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TMI Blog2024 (6) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee trust was not a valid trust, for the reason that its contributors and beneficiaries were the same, clearly militates against the express provisions of the Indian Trust Act, 1882. Status of the assessee is an AOP on the basis that the beneficiaries had associated and joined hands for a common purpose or action with QIBs for the sole purpose of the acquisition of NPAs, and transferring those at a profit with motive of earning income/profit , the Co-ordinate Bench held that there is nothing on record which would suggest that the beneficiary had agreed to associate for any common objective and the beneficiaries who do not have any control over the activities carried on by the trustee in managing the trust, had made their respective investments based on the offer documents, and on the basis of their investments made in the trust were allotment the Security Receipt which represented their undivided and proportionate interest in the corpus of the trust. Accordingly, the Co-ordinate came to the conclusion that the AO had failed to place on record any material which would even remotely suggest that there was a concerted effort by the beneficiaries to earn income jointly, and therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by Completely ignoring the revocable nature of the determinate trust and ignoring the provisions of Section 61 to 63 of the Income Tax Act, 1961. 3. Without prejudice to the foregoing, the learned Commissioner of Income-tax (Appeals) erred in: i) holding the Appellant Trust as an indeterminate trust ignoring the submissions made by the Appellant in this regard, and, ii) considering the Appellant Trust as an "AOP" engaged in the business of securitization of debts. 4. Without prejudice to the foregoing contention, even assuming though not conceding that the income was taxable in the hands of the Appellant Trust, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of protection, preservation, and insurance expenses of Rs. 26,41,715/by ignoring the submissions made by the Appellant. 5. Without prejudice to the foregoing contention, even assuming though not conceding that the income was taxable in the hands of the Appellant Trust, the learned Commissioner of Income-tax (Appeals) erred in confirming the disallowance of management expenses of Rs. 76,907/- by ignoring the submissions made by the Appellant. 6. Without prejudice to the foregoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual Funds, Eligible Non-Banking Finance Companies and Foreign Institutional Investors. The assessee derives income from assets reconstruction activity and handling of NPA of banks/financial institutions. 4. During the year under consideration, the assessee filed its return of income on 29/09/2016 declaring a total income at Rs. Nil. The return filed by the assessee was selected for scrutiny and statutory notices u/s 143(2) as well as section 142(1) of the Act were issued and served upon the assessee. During the assessment proceedings, the assessee was asked to explain as to why the income/loss derived by assessee should not be taxed in its hand as Association of Person ("AOP"). The assessee was also asked to establish that it is a proper trust. In response thereto, the assessee submitted that it has been duly formed as a trust by ARCIL on 22/12/2010 in accordance with the provisions of the Indian Trust Act, 1882. The assessee further submitted that for an entity to be treated as an AOP, a common purpose or common action is a basic requirement, which the assessee trust cannot qualify and therefore it is not an AOP. It was further submitted that in case of the assessee trust, the QI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the three constituents are independent and distinct whereas in the present case, contributors are also the beneficiaries. Thus, so called trust has been created for the sole motive to the benefit of the settlor/contributor. Therefore, the AO held that the plea of the assessee that it is a trust is completely erroneous, and in fact, the assessee is only an AOP having the QIBs as members in the form of QIB/financial institutions. Accordingly, the AO rejected the submissions of the assessee that it is a trust falling within the meaning of section 61-63 of the Act. The AO held that after the creation of the assessee trust, it has entered into contribution agreement through offer documents with QIBs for the sole purpose of acquisition of NPAs, transferring those at a profit and earning profit/income out of the same. Thus, it was held that coming together of the two or more persons by way of contribution of sufficient fund into an entity in order to invest in the specific entities with a sole intention to earn profits can only be termed as in AOP. The AO also held that the revocable clause relied upon by the assessee makes it clear that the independent contributors cannot revoke their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Tribunal, wherein in the case of similar trust created by ARCIL, this issue has been decided in favour of the assessee by treating the trust as a valid trust as under the Indian Trust Act, 1882 and rejecting the submission of the Revenue to tax the same as an AOP. 8. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and held that since it is a legal issue, which has not attained finality, therefore, the decisions of the Tribunal are not binding at this stage. Accordingly, the learned CIT(A) concluded that the AO has taken correct legal view under the circumstances and the income can only be assessed in the hands of the assessee in the status of AOP. Being aggrieved, the assessee is in appeal before us. 9. We find that the Co-ordinate Bench of Tribunal in ITO Vs. M/s. Scheme A1 of ARCIL CPS 002 XI Trust, in ITA. No. 2293/Mum./2018, for the assessment year 2013-14, vide order dated 10/09/2020, while deciding the similar issue as arising in the case of trust set up by the ARCIL pursuant to the provisions of SARFAESI Act and the guidelines of RBI to acquire financial assets of the borrowers classified as NPAs held that there is no prohi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other head of income would be totally out of question. Accordingly, in the backdrop of our aforesaid observations, we are of the considered view that the CIT(A) had rightly dislodged the aforesaid view of the A.O, and in the totality of the facts had correctly observed that the assessee is a valid trust." 10. Further, the Co-ordinate Bench after considering the relevant clauses of the trust deed, which are similar to the present case, concurred with the view taken by the learned CIT(A) and held that the assessee trust is revocable trust, and therefore, the provisions of section 61 to 63 of the Act would be applicable to it. The relevant findings of the clauses are as under: - "We have given a thoughtful consideration to the observations of the lower authorities, and concur with the view taken by the CIT(A) that the assessee trust is a revocable trust, and thus, the provisions of Sec. 61 to 63 of the Act would be applicable to it. On a perusal of Sec. 61 of the Act, we find that the same therein provides that an income arising to a 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 hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it." 11. Insofar as the findings of the Revenue that the status of the assessee is an AOP on the basis that the beneficiaries had associated and joined hands for a common purpose or action with QIBs for the sole purpose of the acquisition of NPAs, and transferring those at a profit with motive of earning income/profit, the Co-ordinate Bench held that there is nothing on record which would suggest that the beneficiary had agreed to associate for any common objective and the beneficiaries who do not have any control over the activities carried on by the trustee in managing the trust, had made their respective investments based on the offer documents, and on the basis of their investments made in the trust were allotment the Security Receipt which represented their undivided and proportionate interest in the corpus of the trust. Accordingly, the Co-ordinate came to the conclusion that the AO had failed to place on record any material which would even remotely suggest that there was a concerted effort by the beneficiaries to earn income jointly, and therefore, the assessee cannot be treated as an AOP. The relevant findings of the Co-ordinate Bench are reproduced as under: - "We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. The Co-ordinate Bench, further, rejected the findings of the AO that the income has to be taxed in the hands of the assessee and payment of taxes by the contributors would have no bearing, on the basis that the money always intended to be passed on to and only to the beneficiaries, i.e. the SR holders in proportion to their interest in the corpus of the assessee trust as per the trust deed and offer documents. The Co-ordinate Bench also held that the assessee trust is a determinate trust and neither any discretion has 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. 13. Therefore, from the careful perusal of the aforesaid decision of the Tribunal, it is evident that the Co-ordinate Bench dealt with each and every finding, as raised by the AO in para no. 19 of the assessment order in the present case, as noted in forgoing paragraph, and decided the issue of non-taxability in the hands of the assessee in favour of the assessee. We find that the similar findings have been rendered by the Co-ordinate Bench in following cases of similar trusts set up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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