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2021 (9) TMI 1334 - AT - Income TaxTreatment of assessee trust as an Association of Persons (AOP) - Allowance of expenses made by the assessee for protection preservation and insurance expenses and management fees from such investment activity upon redemption of the principal amount of Security Receipts(SR) - HELD THAT - 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 of SR holders as per the provisions of Sec. 61 to 63 of the Act. The assessee could not be called an AOP since there was no agreement 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. The coordinate bench, in revenue s appeal titled as CIT V/s Scheme A1 of ARCIL CPS 002 XI Trust 2020 (9) TMI 465 - ITAT MUMBAI dismissed the appeal with the findings that the assessee was a valid trust. Since it was revocable Trust, the provisions of Sec. 61 to 63 were applicable and the assessee could not be assessed as AOP. The income was to be taxed in the hands of the SR holders. Since the respective shares were known since inception, it could not be considered as indeterminate Trust. Finally the appeal of the revenue was dismissed.
Issues Involved:
1. Assessment of the status of the assessee as a Trust or an Association of Persons (AOP). 2. Taxability of expenses made by the assessee for protection, preservation, and insurance. 3. Determination of the nature of the assessee trust under the SARFAESI Act, 2002. 4. Classification of the assessee as an AOP based on the business activities carried out from contributions of beneficiaries. Analysis: Issue 1: Assessment of the status of the assessee The appeal by the revenue for Assessment Year 2013-14 challenged the CIT(A)'s decision changing the status of the assessee from an AOP to a Trust. The assessee argued that judicial pronouncements supported its position. The Tribunal found that the assessee, created by ARCIL under the SARFAESI Act, was a valid trust. The income was to be taxed in the hands of Security Receipt holders, not the assessee. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. Issue 2: Taxability of expenses The revenue contested the allowance of expenses made by the assessee for protection, preservation, and insurance. The Tribunal did not address this specific issue in the judgment. Issue 3: Nature of the assessee trust under the SARFAESI Act The assessee trust was created by ARCIL to handle non-performing assets under the SARFAESI Act and RBI guidelines. The Tribunal determined that the trust was revocable, and income was taxable in the hands of Security Receipt holders. The Tribunal dismissed the revenue's appeal based on similar precedent. Issue 4: Classification as an AOP The revenue argued that the assessee should be classified as an AOP due to business activities carried out from contributions of beneficiaries. The Tribunal found that there was no inter-se agreement among beneficiaries, and the trust was a pass-through entity. The income was not taxable in the hands of the assessee but in the hands of contributors. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. In conclusion, the Tribunal confirmed the status of the assessee as a Trust, upheld the taxability of income in the hands of Security Receipt holders, and dismissed the revenue's appeal based on precedent and lack of inter-se agreement among beneficiaries.
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