ITO Vs Arcil Asset Reconstruction Fund II Trust (ITAT Mumbai)
ITAT held that appellant was revocable Trust, the provisions of Section 61 to 63 of Income Tax Act, 1961 were applicable and the assessee could not be assessed as AOP. The income was to be taxed in the hands of the SR holders. Since the respective shares were known since inception, it could not be considered as indeterminate Trust.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals in ITA Nos.889/Mum/2020 & 887/Mum/2020 for A.Y.2014-15 & 2015-16 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-33, Mumbai in appeal No.33/10753/2016-17 & 33/10394/2017-18 dated 27/11/2019 & 20/11/2019 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 22/12/2016 & 18/12/2017 respectively by the ld. Income Tax Officer-21(1)(2) / 21(1)(4), Mumbai (hereinafter referred to as ld. AO).
Identical issues are involved in both these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.
2. With the consent of both the parties, the appeal for Asst Year 2015-16 in ITA No. 887/Mum/2020 is taken up for adjudication first.
3. The revenue has raised the following grounds of appeal before us :-
1.”On the facts and circumstances of the case and in law , the Ld CIT (A) erred in changing the status of assessee as ‘TRUST and not an AOP and allowing expense of 7,74,25,409 which was made by the assessee for protection, preservation , insurance expenses and management fees from such investment activity upon redemption of the principal amount of Security Receipts (SR).
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in considering that assessee is a trust which does not fall within the meaning of section 61 to 63 of the IT.Act, 1961.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in considering that the assessee trust, set up and functioning in accordance with the mechanism of the SARFAESI Act, 2002 and under guidance of RBI whereas it is clear that trust is a smoke screen and colourable device to evade taxes.
4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in considering that assessee has carried on business from the contribution of various beneficiaries as per common motive to earn income and hence, it is an AOP.”
4. We have heard the rival submissions and perused the materials available on record. We find that the assessee trust had been set up pursuant to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI) and the guidelines of Reserve Bank of India (RBI) to acquire financial assets of the borrower classified as Non-Performing Assets (NPA) of banks and financial institutions. The trust receives contribution from the Security Receipt Holders (SR Holders) as per the offer document issued. The contributory SR Holders do not have any inter se agreement between them but only with the Trust. These contributions are revocable within the meaning of section 61 read with section 63 of the Income Tax Act, 1961. These contributions are utilised for acquiring financial assets. These financial assets are realised over a period of time and distributed among the SR Holders as per the provisions of offer document / trust deed after adjusting the management fees and other expenses incurred by the trust. As per the trust deed, the beneficiaries are the persons who are SR Holders and are identified on the date of the trust deed. In the case of the assessee trust, the share of each SR Holder is determined and is based on the proportionate holding of each SR Holder. Accordingly, it was clarified by the ld AR that the beneficiaries are identifiable and their shares are known.
4.1. The trust has the following partners / members / shareholders:-
