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2022 (3) TMI 566 - AT - Income TaxAssessee is a revocable trust OR AOP - income taxable in the hands of the assessee or taxable in the hands of the contributors - as per AO assessee is an AOP and should be taxed under the term defined for person u/s. 2(31) of the Act - HELD THAT - We observed that Ld.CIT(A) has dealt with the issue in detail and gave a clear finding that assessee is a revocable trust and not an AOP. In view of the provisions of section 61, 62 and 63 of the Act, it was held that income is not taxable in the hands of the assessee but the same is taxable in the hands of the contributors. We observed that the facts in the present appeal are exactly similar to the facts in the case of ITO v. M/s. Scheme A1 of ARCIL CPS 002 XI Trust 2020 (9) TMI 465 - ITAT MUMBAI , therefore we are inclined to follow the decision of the Coordinate Bench of the Tribunal wherein held assessee trust could not be considered as an indeterminate trust. In fact, we are in agreement with the view taken by the CIT(A) that as neither any discretion have been given to the trustee to decide the allocation of the income every year, nor any right is given to the beneficiary to exercise an option to receive the income or not each year, therefore, it cannot be held that the share of the beneficiaries were indeterminate. In our considered view, as the names of the beneficiaries of the assessee trust and their shares were known since inception i.e at the time of the formation of the trust as is evident from the minutes of the meeting dated 27.12.2007, therefore, it can safely be concluded that the assessee trust is a determinate trust i.e a non-discretionary trust. Accordingly, finding no infirmity in the view taken by the CIT(A) who had rightly concluded that the assessee is a determinate trust, we uphold the same - Decided against revenue.
Issues Involved:
1. Whether the assessee should be classified as a "Trust" or an "Association of Persons (AOP)". 2. Taxability of income under sections 61 to 63 of the Income Tax Act. 3. Validity of the trust under SARFAESI Act and RBI guidelines. 4. Determination of the trust as revocable or irrevocable. 5. Applicability of section 164 and the status of the trust as determinate or indeterminate. 6. Grant of TDS credit. Issue-wise Detailed Analysis: 1. Classification as "Trust" or "Association of Persons (AOP)": The Assessing Officer (AO) classified the assessee as an AOP, arguing that the trust was created for the benefit of the settlor/contributor and that the contributors and beneficiaries were the same. The AO contended that the trust was a smokescreen to evade taxes. However, the Ld. CIT(A) disagreed, stating that the trust was created under the SARFAESI Act and RBI guidelines, and thus its validity was beyond doubt. The CIT(A) cited several judicial precedents to support the view that the trust could not be classified as an AOP since there was no inter se agreement among the beneficiaries. 2. Taxability of Income under Sections 61 to 63: The AO argued that the trust was not revocable and thus sections 61 and 63 did not apply. The AO also claimed that the income should be taxed in the hands of the trust. However, the CIT(A) found that the trust deed allowed for the revocation of contributions by the Security Receipt (SR) holders, making the trust revocable. Consequently, the income was to be taxed in the hands of the contributors, not the trust. 3. Validity under SARFAESI Act and RBI Guidelines: The CIT(A) confirmed that the trust was set up under the SARFAESI Act following RBI guidelines, which validated its formation and operations. The CIT(A) dismissed the AO's claim that the trust was a smokescreen, emphasizing that the trust's formation was in compliance with statutory requirements. 4. Determination as Revocable or Irrevocable: The CIT(A) reviewed the trust deed clauses and concluded that the contributions were revocable, as the SR holders retained the power to revoke their contributions. This revocability meant that the income should be taxed in the hands of the contributors under sections 61 to 63 of the Income Tax Act. 5. Applicability of Section 164 and Status as Determinate or Indeterminate: The AO argued that the trust was indeterminate and thus subject to maximum marginal rate taxation under section 164. However, the CIT(A) found that the names and shares of the beneficiaries were known and had remained unchanged, making the trust determinate. The CIT(A) cited judicial precedents to support that a trust with identifiable beneficiaries and fixed shares is considered determinate. 6. Grant of TDS Credit: The CIT(A) directed the AO to allow TDS credit after verification as per law, addressing the assessee's grievance regarding the non-grant of TDS credit. Conclusion: The ITAT upheld the CIT(A)'s decision, confirming that the assessee was a revocable trust and not an AOP. The income was to be taxed in the hands of the contributors under sections 61 to 63. The ITAT found no infirmity in the CIT(A)'s findings and dismissed the revenue's appeal. The appeal was pronounced in open court on 11.03.2022.
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