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TMI Blog2020 (2) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... artment u/s.143(3) of the Act vide order dated 12/03/2013. Similarly, the interest income of ₹ 8,630/- was also duly offered to tax in the hands of the beneficiary and assessed as such. Hence, both these incomes cannot be taxed in the hands of the assessee. Taxable of income on sale of investments as long term capital gains / business income - we find that the same had been elaborately dealt hereinabove by the ld. CIT(A) as held appellant trust has got contribution only from one institution namely IL FS Financial Services Ltd. as Class P Beneficiary, and also there is only one transaction of sale of shares of Multi Commodity Exchange. In my opinion, such investment in a single company held for long term cannot be assessed as business income, hence the treatment of such income as LTCG is accepted - thus it does not require any interference. - ITA No.4792/Mum/2017 (Assessment Year :2010-11) - - - Dated:- 15-1-2020 - SHRI M. BALAGANESH, AM AND SHRI AMARJIT SINGH, JM Revenue by: Shri S.K. Jain Assessee by: Shri Sandeep Bhalla ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.4792/Mum/2017 for A.Y.2010-11 arises out of the order by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity and equity linked investments. The trust has made only two investments in the shares of two unlisted companies namely Multi Commodity Exchange Ltd. and Maithan Ispat Limited. Other than making in investment in shares of these two private limited companies, no other activity was carried out. Out of two investments, only one investment was sold in AY. 2010-11 and other investment was retained. 3.1. The trust had obtained registration from SEBI as Venture Capital Fund. The total contribution received from IL FS being the sole contributor was ₹ 96,68,88,357/- and out of these funds, investments were made in shares of two unlisted companies amounting to ₹ 96,68,88,357/-. The trust has not borrowed any money nor has received any contribution from any person. For AYs. 2008-09 2009-10 the trust filed the return and the Income Tax department has accepted the status as trust. In both the returns, it was clearly mentioned that the income is taxable in the hands of IL FS being the sole contributor and they are liable to pay tax on the income of the trust. For AY 2008-09, the trust did not earn any income. However, for AY. 2009-10, the trust earned interest income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from other sources. This clearly proves that the income distributed by the assessee trust is included by the beneficiary and the same is offered for tax. The said income is also taxed in the hands of IL FS being the beneficiary while passing order u/s. 143(3) of the Act on 12.3.2013. 3.4. The ld. AO disregarded the aforesaid facts and proceeded to treat the status of the assessee as AOP and passed an order accordingly on 18/03/2013 u/s.143(3) of the Act despite the fact that the entire income has already been taxed in the hands of the beneficiary and the same has been assessed as such u/s.143(3) of the Act dated 12/03/2013. The ld. AO was conscious of the fact of assessment being framed in the hands of the beneficiary on 12/03/2013 while framing the assessment in the hands of the assessee on 18/03/2013. 3.5. The assessee raised various grounds before the ld. CIT(A) challenging the status of the assessee i.e not to be taxed as AOP; non-applicability of provisions of Section 161(1A) of the Act; income that has already been taxed in the hands of the beneficiary pursuant to applicability of provisions of Section 61 to 63 of the Act and thereby the same cannot be taxed again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Services Ltd. , and the Beneficiary IL FS Financial Services Ltd. are two distinct entities, as also observed by Hon'ble ITAT. b) Whether the appellant is a Trust or an AOP: In para 6 of the assessment order, the AO has stated that The fundamental principle of a trust is that the Trustees of the Trust acts in a fiduciary capacity for the benefit of the beneficiaries. In an ideal condition Trusts are created by a settler and he or she contributes his/her assets/ property in the Trust for the benefits of the persons called the beneficiaries. A trustee is appointed to manage the affairs of the trust. Thus in a true trust settler, trustee and the beneficiaries are not the same. In the instant case, the settler and the beneficiaries are the same. It is true that the three constituents of a true Trust are Settler, Trustees and Beneficiary. In present case, the Hon ble ITAT has cited names of such constituents as under: I. Settler: Infrastructure Leasing Financial Services Ltd. II. Trustee: IL FS Trust Co. Ltd. III. Beneficiary: As per Schedule A (IL FS Financial Services Ltd. as Class Beneficiary) Since the appellant satisfies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ager. 12.3 Premature termination of the Trust : 12.3.1 The trustee may at any time before the expire of the Term, terminate this Indenture With the prior written recommendation of the Invest Manager and upon obtaining the consent of Majority of the Contributors for such termination. 12.3.2 The Majority of the Contributors can vote to terminate the Trust, if the Investment Manager is adjudged in a final determination of a court of competent jurisdiction to have engaged in gross negligence, will full misconduct or criminal or unlawful conduct. 12.4 Procedure on termination : In the event of the Trust being terminated in the circumstances above mentioned, the Trustee shall: 12.4.1 Take all practical steps to sell all the non-cash assets of the Trust Fund in the manner the Trustee deems fit or advisable; 12.4.2 Shall commence arrangements to pay all the liabilities of the Trust; 12.4.3 Return to the extent of the available cash in the Trust Fund, all outstanding interests in the Trust as per Clause 6; and . 3.2.4.4 Distribute the Initial Settlement and accretions thereto as provided in Clause 6.8, In my opinion, the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted. In view of above, the additions made in assessment order are deleted, and therefore the grounds of appeal are allowed. 6. In the result, the appeal is Allowed. 5.2. We find from the elaborate observations of the ld. CIT(A) above that Settler, trustee and beneficiary are three separate and distinct entities. Hence, we hold that the assessee should be assessed in the capacity of trust only. We also find that the settler i.e Infrastructure Leasing and Financial Services Ltd. and beneficiary i.e. IL FS Financial Services Ltd. are two separate and distinct entities in the present case. We find that the observations of taxability of trust and income being offered to tax in the hands of the beneficiary are all inter-dependent based on the outcome of the status of the assessee which we have already held to be taxed only in the status of trust and not as AOP. There is no dispute with regard to the fact that the long term capital gain of subject mentioned shares of ₹ 27,38,484/-has been duly offered to tax in the hands of the beneficiary i.e. IL FS Financial Services Ltd., and the same has been assessed accordingly by the Income Tax department u/s.143(3) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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