India Advantage Fund III Vs Commissioner of Central Tax (Karnataka High Court)
Conclusion: Trust and the Investors could not be regarded as two separate entities as the Trust Fund utilized the investments received by it to re-invest the same. Hence, in the absence of contradicting evidence, the Court upheld the Doctrine of Mutuality that “a person could not make profit from self”. Therefore, Trust Funds could not be categorized as a ‘Juridical Person’ under the purview of the Indian Finance Act, 1994.
Held: Assessee was a venture capital trust. Institutional investors contribute money to the trust fund and the same was managed by an Investment Manager. An investigation was conducted by Anti-Evasion Unit of the Jurisdictional Commissionerate against assessee. The investigating team took a view that assessee had retained certain portion of income distributable to the contributors which appeared to be service charge/fee for having managed the asset of the trust/fund on which service tax was required to be paid under the category of ‘banking and other financial services’ as defined under Section 65 (105)(zm) of the Finance Act, 1994. A show cause notice was issued to assessee proposing to demand service tax on ‘expenses incurred by assessee’ and ‘the amount paid to Class ‘C’ investors as return on investment’. Assessee contended that it was not liable to pay service tax because assessee was not covered within the definition of a ‘person’ as defined under the Act; assessee was not providing any service to the contributors; and assessee was not receiving any consideration from the contributors. On appeal, CESTAT had confirmed the demand. On appeal. It was held that the definition clauses of each statute must be read with the object and purpose of that statute only as intended by the legislature. Various statutes such as SEBI, GST, IBC recognized ‘trust’ as a person whereas the Finance Act did not. The issue involved in this case was liability to pay Service tax, therefore, the relevant statute was the Finance Act. The CESTAT had recorded that since the trust was treated as juridical person under SEBI, there was no reason why it should not be treated as a juridical person for taxation. This view of the CESTAT was untenable because, for the purpose of levy of tax, the entity had to be recognized under the said Act. In the instant case, the contributors and the trust could not be dissected as two different entities because, it was an admitted fact that contributors investment was held in trust by the fund and it was invested as per the advice of investment manager. In substance, fund does nor do an act. Hence, can be no service to self. Therefore the doctrine of mutuality must apply in the instant case.
