was pointed out that the trust deed itself mentions that the SR Holders are entitled to revoke the contribution made by them. The relevant portion of the trust deed was brought to the notice of Ld. AO. On the basis of these submissions, it was submitted by the assessee that the income was to be taxed in the hands of the transferor i.e. in the hands of SR Holders. Further, the assessee was not to be considered as an 'Association of Persons' (AOP). 4. However, the L....
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....eement amongst beneficiaries inter-se. The beneficiaries were mere recipients of income earned by the trust. Therefore, the income was not taxable in hands of the assessee but it was taxable in the hands of the contributors. Aggrieved as aforesaid, the revenue is in further appeal before us. 5. The Ld. DR argued and stands in favor of the order of the Ld. AO. The Ld. DR contended that the assessee is not a trust, it is an A.O.P. so assessee is not eligible for get the deduction u/sec. 61 to 63. The Ld. DR stands in favour of the impugned assessment order. The relevant paragraph of the impugned assessment order in pages 19 and 20 is reproduced as below:- "20. The modus operandi of such schemes is that the NPAs of the beneficiary are actually written off in their books as bad debts. These are later sold to the assessee at very low price. So income is raised for the beneficiaries at this stage itself. The beneficiaries contribute in the form of Security Receipts for purchase of their own NPAs by the assessee. Here expenses are claimed by the beneficiaries on the same NPAs. In their books. The amounts of NPAs realised by the assessee through DRT, various schemes etc. minus ....
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.... at Rs. 13344547/- is hereby disallowed. 6. The Ld. AR argued and submitted the trust deed related dated 31.12.2018 executed by Asset Reconstruction Company India Ltd.(ARCL). The Ld. AR stated that the identical issue is already settled by the Coordinate Bench of ITAT-Mumbai. The Ld. AR respectfully relied on the order of the Coordinate Bench ITAT, Mumbai in the case of ITO 22(1)(6), Mumbai vs ARCIL Retail Loan Portfolio-001-A-Trust, ITA No.4252/Mum/2025 date of order 22.01.2006. "2.4 The Assessing Officer rejected the contentions of the assessee. He held that the assessee could not be regarded as a trust for the purposes of sections 61 to 63 of the Act and that, on the facts, the contributors and beneficiaries had joined in a common purpose of earning income. According to the AO, the assessee constituted an Association of Persons within the meaning of section 2(31) of the Act. The AO further held that the trust was neither revocable nor determinate, that the provisions of section 164 were attracted, and that even otherwise the assessee was liable to be assessed as an AOP. The claim of exemption under sections 61 to 63 was denied. The AO also disallowed the claim of pro....