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2022 (11) TMI 241 - AT - Income TaxAssessment of trust/AOP - Liability of representative assessee - income arising to any person by virtue of revocable transfer of assets - income as charitable to tax in the hands of the assessee or charitable to tax in the hands of the beneficiaries - Whether the assessee trust is revocable trust the assessee holding this amount for the benefit of the contributors and beneficiaries only? - contribution relation to a revocable transfer - CIT(A) justification in treating the assessee as Representative assessee while it should be treated as AOP, because it has derived income which is other than the income derived from investments as specified in section 10(23FB) of the Act - HELD THAT - In the present case, we can deduce from the documents filed that each contributor to the Fund has made a contribution on the condition that the initial contribution along with any income or gains arising on the investments made from his contribution would be returned to the contributor upon the sale of the investments. In such a scenario, the contribution is nothing but a revocable transfer as defined in section 63 of the Income Tax Act The entire assets will be distributed to the contributors on dissolution of the assessee trust after the expiry of pre-determined period. As per section 63 of the Income tax Act, a transfer shall be deemed to be revocable if 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 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. Thus, where a contribution is made in a manner that the contributors are entitled to recover their contributions over a specified period, and are entitled to the income from their contributions, the settlement of the trust should be disregarded for the purpose of tax, and the income thereof taxed as through it had directly arisen to the contributors. In the case of a revocable trust, income shall be chargeable to tax only in the hands of beneficiaries/contributors. Trust was not created for limited time where the trustee is revocable and the funds were to be return back on the termination of the beneficiary. Assessee further produced a few documents which show that the amount has been return to the assessee and where the trust is revocable the agreement. Going through the term of fund investment period and commitment period it is very clear that funds were to be returned back on the termination of the contribution and the trust was not created for certain time so the trust is a revocable trust. AR further produced the few example whether the amount was received by the corporation is income from SME tech fund-RVCF-II where the owner are national bank CIT(A) has rightly taken view that the assessee trust is received some amounts under revocable transfer of asset where the AO failed to note that no income is charitable to tax in the hands of the assessee but it is charitable to tax in the hands of the beneficiaries and any income arising to any other in such revocable transfer of AOP which charitable to income tax as the income of the transferor and not in the income transferee where the income received by the assessee trust was charitable to tax in the hands of contributors/beneficiaries and not in the hands of the assessee. AO contentions that the investment was available for free use by the assessee is not correct. Assessee pointed that the interest of the other beneficiary is the evident of default clause where the circular is to be considered. In support, reliance was placed in the following decision in the case of CIT vs. SAE Head Office Monthly Paid Employees Welfare Trust 2004 (9) TMI 92 - DELHI HIGH COURT - It is a clear definition that the income arising to any person by virtue of revocable transfer of assets shall be chargeable to tax as income of the transferor will apply to the facts and circumstances of the present case and therefore, the assessment in the hands of the transferee/ representative assessee was not justified. Taking into consideration of orders of lower authorities documentary evidence assessee trust is revocable trust. Hence, ground of the Revenue appeal is dismissed and uphold the order of the ld. CIT(A) that the RVCF Trust is revocable trust. Going through the number of documentary evidence produced before us it can thus been noted that the beneficiaries each from money to the assessee and his agreement were entered into between the assessee and each beneficiaries there is not enter see arrangement between one contributor/ beneficiaries and the other contributors/beneficiaries as each of them entered into separate contribution arrangement with the assessee. The AO s findings are baseless and unjustified that the investment was available for free use by the assessee is not correct and the AO s action in the impugned assessment order for the year cannot be sustained in this regard and we uphold the order passed by the ld. CIT(A) where the assessee trust is revocable trust the assessee holding this amount for the benefit of the contributors and beneficiaries only the each distribution to the fund has made the contribution on the condition that the initial contribution along with any income or gain arising on the investment made from his contribution would be return to the contributor upon the sale of investment and the contribution is nothing to a revocable transfer has defined in section 63 of the Act and in the entire asset will be contributed to the contributors and dissolution of the assessee trust after expiry. Appeal of the Revenue is dismissed.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Status of the assessee as a representative assessee or an Association of Persons (AOP). 3. Treatment of the trust as a revocable trust. Issue-wise Detailed Analysis: 1. Condonation of Delay: The Revenue filed an appeal with a delay of 3 days. The delay was due to the submission of the physical record of the appeal after the online submission. The Revenue requested the condonation of the delay, explaining that the physical appeal was filed within the prescribed time. The Tribunal found merit in the Revenue's prayer and condoned the delay. 2. Status of the Assessee: - The Revenue contended that the assessee should be treated as an AOP because it derived income other than that specified in section 10(23FB) of the Income Tax Act. - The assessee argued that it is a representative assessee under section 160(1)(iv) of the Income Tax Act, as it is a trust created by a duly executed instrument in writing. - The Tribunal noted that the assessee is a SEBI-registered Venture Capital Fund governed by SEBI Venture Capital Regulations, 1996. The fund's corpus is held by various government undertakings and PSU banks for financing venture capital undertakings. - The Tribunal observed that the beneficiaries contributed their money to the assessee, and separate agreements were entered into between the assessee and each beneficiary. There was no inter-se agreement among the beneficiaries, which is a sine qua non for the formation of an AOP. - The Tribunal referred to several judicial precedents, including the decisions of the Bangalore ITAT and the Karnataka High Court in the case of India Advantage Fund, which held that the beneficiaries cannot be regarded as an AOP. - The Tribunal concluded that the assessee is a representative assessee and not an AOP. 3. Treatment as a Revocable Trust: - The Revenue argued that the assessee trust should not be treated as a revocable trust. - The assessee contended that it received amounts under a revocable transfer of assets as defined in section 63 of the Income Tax Act. The trust was created for a limited period, and the funds were to be returned to the contributors upon the termination of the trust. - The Tribunal examined the trust deed and other documentary evidence, which indicated that the trust was created for a definite period and was subject to termination upon the winding up of the last scheme. - The Tribunal referred to the CBDT Circular No. 14(XL-35), dated 11-4-1955, which states that once the department chooses to tax either the trustee or the beneficiary, it cannot assess the same income in the hands of the other. - The Tribunal upheld the CIT(A)'s finding that the assessee trust is a revocable trust and that the income is chargeable to tax in the hands of the beneficiaries, not the assessee. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order that the assessee is a representative assessee and a revocable trust. The income is to be taxed in the hands of the beneficiaries, not the trust. The appeal was dismissed in favor of the assessee.
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