9911796707
TMI Blog2020 (10) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... or understanding the guiding principles laid down for recognition of revenue by ARCs. As observed by the CIT(A), and rightly so, the ARCs are supposed to recognize upside income only after full redemption of Security Receipts (SRs), except for the Management fees which is to be recognized on accrual basis. Redemption of the relevant SRs had not taken place till 31.03.2012, therefore, the CIT(A) had rightly concluded that no upside income/surplus could have been recognized in the hands of the assessee for the year under consideration. As for the management fees, we find, that no income on the said count had accrued to the assessee during the captioned year. We thus in the backdrop of our aforesaid observations concur with the view taken by the CIT(A), that as neither any upside income nor any management fess had accrued to the assessee during the year in question, therefore, its income was to be assessed at Rs. Nil. We uphold the view taken by the CIT(A), to the extent he had concluded that as there was a shortfall of recovery over purchase consideration till 31.03.2013 of 24.26 crores, and there was also no receipt of management fees as per the profit and loss account, hence no ups ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act and the fund should be taxed in respect of the income received on behalf of the beneficiaries at the maximum marginal rate. 2. a) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of ₹ 1,04,37,543/ - on the ground that the AO did not consider the cost of purchases of assets sold during the year. b) On the facts and circumstances of the case and in law, the Ld. CIT (A) has ignored the fact that during the assessment proceedings the assessee has failed to submit the details of cost of purchases of the assets sold even after asked by the AO. c) On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in holding that as per the guidelines of the RBI, no upside income should be recognized till the full redemption of the entire principal security receipts and ignored the fact that as per the IT Act, the assessee has to offer for taxation any income which accrues or arises or deemed to accrue or arise in India during such year. 3. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored." 2. Briefly st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .The Trust is created by the assets reconstruct/op Company namely ISARC for the purpose of liquidating/recovering/realizing the Non Performing Assets, take over by the assets Reconstruction Company (which is registered under section 3 of SARFASEI act by Reserve bank of India) from banks and financial .institutions Such Trusts are pass through entity The Trust Deed and the Offer Document read together, amply make it clear that it is a revocable trust and that being the, case, the income if at all arising on acquisition of NPA and disposal thereof or recovery thereof will be taxable in the hands of the Security Receipt holders (Beneficiary) in terms of section 61 of Income Tax Act, 1961. We invite your attention to the Notes of the Financial Statements, forming part of the annual audited accounts furnished, along with the Return of Income. We also invite your attention to Clause 2.7.1 of the Trust Deed, which categorically states that Security Receipt holders ho/ding more than 75% may decide the termination of the Trust. This clause is binding clause and cannot be ignore. This is being the case it is a revocable trust and hence the trust has correctly filed NIL return. We reque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l face value of the then outstanding Security Receipts, issued pursuant to this Deed has been obtained, in this behalf, provided that a notice of not less than 60 days of the intention to revoke the contribution, is given to the Trustee. The above clause makes it explicitly clear that the trust is revocable and 'hence it has to be given treatment in terms of Section 61, 62 and 63 of the Income tax Act, .1961. We produce here before Section 61 of the Income Tax Act, 1961: Section 61: All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income. 6. Without prejudice to our contention that ISARC Trust a revocable trust, even if the trust is not treated as Revocable Trust, the trust is a specific trust with defined beneficiaries with defined share at any point oft/me. The Trustees do not have any discretion, to modify the beneficiary or to modify the share of beneficiaries. 7 We invite your kind attention to RBI notification no. DNBS(PD) CC No. 38/SCRC/26.03.001/2013-14 DATED 23rd April, 2014, suggesting uniform Accounting Standards at ARCs. In terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-131 the Trust had realized a sum of ₹ 3,34,30,005/- and for which Trust had paid Recovery Commission of ₹ 9,89,051/- in the year 2012-13 apart from Trust Management Fees paid to Asset Management Company namely India 'SME Asset Reconstruction Company Limited a sum of ₹ 45,31,593/-. Further, you must consider the fact that the trust had incurred other expenses of ₹ 5,37,989/- during the year 2012-13, the details of which have already been furnished to you under the cover of our letter dated 22.07.2015. 14. Since the beneficiaries of the Trust are definite and identifiable with definite shares at all the times, question of making the trust liable for tax, does not arises. 15. The trust deed has been properly executed and as such the Return filed in earlier established as per Guidelines issued by Reserve Bank of India and SARFAESI Act…." However, the aforesaid reply of the assessee did not find favor with the A.O. It was inter alia observed by the A.O that the assessee was an AOP and not a trust. Alternatively, the A.O held a conviction that even if for the sake of argument the assessee was to be accepted as a trust, the same being a non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in the right hands, at the right rates of taxation. The sums earned by the assessee on account of various investment / activities has been shown as its income, therefore, it is rightly and appropriately taxable in its own hands and the trust is legally bound, to include in the same in the computation of its income." In the backdrop of his aforesaid deliberations the A.O assessed the total income of the assessee at ₹ 2,73,71,772/- under the head 'Income from business and profession'. 3. Aggrieved, the assessee assailed the assessment order in appeal before the CIT(A). After deliberating on the contentions advanced by the assessee the CIT(A) was of the view that issues therein involved in the appeal before him had already been decided by his predecessor in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13 vide his order passed in Appeal No. CIT(A)-32/IT- 211/23(1)(2)/15-16, dated 08.02.2017. Relying on the aforesaid order, the CIT(A) concluded that the A.O in the case of the assessee before him had rightly taken the status of the assessee as that of an AOP. Further, it was observed by the CIT(A), that in the aforesaid case before his predecessor though the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and management fees. As such, it was the claim of the assessee that the surplus after meeting the aforesaid obligations was to be transferred to the SR holders, viz. ISARC and PNB. After deliberating on the contentions advanced by the assessee, it was observed by the CIT(A) that his predecessor while disposing off the appeal in the case of ISARC SIDBI-2, a sister concern, for A.Y 2012-13, had vide his order passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017 observed, that the income of the assessee before him was to be assessed at Rs.nil for the reason, viz. (i) that the A.O had not considered the purchase consideration while bringing the realization (net of expenses) during A.Y. 2012-13 of ₹ 3.12 crores to tax; and (ii) that there was no 'upside income' accrued to the assessee during the year. It was observed by the CIT(A), that his predecessor while concluding as hereinabove had relied on the RBI Circular No. RBI/2013- 14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, which laid down the Uniform Accounting Standards at ARCs, and therein provided the guidelines for revenue recognition by ARCs, which read as under (relevant extract): ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that as to whether any cross-appeal was filed by the assessee against the impugned order. However, no reply was filed by the Ld. A.R. Accordingly, in the backdrop of the aforesaid facts, we proceed with the adjudication of the present appeal of the revenue before us. Admittedly, the observations of the A.O, viz. (i) that the status of the assessee was an AOP; (ii) that even if the assessee was held to be a trust it being an irrevocable trust would thus not be governed by the provisions of Sec. 61 to Sec. 63 of the Act; (iii) that though the assessee had formed a trust, but in substance it could not be treated as a trust since the settlor and the beneficiaries were the same; and (iv) that as the shares of the members were non-determinate the surplus was therefore to be taxed in the hands of the assessee as an AOP at maximum marginal rate, as per the provisions of Sec.167B of the Act, were upheld by the CIT(A) by relying on the view taken by his predecessor while disposing off the appeal in the case of the ISARC SIDBI-2, a sister concern for A.Y.2012-13, vide his order passed while disposing off its appeal, viz. Appeal No. CIT(A)-32/IT-211/23(1)(2)/15-16, dated 08.02.2017. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, it was noticed by the CIT(A) that there were also no receipts of management fees as per the profits and loss account. After considering the view taken by his predecessor, and also, the guidelines issued by the RBI for recognizing of revenue for ARCs, vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23.04.2014, the CIT(A) concluded that the income of the assessee was to be assessed at Rs. Nil. 7. We have given a thoughtful consideration to the aforesaid observations of the CIT(A) and find ourselves to be in agreement with the view therein taken by him. In our considered view, the A.O while framing the assessment had not reduced the cost of acquisition of the non-performing assets from the sale proceeds of ₹ 3,24,40,954/-. In fact, the A.O had after reducing the expenses incurred by the assessee during the year in connection with sales, viz. management fees, professional fees, audit fees, conveyance & travel expenses and miscellaneous expenses amounting to ₹ 50,69,582/-, had treated the net sales receipts of ₹ 2,73,71,372/- (forming part of the NPAs out of the pool of assets acquired), as the income of the assessee. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.02.2017 passed in Appeal No. CIT(A)-32/IT-211/23(1)(2)/15- 16. Accordingly, finding no infirmity in the view taken by the CIT(A), we uphold his order. 8. The appeal of the revenue is dismissed. ITA No.926/Mum/2019 A.Y.2014-15 9. We shall now advert to the appeal of the revenue in ITA 926/Mum/2019 in the case of ISARC SIDBI-2/2009-10. 10. Briefly stated, the assessee had e-filed its return of income for A.Y. 2014-15 on 29.11.2014, declaring its total income at Rs.nil. The assessment was completed on 19.12.2016 under Sec. 143(3) of the Act determining its total income at ₹ 6,33,02,640/- in the status as that of an AOP. The A.O while framing the assessment made an addition under the head "income from business or profession" of ₹ 6,32,072/- and "income from other sources" of ₹ 96,565/-. 11. Aggrieved, the assessee carried the matter in appeal before the CIT(A). As is discernible from the records, the A.O while framing the assessment had not reduced the cost of acquisition of the non-performing assets from the sale proceeds of ₹ 6,62,05,368/-. In fact, the A.O had after reducing the expenses incurred by the assessee during the year amounting to ₹ 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved by the CIT(A), there was no receipt of management fees as per the profit and loss account. Accordingly, it was observed by the CIT(A) that since there was no upside/or surplus in terms of the guidelines issued by the RBI vide its Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SCRC/26.03.001/2013-14, dated 23.04.2014, the income therefore arising during the year to the assessee was to be assessed at Rs.nil. On the basis of his aforesaid observations, the CIT(A) directed the A.O to assess the income of the assessee at Rs. Nil. 12. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.926/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing off the appeal of the revenue in ITA No.929/Mum/2019, the present appeal of the revenue is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 2,54,23,611/-, the CIT(A) was of the view that no upside income could be recognised in the hands of the assessee. Also, it was noticed by him that no receipt of management fee was reflected in the profit and loss account. Accordingly, relying on the aforesaid order of his predecessor ,and also, the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC /26.03.002 /2013-14, dated 23.04.2014, the CIT(A) concluded that the income arising to the assessee for the year under consideration was to be assessed at Rs.nil. As such, the CIT(A) deleted the additions made by the A.O and directed him to assess the total income at Rs.nil. 17. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. As the facts and the issue involved in the present appeal remains the same as were there before us in the appeal of the revenue in ITA No. 929/Mum/2019 in the case of ITO-23(1)(2), Mumbai, Vs. ISARC-FA-41-I/2011-12 Trust, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposal of the present appeal of the revenue in ITA No.927/Mum/2019. Accordingly, on the basis of the reasoning given by us while disposing ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
