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TMI Blog2018 (5) TMI 1588X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER N.K. PRADHAN, AM The captioned cross appeals- one by the assessee and the other by the Revenue are directed against the order of the Commissioner of Income Tax (Appeals)-32, Mumbai [in short CIT(A) ] and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the Act ). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience. ITA No. 1406/MUM/2016 Assessment Year: 2009-10 2. The grounds of appeal filed by the assessee read as under: Ground I : Holding the trust to be not a valid trust a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in ruling that the Appellant is not a valid trust on the alleged ground that all the essentials for valid trust were not fulfilled. Ground II: Holding that the trust was not revocable a. On the facts and in the circumstance of the case and in law, the CIT(A) erred in rejecting the applicability of sections 61 to 63 of the Act to the contribution made by the beneficiary to the Appellant. Ground III: Diversion by overriding title a. On the fads and in the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee that no cognizance of the ROI should be taken and held the same as not acceptable because the same has been offered only after issuance of notice u/s 143(2) of the Act. Also the AO finalized the assessment on the basis of materials available on record. 3.1 The AO noted that the assessee had declared itself as a private trust created through trust deed dated 16.05.2008 by its trustee IDBI Trusteeship Services Ltd. Subsequently, it entered into an agreement through a deed of an assignment on the same date i.e. 16.05.2008 with IL FS Services Ltd. ( Seller which is a NBFC) for the purpose of securitisation of loan of Soul Space Projects Ltd. Thus the loan extended by IL FS Services Ltd. has been transferred in favour of the assessee, resulting in the assessee becoming a lender and it acquired all rights and powers to receive the loan and interest from the borrower. The trust was created by putting initial corpus of ₹ 1000/- and as per the trust declaration, the beneficiary of the trust is Canara Robeco Mutual Fund and it had issued Pass Through Certificates (PTCs), a paper instrument against their contribution of approx. ₹ 100 crores. During the course of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the original lenders, (iii) the assessee also issued PTCs to Canara Robeco and thereby assumed the role of lender for obtaining interest income by taking over the loan availed by Soul Space, (iv) by mere substitution, the nature of transaction itself does not change, but in fact would strengthen the AO s argument that these complex transactions are in the nature of business activity, (v) it naturally follows that interest earned is income from profits and gains and therefore, it follows that the assessee would be representative assessee u/s 161(1A). On the basis of above reasons, the Ld. CIT(A) upheld the order of the AO in holding the status of the assessee to be an AOP and consequent applicability of section 161(1A). However, the Ld. CIT(A) observed that the AO had overlooked the provisions of section 67A of the Act. Having said that the assessee is an AOP to be taxed at the maximum marginal rate and income is to be assessed as income from business by applying the provisions of section 161(1A), it becomes incumbent to also apply the provisions of section 67A of the Act which lays down the methodology of computing the member s share of income in an AOP or BOI. Thus the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receivable under the aforesaid loan to the assessee for a consideration of ₹ 300.55 crores. In parallel, the assessee-trust decided to issue PTCs, which were securities that could be issued only to Mutual Funds, Banks and Non-Banking Financial Companies (NBFCs) as per RBI Guidelines on Securitisation of Standard Assets . Those PTCs were subscribed by seven Mutual Funds, who were incidentally the beneficiaries of the trust, holding beneficial interest in the assessee. In terms of said subscription, the Mutual Funds transferred funds to the assessee towards purchase of those PTCs. Having received funds from the Mutual Funds, the assessee utilized the funds to pay the consideration to Yes Bank, towards the receivable taken over by it through the assignment deed. During the assessment year consideration, the assessee received interest from Yes Bank and the entire proceeds were distributed to the beneficiaries of the assessee-trust i.e. Mutual Funds through the PTCs, in proportion to their interest. The assessee filed its return of income declaring taxable income at Nil, as according to the assessee, the amounts received by the assessee from Yes Bank and in turn paid by it to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998/MUM/2016 Assessment Year: 2009-10 8. The grounds of appeals filed by the revenue read as under: On the facts and circumstances of the case and in law, the Ld. CIT(A)-32 Mumbai erred in allowing addition of ₹ 9,43,63,906/- without appreciating that the sum of ₹ 9,43,63,906/- represented distribution and application of accrued interest income on loan purchased by the assessee trust and not an expenditure incurred in earning the said accrued interest income. 8.1 We have followed the decision in Indian Corporate Loan Securitisation Trust (supra), and held that since the assessee was a revocable trust and contribution by beneficiaries was a revocable transfer, income would be taxed in the hands of beneficiaries, i.e. Mutual Funds which purchased PTCs from the assessee-trust and since money was always intended to be passed on to PTC holders i.e. Mutual Funds, the principle of diversion of income at source by overriding title was attracted and in view of the aforesaid facts, interest income was not liable to tax in the hands of the assessee. In view of the above reasons, there is no merit in the appeal filed by the revenue and the same is dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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