9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (2) TMI 328 - AT - Income TaxTreatment of assessee trust as an Association of Persons (AOP) - as submitted that the assessee trust was set up pursuant to section 7 of SARFAESI Act and RBI guidelines issued thereon. It was specifically submitted that the trust was not created as a smokescreen to evade tax. Hence the assessee trust cannot be construed as an AOP as there is no inter se agreement between the names of the beneficiaries and their shares were known and have remained unchanged - HELD THAT - We find that the issue in dispute is no longer res integra in view of the decision of this Tribunal in the case of ITO vs ARCIL AARF I -1 Trust for Asst Year 2013-14 2021 (9) TMI 1334 - ITAT MUMBAI wherein this tribunal by placing reliance on its earlier order passed in the case of CIT vs Scheme A1 of ARCIL in 2020 (9) TMI 465 - ITAT MUMBAI had decided the issue in favour of the assessee wherein as 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. - Decided against revenue.
Issues Involved:
1. Status of the Assessee as 'Trust' or 'Association of Persons (AOP)' 2. Applicability of Sections 61 to 63 of the Income Tax Act, 1961 3. Whether the Trust is a smoke screen to evade taxes 4. Identification and shares of beneficiaries 5. Taxability of income in the hands of the Trust or Security Receipt Holders (SR Holders) Issue-wise Detailed Analysis: 1. Status of the Assessee as 'Trust' or 'Association of Persons (AOP)': The primary issue was whether the assessee should be classified as a 'Trust' or an 'AOP'. The Revenue contended that the assessee was an AOP, arguing that the trust was created solely for the benefit of the contributors, who were also the beneficiaries, and thus, did not meet the criteria of a genuine trust. The AO emphasized that the contributors and beneficiaries were the same, which contradicted the fundamental principles of a trust as defined under the Indian Trusts Act, 1882. However, the Tribunal found that the assessee was a valid trust set up pursuant to the SARFAESI Act and RBI guidelines, with identifiable beneficiaries and known shares, thereby rejecting the AO's classification as an AOP. 2. Applicability of Sections 61 to 63 of the Income Tax Act, 1961: The assessee argued that its income should be taxed in the hands of the SR Holders as per Sections 61 to 63 of the Income Tax Act, 1961, which deal with revocable transfers. The Tribunal agreed with the assessee, noting that the contributions were revocable and the income realized from the financial assets was taxable in the hands of the SR Holders. The Tribunal relied on previous decisions, including the Karnataka High Court's ruling in India Advantage Fund –VII, which supported the view that if beneficiaries are identifiable and their shares known, Section 164 does not apply, and the income is taxable in the hands of the beneficiaries. 3. Whether the Trust is a Smoke Screen to Evade Taxes: The AO argued that the trust was a smoke screen and a colorable device to evade taxes, citing the Madras High Court's decision in Indo Tech Electric Co. The Tribunal, however, found no merit in this argument, noting that the trust was set up under statutory provisions and guidelines, and the beneficiaries were identifiable with known shares. The Tribunal concluded that the trust was not created to evade taxes but to carry out asset reconstruction activities as per the SARFAESI Act. 4. Identification and Shares of Beneficiaries: The AO contended that the shares of the beneficiaries were not mentioned in the trust deed, invoking Section 164 for maximum marginal rate taxation. The assessee countered that the beneficiaries and their shares were identifiable and unchanged, with each SR Holder entering into separate contribution agreements. The Tribunal supported the assessee's position, confirming that the beneficiaries were identifiable and their shares known, thus Section 164 did not apply. 5. Taxability of Income in the Hands of the Trust or Security Receipt Holders (SR Holders): The AO held that the income from asset reconstruction activities should be taxed in the hands of the trust, not the SR Holders, arguing that the trust's activities were commercial transactions. The Tribunal, however, upheld the assessee's claim that it was a pass-through entity, and the income was taxable in the hands of the SR Holders. The Tribunal noted that the SR Holders offered the income in their returns, and the trust filed its return declaring Nil income, consistent with the provisions of Sections 61 to 63. Conclusion: The Tribunal dismissed the Revenue's appeals, confirming that the assessee was a valid trust and not an AOP, and that the income was taxable in the hands of the SR Holders. The Tribunal's decision was based on the identification of beneficiaries, the revocable nature of contributions, and compliance with statutory provisions and guidelines. The Tribunal relied on previous decisions and legal principles, ensuring that the income was taxed in the right hands at the correct rates.
|
