ITO Vs Arcil Retail Loan Portfolio-001-H Trust (ITAT Mumbai)
In this case before the Income Tax Appellate Tribunal, the Revenue challenged the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi, for Assessment Year 2016-17. The dispute concerned the taxability of income earned by a trust created by Asset Reconstruction Company India Ltd. (ARCIL) for reconstruction and recovery of non-performing assets (NPAs) under the SARFAESI Act, 2002.
The assessee trust was constituted pursuant to the SARFAESI Act and RBI guidelines. ARCIL, registered with RBI as a securitisation and reconstruction company, acted as trustee of the assessee trust. The trust acquired stressed financial assets classified as NPAs from banks and financial institutions. Contributions for acquisition of such assets were received from Qualified Institutional Buyers (QIBs), and Security Receipts (SRs) were issued to them. The assessee declared nil income in its return of income.
During assessment proceedings, the Assessing Officer questioned why the receipts should not be taxed in the hands of the trust and why the assessee should not be assessed in the status of an Association of Persons (AOP). The assessee explained that the contributions made by SR holders were revocable and, therefore, under Sections 61 to 63 of the Income Tax Act, income arising from such revocable transfers was taxable in the hands of the transferors, namely the SR holders. The assessee relied on provisions of the trust deed stating that SR holders were entitled to revoke their contributions. It was also argued that the trust was merely a pass-through entity and could not be treated as an AOP because there was no inter se agreement among beneficiaries.
