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TMI Blog2013 (3) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... having authorized the trustees to carry on the business. Thus the law laid down indicates that the beneficiaries who are named in the trust as recipients of the income of the trust cannot be considered as an association of persons. If that be the position, prima facie, the question as to whether Section 177(3) would apply to the Petitioner raises a serious issue for consideration. Whether Section 161(1A) lays down only the rate of tax without affecting the basic principle underlying Section 161(1) - Held that:- The nature of the controversy in the present case is adverted in order to elucidate that the questions on which there is a controversy, which is still to be resolved, involves serious triable issues. The contention of the Petitioner, prima facie, cannot be rejected out of hand particularly having regard to the fact that the earlier judgment of this Court for Assessment Year 2009-10 also took the same position. Moreover, the issue as to whether the income in question is business income is a matter which would have to be determined. Finally, on this aspect of the matter, it may be necessary also to note the submission of the Petitioner with reference to the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the trust resulting in a net demand of Rs.1.57 Crores. During the pendency of these proceedings an application by the trust to the CIT-19 for holding the demand in abeyance under Section 220(6) has been rejected. 3. The Petitioner is registered as a mutual fund with the Securities and Exchange Board of India (SEBI) and has contributed to the funds of nine trusts : 1. Indian Corporate Loan Securitization Trust 2008 - Series 24, 2. Indian Corporate Loan Securitization Trust 2008 - Series 22, 3. Indian Corporate Loan Securitization Trust 2008 - Series 27, 4. Indian Corporate Loan Securitization Trust 2008 - Series 28, 5. Indian Corporate Loan Securitization Trust 2008 - Series 38, 6. Indian Corporate Loan Securitization Trust 2008 - Series 40, 7. Indian Corporate Loan Securitization Trust 2008 - Series LVI, 8. Indian Corporate Loan Securitization Trust 2008 - Series LX and 9. Indian Commercial Loan Trust Series VIII 2008; 4. The trust issued Pass Through Certificates (PTCs) to which the Petitioner has contributed. The Petitioner is a beneficiary of the trusts. Regulation 43 of the SEBI (Mutual Funds) Regulations 1996 categorizes the investments which mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and profession . According to the Assessing Officer, the trusts were a smokescreen whose entity should be disregarded since the trust is an AOP having members in the form of mutual funds. The Assessing Officer inter alia held that even if the assessee were to be regarded as a trust, the assessment would be under Section 161(1A) as the trusts are engaged in business and would be chargeable at the maximum marginal rate of tax. The trusts have filed appeals before the CIT(A) which are pending. 7. On 17 January 2013 the trusts filed applications under Section 220(6) for holding recovery in abeyance. The First Respondent on 20 February 2013 rejected the applications for stay of demand. On 21 February 2013 applications were stated to be filed before the CIT-19 for stay of the recovery of the demand. The CIT-19 by an order dated 5 March 2013 has declined to hold the demand in abeyance, thereby rejecting the applications filed by the trusts. 8. The First Respondent has issued a notice dated 25 February 2013 to the Petitioner stating that (i) The assessment of the trusts was completed under Section 143(3); (ii) The trusts failed to make payment; and (iii) The Assessing Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax, penalty or other sum payable and all the provisions of the Act, so far as may be, shall apply to any such assessment or imposition of penalty, or other sum. Prima facie, the submission of the petitioner that the Trust itself cannot be regarded as being an association of persons finds support from a judgment of a Division Bench of this Court in CIT v. Marsons Beneficiary Trust [1991] 188 ITR 224/[1990] 52 Taxman 454 (Bom.). The Division Bench of this Court in that case held that the beneficiaries of a trust cannot be construed as having set up the trust nor had they authorised the trustees to carry on business. The beneficiaries who are named in the trust as recipients of the income of the trust cannot be considered as an association of persons. Therefore, ruled the Division Bench, the trustees also cannot take on the character of an association of persons. The judgment of the Division Bench was followed subsequently by another Division Bench of this Court in L.R. Patel Family Trust v. ITO [2003] 262 ITR 520/ 129 Taxman 720 (Bom.). We are indicating the nature of the controversy making it expressly clear that we are not rendering any conclusive determination of the Court on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the judgment of the jurisdictional High Court, the Revenue has once again issued notices to the Petitioner under Section 177(3) for A.Y.2010-11. The appeals of the trust for the earlier year continue to remain pending. 11. Counsel appearing on behalf of the Revenue, however, submits that the judgment which was delivered by this Court on 14 March 2012 is distinguishable since the Assessing Officer has in the course of the assessment of the trust carefully evaluated the provisions of law. Learned counsel submitted that : (i) The explanatory memorandum to the Finance Bill, 2013 indicates that with effect from 1 June 2013, it is proposed to amend Section 10 and to insert Chapter XII EA for providing a special tax regime to govern trusts formed for the purpose of undertaking securitization activities. Consequently, for the period prior thereto to which this proceeding relates the income would be exigible to tax; (ii) If the income represents an income of an association of persons in law, it is well settled that the AOP alone has to be taxed and the members of the AOP cannot be taxed individually on the income of the AOP; (iii) Alternately, under Section 161(1A), where the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alternative hypothesis under which, under Section 160(1)(iv) a representative assessee is defined to mean, in respect of the income which a trustee appointed under a trust declared by a duly executed instrument in writing receives or is entitled to receive on behalf or for the benefit of any person, such trustee. Section 161(1) provides that every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of the beneficiary and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only and the tax shall be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him . The contention of the Petitioner is that under Section 161(1) tax is to be levied on the representative assessee in the like manner and to the same extent as would be leviable upon the person represented by him and since the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter XII EA with a view to providing a special tax regime to facilitate the securitization process. The explanatory memorandum accompanying the Finance Bill has adverted to the rationale for the proposed amendment as follows : "Taxation of Securitisation Trusts Section 161 of the Income-tax Act provides that in case of a trust if its income consists of or includes profits and gains of business then income of such trust shall be taxed at the maximum marginal rate in the hands of trust. The special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to lack of special dispensation in respect of taxation under the Income-tax Act. The taxation at the level of trust due to existing provisions was considered to be restrictive particularly where the investors in the trust are persons which are exempt from taxation under the provisions of the Income-tax Act like Mutual Funds. In order to facilitate the securitisation process, it is proposed to provide a special taxation regime in respect of taxation of income of securitisation entities, set up as a trust, from the activity of securitisation. It is proposed to amend section 10 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual Fund Regulations made by SEBI. As we have noted earlier, the guidelines issued by the Reserve Bank of India on the securitization of assets in fact contemplate the setting up of special purpose vehicles as an intrinsic element of the securitization process. 17. The Appeals for Assessment Year 2009-10 are pending; the Court being informed that the Appeals are in the course of being heard. In this view of the matter, and for the reasons which we have indicated already in the earlier judgment of this Court in UTI Mutual Funds (supra) and for the reasons indicated in this judgment, we are of the view that a prima facie case raising serious triable issues has been made out for stay of the enforcement of the demand in the hands of the Petitioner in pursuance of the impugned notices dated 25 February 2013. 18. Counsel appearing on behalf of the Revenue has sought to rely upon an order of the Karnataka High Court in ITA 31 of 2013 dated 4 February 2013 taking the view that in a revenue matter an interim order should be passed only in the case of genuine financial hardship and not otherwise. With respect, the order of the Karnataka High Court cannot be read to mean that consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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