| The Tax Publishers2020 TaxPub(DT) 3710 (Mum-Trib) : (2021) 186 ITD 0136 : (2020) 207 TTJ 0777 INCOME TAX ACT, 1961
Section 161 read with Sections 61
Where assessee-trust was set up in pursuance to SARFAESI Act and RBI Guidelines for recovering NPAs acquired from banks and AO alleged that assessee was an Association of Persons(AOP) and not trust, considering that all necessary ingredients for formation and existence of trust were fulfilled, and RBI Guidelines were duly followed by assessee, claim of AO that assessee's creation was only a facade for evasion of taxes could not be accepted, as then it would imply that trust did not exist at all.
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Liability in special cases - Assessment of trust - Assessee-trust was set up in pursuance to SARFAESI Act and RBI Guidelines for recovering NPAs acquired from banks -
Assessee-trust was set up by Asset Reconstruction Co. (India) Ltd. (ARCIL) in pursuance to SARFAESI Act and RBI Guidelines for purpose of liquidating/recovering NPAs acquired from banks. AO alleged that assessee was an Association of Persons(AOP) and not a trust and accordingly, AO taxed entire surplus in hands of assessee. AO further alleged that as revocation of the contributions was conditional upon consent of the contributors holding 75% of the units, same rendered contributions as irrevocable. Held: Observations of AO that assessee-trust was not a valid trust, for reason, that its contributors and beneficiaries were the same, clearly militated against express provisions of the Indian Trust Act, 1882, and thus, could not be accepted. Since all the necessary ingredients for the formation and existence of the trust were fulfilled, and the RBI Guidelines were duly followed by assessee, thus, claim of AO that assessee was not a valid trust and its creation was only a facade for evasion of taxes could not be accepted, as then it would imply that trust did not exist at all. If that be so, there would be no legal sanction to treat the trust as an Association of Persons, as advocated by AO. Considering that there was no material on record which would even remotely suggest that there was a concerted effort by beneficiaries to earn income jointly, assessee could not be treated as an AOP. Under such a situation, the only transaction that would subsist will be the direct investment by the beneficiaries in the financial assets, and therefore, the question of assessing the assessee trust as an Association of Persons or under any other head of income would be totally out of question. Further, even though revocation of the contributions was conditional upon consent of the contributors holding 75% of the units, same would not render the contributions as irrevocable. A transfer is nonetheless revocable even if it can be revoked only with the consent of any named person or persons. As such, assessee trust was a revocable trust, and thus, provisions of section 61 to 63 would be applicable to it.
REFERRED : CIT, West Bengal v. Tollygunge Club Limited (1977) 107 ITR 776 (SC) : 1977 TaxPub(DT) 0852 (SC) Behramji Sorabji Lalkaka v. CIT, Bombay (1948) 16 ITR 301 (Bom) : 1948 TaxPub(DT) 0029 (Bom-HC) Indian Corporate Loan Securitisation Trust-2008 Series 14 C/o. IL and FS Trust Co. Ltd. v. ITO-9 (3) (2) Mumbai and ITO-(23) 1) (2), Mumbai v. Indian Corporate Loan Securitisation Trust-2008 Series 14 C/o. IL and FS Trust Co. Ltd. 2017 TaxPub(DT) 1130 (Mum-Trib) ITO Ward-19 (3) (3), Mumbai v. M/s. Milestone Army Navy Trust [ITA Nos. 4067/Mum/2014, dt. 23-12-2015] The Dy. CIT v. M/s. India Advantage Fund-VII 2014 TaxPub(DT) 4185 (Bang-Trib)
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