TaxTMI 
TaxTMI 
2026 (4) TMI 1896
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....ned order emanated from the order of the Ld. Income Tax Officer Ward 21(1)(2), Mumbai (for brevity the 'Ld. AO') order passed under section 143(3) of the Act date of order 26.12.2018. 2. The brief facts of the case are that the assessee is a Trust created by Asset Reconstruction Company India Ltd. (ARCIL) for the purpose of liquidating / recovering / realizing the non-performing assets. The assessee has been created pursuant 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 Securit....
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....curitization Company and Reconstruction Company (SC/RCs). ARCIL declares the trusts and acts as a trustee of the trusts pursuant to provisions of the SARFAESI Act and RBI Guidelines. The trust accepts contributions from Security Receipt holders (SR holders) for acquisition of financial assets. The contributions are raised from Qualified Institutional Buyers (QIBs) as defined under SARFAESI Act for which trusts issue Security Receipts (SRs) to QIBs. QIBs include Banks, Financial Institutions, Insurance Companies, SC/RCs, mutual funds, eligible Non Banking Finance Companies (pursuant to RBI Guidelines in this regard) and Foreign Institutional Investors. SRs represent contribution of such QIBs in the trust and are in the nature of undivided ri....
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....pt 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 Ld. AO considered that....
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....s that the assessee had carried on business from the contributions of various beneficiaries with a common motive to earn income, which proved beyond doubt that in sum and substance the assessee was an AOP. Finally, rejecting assessee's various submissions, the income was determined at Rs.20,20,75,340/-. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) considered that the assessee was established under SARFAESI Act following guidelines of RBI and therefore, its validly was beyond doubt. Further. Sec. 61 to 63 does not imply that the right of revocation should be without any conditions. The terms of trust deed made it clear that the contributions was revocable and therefore, the income was to taxed in the hands....
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....n 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 protection, preservation and insurance expenses of Rs. 2,69,70,724/- and treated interest income as income from other sources. Accordingly, the AO assessed the total income of the assessee at Rs. 30,33,45,950/- and initiated penalty proceedings under sections 271(1)(b) and 271(1)(c) of the Act. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 27. The legislative intent to treat secur....
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....essee is a trust constituted under the provisions of the SARFAESI Act and governed by the RBI Guidelines for securitisation and reconstruction companies. The core issue for adjudication is whether the income arising in the hands of the assessee trust is liable to be taxed in its hands or in the hands of the SR holders. On careful consideration, we find that the identical issue has already been adjudicated by the Coordinate Bench of the ITAT, Mumbai in the case of ARCIL Retail Loan Portfolio-001-A-Trust (supra), wherein it has been categorically held that such trusts are in the nature of revocable trusts within the meaning of Sections 61 to 63 of the Act, and accordingly, the income arising there from is taxable in the hands of the contribut....