TMI Blog2021 (7) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... led the present appeal against the order dated 07.10.2016 passed by the Commissioner of Income Tax (Appeals) -28, Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y.2009-10. 2. The assessee has raised the following grounds: - 1. Ground No. I -Trust not assessed as per provisions of section 61 to 63 of the Income Tax Act a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) -28, (hereinafter referred to as CIT(A) ) has erred in taxing the income in the hands of the trust instead of the Security receipt holders by completely ignoring the revocable nature of the trust and ignoring the provisions of section 61 to 63 of the Income tax Act, 1961. b) Without Prejudice to the above, on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in (i) holding the appellant trust as indeterminate trust ignoring the submission made by the appellant in this regard. (ii) Considering the appellant trust as an 'AOP' engaged in the business of securitization of debts. Without prejudice to the above, the appellant takes the below mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of expenses u/s 40(a)(ia) a) On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in upholding the disallowance made by the AO ignoring the fact that the said amounts are reversed on the very next day and also disregarding the submission of the appellant. 7. Ground No. VII - Taxation of interest on Fixed Deposits as Income from Other Sources a) On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in considering the interest accrued as income from other sources of the appellant trust. 8. Ground No. VIII - Incorrect levy of interest under section 234B: a) On the facts and circumstances of the case and in law, the Learned CIT(A) has erred in incorrect)), levying interest u/s 2348 of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The appellant craves leave to add, alter, amend, modify or withdraw any of the above stated Grounds of Appeal at any time before or at, the time of hearing, of the appeal. 3. The brief facts of the case are that the assessee filed its return of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity after the revocable of the contribution by security receipt holders. Clause 5.2 at page no. 74 also speaks about the revocable of contribution. Clause 5.3 at page no.75 also speaks about the substitution of security receipt holders. The most important thing which came into notice that the Department has accepted the claim of the assessee as revocable trust in the hands of the beneficiaries in the assessee‟s own case for the A.Y. 2013-14. The said order lies at page no. 93 to 94 of the paper book. The order has been passed in one of the beneficiary of the assessee trust namely Assets Re-Construction Company India Pvt. Ltd. in which the Hon‟ble High Court in the case Writ Petition No. 3493 of 2018 wherein revenue has accepted the claim of the assessee as revocable trust and also accepted that all the recoveries work step to tax in the hands of respective beneficiary with trustee petitioner and other security receipt holders. In the sister concern case titled as ITO-21(3)(2) Vs. M/s. Scheme A1 of ARCIL CPS 002 XI Trust (supra) has given the following finding:- 6. We have heard the authorized representatives for both the parties, perused the orders of the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition of financial assets and creation of trust are only a facade for evasion of taxes. If the argument of the AO is accepted that the trust is not valid and the whole process of acquisition of NPAs is a falsity, then it would imply that the trust does not exist. If the trust does not exist, what is the legal sanction to treat the trust as AOP? In such a situation, only transaction that subsists will be direct investment by the beneficiaries in the financial assets and therefore the question of assessing the appellant trust as AOP or any other head of income is out of question. 8.5 In this regard, I find that the reliance of the appellant on the decision of the Bangalore ITAT in DCIT vs India Advantage Fund-VII (supra) is in order. Considering the totality of the facts and the circumstances of the issue involved, it is held that the appellant Trust is a valid Trust. 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. As observed by the CIT(A), as per Sec. 9 of the Indian Trust Act, 1882, there is no prohibition on the settlor in becoming a beneficiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O, the CIT(A) had observed as under: 9.3 On careful consideration, I find the stand of the AO incorrect against the expressed provisions of the Act and judicial decisions laid down by the Hon'ble Courts. The two relevant sections read as under: Section 61: All income arising to any person by virtue of a revocable transfer of asset shall be chargeable to income-tax as the income of the transferor and shall be included in his total income. Section 63: 63. For the purposes of sections 60, 61 and 62 and of this Act,- (a) transfer shall be deemed to be revocable if- (I) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) transfer includes any settlement, trust, covenant, agreement or arrangement. 9.4 Thus it is seen that under section 61 of the Act all income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Transaction Documents are duly and validly executed: and (b)The Trust Account is duly established. 5.1.4 This Deed shall take effect on the Commencement Date and continue in full force and effect until full redemption/ extinguishment of all the Security Receipts issued pursuant to this Deed, in accordance with the terms. 5.2 Revocation of Contributions 5.2.1 The Security Receipt Holders shall be entitled to revoke the Contributions made by them at any time during the term of this Deed, in accordance with the terms and conditions contained therein, for any reason, including but not limited to circumstances resulting from any adverse tax consequences (for either the Trust or the Security Receipts Holders) or any direction of any Statutory Authority, provided that no such revocation shall take effect unless the consent of the Security Holders holding Security Receipts representing not less than 75% of the total 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. 5.2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under. 7.6.4. After detailed analysis of the judgments in hand and provisions of the Act, in paras 7.6.4 and 7.6.5, Hon'ble Mumbai ITAT has come to the conclusion that: - (i). It is the power to revoke the transfer that has to be seen and not the person at whose instance such revocation can be done. (ii). The provisions of section 63 of the Act defining revocable transfer and consequently income has to be brought to tax only in the beneficiary/transferor. (iii) The section does not say the deed of transfer must confer or vest an unconditional or an exclusive power of revocation in the transferor. What emerges from out of the above discussion is that the beneficiaries need to be identifiable and the Trust Deed must contain provisions that vest the power of revocation. There is nothing in the section to read that such a power should be unconditional. As mentioned earlier, the Trust Deed and the Deed of Assignment contain clauses which indicate that the power of revocation has been granted. Incidentally, we find that these principles on revocable transfer have been followed by the Coordinate Bench of Mumbai Tribunal in the case of M/s. Milestone Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer is explicitly revocable, the provisions of Sec. 61 and 63 would not apply. As observed by the CIT(A), we find that Clause 5 of the trust deed makes it clear beyond any scope of doubt that the contribution made by the SR holders is revocable‟. Accordingly, we have no hesitation in observing that the income therein arising has to be brought to tax in the hands of the SR holders, i.e as per the provision of Sec. 61 to 63 of the Act. Insofar, the view taken by the A.O, that as the revocation of the contributions is conditional upon the consent of the contributors holding 75% of the units, we are afraid that the same would not render the contributions as irrevocable. Our aforesaid view is fortified by the judgment of the Hon ble High Court of Bombay in the case of Behramji Sorabji Lalkaka Vs. CIT (1948) (16 ITR 301) (Bom). In the aforesaid case, it was observed by the Hon‟ble High Court that the words revocable transfer are well understood in law and a transfer does not cease to be revocable because the power of revocation cannot be exercised by the settlor without the consent of the named individuals or any of them. As observed by the Hon‟ble High Court, a tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the beneficiaries to earn income jointly. Hence, the action of the AO in treating the appellant trust as an AOP is unsubstantiated and without any basis. Even otherwise, since it is already held in the preceding paragraphs that the appellant trust is a valid trust, the debate regarding treating the appellant as AOP does not survive. We have given a thoughtful consideration to the observations of the lower authorities in context of the aforesaid issue under consideration before us. Admittedly, the meaning of an Association of Persons (for short AOP ) had witnessed a change, vide the Finance Act, 2002 w.e.f. 01.04.2002. As per the amended definition of the term AOP as contemplated in Sec. 2(31)(v) of the Act, the requirement as was earlier laid down by the Hon‟ble Supreme Court in its various judgments that the various person as per their volition should have associated with the object of deriving income, profits or gains, had been dispensed with by the legislature, vide the Explanation to Sec. 2(31) of the Act, as had been made available on the statute vide the Finance Act, 2002, w.e.f 01.04.2002. As per the Explanation to Sec. 2(31) of the Act, an AOP shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in their respective returns of income at the correct rates. Rebutting the aforesaid view of the A.O, the CIT(A) had observed as under: 11.3 I have carefully considered the submission of the Ld. AR and find merit in it. I find that the argument of the AO is primarily based on the fact that the realisation is first received in the books of the appellant trust and then passed on to the SR Holders i.e. Arcil and ICICI Bank. As held by the Hon'ble Apex Court in the case of CIT vs. Tollygunge Club Ltd. (107 ITR 776), every receipt in the hands of the assessee need not be its income and it is only when it bears the character of income at the time when it reaches the hands of the assessee that it becomes eligible to tax. In the instant case, at the initial stage, even before the money flows to the assessee, it was 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 appellant trust as per the trust deed and offer documents. Therefore, merely because the realization flows through the appellant, it does not mean that it is income in the hands of the appellant. The money was always inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said view of the A.O, we find that the CIT(A) had observed as under: 12.3 I have carefully considered the aforesaid submission of the ld. A.R and the observations of the AO. It is observed from the Trust Deed and the minutes of the meeting dated 27th December, 2007 that the names of beneficiaries of the appellant trust and their shares are known and have remained unchanged throughout. The details of the same are as under: Sr. No. Name of the beneficiaries % share 1. ICICI Limited 90% in class B SRs 2. Arcil 5% in Class A SRs 3. ICICI Limited 5% in class A SRs Hence, the appellant trust cannot be considered as indeterminate trust once the names of beneficiaries of the appellant trust and their shares are known at the inception and proceeds are distributed as per their shares. This is not a case where discretion is given to the trustee to decide the allocation of the income every year or a right is given to the benefic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% in class A SRs As the names of the beneficiaries of the assessee trust and their respective shares are known since inception and also the proceeds have been distributed as per their respective shares, therefore, we concur with the view taken by the CIT(A) that the assessee trust could not be considered as an indeterminate trust. In fact, we are in agreement with the view taken by the CIT(A) that as neither any discretion have 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, therefore, it cannot be held that the share of the beneficiaries were indeterminate. In our considered view, as the names of the beneficiaries of the assessee trust and their shares were known since inception i.e at the time of the formation of the trust as is evident from the minutes of the meeting dated 27.12.2007, therefore, it can safely be concluded that the assessee trust is a determinate trust i.e a non-discretionary trust. Accordingly, finding no infirmity in the view taken by the CIT(A) who had rightly concluded that the assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the QIBs. As submitted by the assessee, it would record a notional impairment loss or write-back of any excess impairment loss recorded in its books of accounts in any previous year, and the same had nothing to do with its taxable income. The CIT(A) after deliberating at length on the issue under consideration disagreed with the view taken by the A.O, and therein concluded, that the provision written-back in respect of the impairment of the asset would not partake the character of taxable income of the assessee trust, observing as under: 14.7 I have carefully considered the above arguments put forth by the ld. AR and find merit in it. It is undisputed fact that during the year under consideration, the appellant has passed a book entry for ₹ 59,76,25,576/- being reversal of impairment provision created in the earlier years in respect of the financial asset. This resulted in the surplus of ₹ 57,56,60,595/- in the income and expenditure account. The AO has misconstrued it as income of the appellant being reflected as surplus in the profit and loss account. Basically it is a book entry for reversal of impairment provision created in the earlier years withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving any benefit or money or money‟s worth. We are of a strong conviction that a write-back of a provision can be made taxable only if the same was claimed as a deduction in the earlier year when it was created. We have perused the observations of the CIT(A), and are in agreement with the view therein taken by him. Accordingly, concurring with the view taken by the CIT(A) that the write-back of the impairment provision of ₹ 59,76,25,576/- could not have been treated as the income of the assessee, we uphold the same. 5. Since the issue has already discussed and decided in the case of M/s. Scheme A1 of ARCIL CPS 002 XI Trust (supra) and the facts narrated above is quite similar to the facts of this case, therefore, we are of the view that the assessee has revocable trust and the income is liable to be treated in the hands of the beneficiary. Accordingly, we set aside the finding of the CIT(A) on this issue and decide this issue in favour of the assessee against the revenue. ISSUE No. 2 to 8 6. Issue nos. 2 to 8 is academic in nature, therefore, no required to be adjudication. 7. In the result, the appeal filed by the assessee is hereby allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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