INCOME TAX ACT, 1961

Section 161(1A)

Liability in special cases - Assessment of trust - Assessee-trust created by Asset Reconstruction Company, for purpose of liquidating/recovering/realizing non-performing assets taken over by said company -

Assessee was a trust created by asset reconstruction company ('ISARC') for purpose of liquidating/recovering/realizing the non-performing assets (NPAs) taken over by ISARC. AO invoked provisions of section 161(1A) by treating assessee as an AOP as against status of 'Trust' claimed by assessee. AO treated gains in hands of assessee by treating it as AOP and taxed the gains at maximum marginal rate. CIT(A) following view that was taken by his predecessor while disposing appeal in case of ISARC SIDBI-2, a sister concern, for assessment year 2012-13, wherein identical facts were involved, concluded that AO rightly assessed income of assessee in the status as that of an AOP, i.e., at the maximum marginal rate. CIT(A) further held 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 23-4-2014, income therefore arising during year to assessee was to be assessed at nil. Revenue was aggrieved by order of CIT(A).Held: Claim of assessee was justified that AO ought to have been guided by the RBI Circular No. RBI/2013-14/571 DNBS (PD) CC No. 38/SERC/26.03.002/2013-14, dated 23-4-2014, which though was issued after the relevant financial year, but could be referred to for understanding the guiding principles laid down for recognition of revenue by asset reconstruction companies (ARCs). As observed by the CIT(A), and rightly so, 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. As in assessee's case, redemption of the relevant SRs did not take place till end of financial year (31-3-2012), therefore, CIT(A) rightly concluded that no upside income/surplus could have been recognized in hands of the assessee for the year under consideration. As for management fees, no income on said count accrued to assessee during captioned year. Thus, concurring with view taken by CIT(A), that as neither any upside income nor any management fees had accrued to the assessee during the year in question, therefore, assessee's income was to be assessed at Nil.

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