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Income Tax Appellate Tribunal, VIRTUAL COURT
Before: SHRI C.N. PRASAD, HONBLE & SHRI MANOJ KUMAR AGGARWAL, HONBLE
O R D E R PER C.N. PRASAD (JM)
This appeal is filed by the revenue against order of the Learned Commissioner of Income-tax (Appeals)-32, Mumbai [hereinafter for short "Ld. CIT(A)] dated 23.10.2019 for the A.Y. 2009-10.
Revenue has raised following grounds in its appeal: -
2. ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust “1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that assessee has furnished the return of income specifying the status of the assessee as "any other AOP/BOI artificial juridical person and not the Trust." 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the AO has correctly held that the assessee is changing its stand again and again regarding assessibility of the income in its hand." 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that the assessee has shown income to the tune of Rs.9,11,79,397/- and the same has been shown under part A to the return of income under the head profit and loss account as interest income at Rs. 9,11,79,397/- as the interest income earned or accrued by an assessee is not exempt from tax under the Income Tax Act, 1961." 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that assessee's activities is a business activities and as per the overriding provisions of section 161(1A) of the I. T. Act, 1961 the income earned by it is liable to be taxed in the hands of the assessee itself." 5. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that even if the status is held to be invalid, the income of the trust is taxable u/s.161(1A) of the Act." 6. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the deduction of Rs.9,11,79,397/- while computing the taxable income," 7. "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."
"The appellant craves leave to add, delete, alter, amend and modify any or all grounds of appeal."
Briefly stated the facts are that, assessee engaged in the business of “Investment and Finance” filed return of income on 30.07.2009 declaring NIL income for the A.Y: 2009-10. The return was processed u/s.143(1) of the Act accepting the return. Subsequently, the return was 3 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust selected for scrutiny by issue of notice u/s. 143(2) of the Act. During the course of the re-assessment proceedings Assessing Officer noticed that assessee has furnished the return of income specifying the status as “any other AOP/BOI artificial juridical person” and in the return of income assessee mentioned assessee received/earned interest income to the tune of ₹.9,11,73,397/- and the same has been shown under the head Profit and Loss Account. Assessing Officer required the assessee to prove the why the interest earned by the assessee is not liable for tax. In response assessee vide letter dated 19.10.2011 submitted as under: - "SME Retail Pool IV Trust is a private Trust whose beneficiary is Bajaj Auto Finance Ltd. The share of beneficiary is determinate. Bajaj Auto Finance Ltd has subscribed to the entire PTCs in Series A1. The income of the Trust belongs to single beneficiary. In the return of income the fact that income is distributed to the beneficiary is mentioned. According to us, the provisions of section 161[1] is applicable as the beneficiary is identified and their share of income is determinate. They are the entity who are liable to pay tax as per the provisions of ' Income Tax Act 1961 as the income belongs to them. The trust is not iable to pay tax. The trust has only earned interest income' in respect of the investments made 'by it. The said income is chargeable to tax under the head income from other sources. The trust has been engaged only in investment activity, and a specified investment is made. The trust has not borrowed any money. This is the only transaction that the trust has executed. The beneficiaries have made the investments by subscribing to PTCs and have taken the risk and reward of the investment made by the Trust. The trust has not undertaken any risk. We would like to clarify that we are a private trust. WE are not association of persons. IL & FS Trust Co. Ltd is a trustee and is not a member of any of persons. As stated earlier, the beneficiary is Bajaj Auto Finance Ltd. The status of AOP is difference from that of a Trust 4 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust As the trust is not an AOP. The income which is actually belonging to the beneficiary cannot be taxed in the hands of the trust treating it as an AOP. We. would further like to clarify that we have filed the return in ITR-5 showing the status as 5. This is based of the format of the return wherein category 5 includes any other AOP / BOP/ artificial judicial person. Please note that as per the provisions of Income Tax Act 1961, the correct status of a private trust is an individual. Please note that the correct status of our trust should be treated as individual and not an 'AOP. In the computation of income also there is a reference to trust and due to the format of the return the category is shown as AOP. We would like to clarify that there is no Association of Persons.
With reference to your query No. 7 of your letter dated 14.7.2001, we have to state that at Sr. NO. 50 of the return of income it is clearly mentioned that income is distributed to the beneficiary. The trust has not transferred Rs. 9,11,73,397/- to Reserve and Surplus Account".”
Not convinced with the submissions of the assessee the Assessing Officer treated assessee as an AOP and added the interest income of ₹.91,17,3397/- earned by the assessee. On appeal Ld.CIT(A) deleted the addition made by the Assessing Officer. Against this order of the Ld.CIT(A) revenue is in appeal before us.
5. Inspite of issue of notice none appeared on behalf of assessee nor any adjournment was sought. Thus, we proceed to dispose of this appeal on hearing Ld. DR on merits.
Ld. DR vehemently supported the orders of the Assessing Officer and requested to set-aside order of the Ld.CIT(A).
5 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust 7. We have heard Ld.DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), we find that the Ld.CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and deleted the addition made by the Assessing Officer observing as under: - “4.3 I have considered the AO'’s order, submissions made and details filed by the appellant. The grounds raised are decided in light of the order of the ITAT Mumbai dated 22.02.2017, in appellant's own case for AY2010-11 in & 411 /Mum/2014 which has. further followed the order ITAT Mumbai dated 17.02.2017 in the case of India Corporate Loan Securitization Trust-2008 series 14, for AY2009-10 in ITA Nos: 3986 & 4343/Mum/2013. 4.3.1 Ground 1 & 2 are against assessing the appellant in the status of AOP. I find that the appellant has been constituted as a trust on 14.03.2008 for the benefit of Contributors, for the purpose of carrying on the activity of purchase from 'the sellers of the receivables pursuant to loan agreements and receive contributions from the persons as the trustee may deem fit and issue Certificates to the contributors etc. The trust deed provides for the constitution of the trust, duties/powers of the trustee, distribution of fund and income, provisions relating to contributor etc.. The Trustee has signed an assignment agreement with IndiaBulls Financial Services Ltd (IndiaBulls) to purchase the loan receivables for a consideration of Rs.956,845,055/- on 14.03.2068. The Contributor is Bajaj. Auto Finance Ltd, an NBFC, who have contributed a sum of Rs.956,845,055-/- against, issue of 95. PTCs. The. transactions represent the securitization of loans. The ITAT Mumbai, in case of the appellant for AY2010-11, following the lead case of India Corporate Loan Securitization Trust-2008 series 14 as referred 'to para 4.3 above, has held that - the appellant is a valid Trust and not an AOP. Following the above said precedents and considering that the facts remain the same, it is held that the appellant is a Trust and not an AOP. Ground No. l & 2 are allowed and ground No. 3, which is a without prejudice ground to assess the income u/s. 67A is therefore dismissed as ' infructuous. 4.3.2 Ground No. 4 is against invoking the provisions of section 161(1A) of the Act and assessing the income of Rs.9,11,73,397/- at 6 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust maximum marginal rate. Ground No. 5 is a, without prejudice that the Assessing Officer was not justified in levying tax at the applicable rate when the single beneficiary has offered the said income for taxation. Ground No.6 is against the. of the AO that the appellant has embarked on business venture by relying on certain factually incorrect statements and by relying on certain irrelevant circumstances. Ground No.7 is against the action of the AO in not holding that having regard.to the relevant documentation the contribution made by the beneficiary represented revocable transfers as contemplated u/s. 63 of the Income Tax Act, 196.1 and therefore in accordance with Section 61 "the entire income was assessable in the hands of the beneficiary. 4.3.3 The appellant has submitted that the ITAT has already held in its appeal for AY 2010-11 that the findings of the coordinate bench in the lead case of India Corporate Loan Securitization Trust-2008 series 14 will be applicable in its case. In this regard,' I find that on the issue of whether the trust was a not a revocable trust and contribution by beneficiaries was not a revocable Transfer, the ITAT has held. in, para 7.6.5 in the order dated 17.02.2017, asunder: “In view of the discussion made above and respectfully following the principles laid down in the above referred decision of the Bangalore Bench of the Tribunal in the case of India Advantage Fund-VU and the Mumbai Bench of ITAT in Milestone Army Navy Trust (supra), we hold that the assessee Trust is a revocable Trust and contribution by beneficiaries is a revocable transfer. Having held thus, it follows that the income shall be taxed in the hands of the beneficiaries, i.e. the Mutual Funds who purchase the PTCs from the assessee trust.” 4.3.4 It is also noted that in the case of DCIT, Circle 9(1), Bangalore vs India Advantage Fund-VII, [2014] 50 taxmann.com 3^0, it was held by the, ITAT Bangalore that case that, the power of revocation Under Clause 13 of the Deed of Trust is a general power of revocation an<j the same would be sufficient for construing the transfer as a revocable transfer. The relevant paras of the decision are reproduced as under: 57. The answer to the above question cannot be given by merely reading the clauses in the contribution agreement alone. The contention of the learned counsel for the assessee before us was that the Contribution agreement has to be read along with the Trust Deed as well as the Investment Management agreement and, offer 'document for private placement issued by the Investment Manager. Article-13 of the Trust Deed provides for termination of the Trust. Though such a power is not with the beneficiary/transferor, it is not the 7 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust requirement of Sec.61 that the power of revocation must be at the instance of the beneficiary/transferor, The 'power of revocation under Clauses of the Deed of Trust is a genial power of revocation and the same would be sufficient for construing the transfer in the present case as a revocable-transfer, As rightly contended by the learned counselfor the Assessee it is not necessary that the power of revocation should be at the. instance of the contributors/beneficiaries/ transferor and it can be at the instance of any person, either settlor, trustee, transferee or the beneficiaries. Provision of Sec.61 of the Act do not contemplate a power of revocation only at the instance of the transferor. In this regard the reliance placed by the learned counsel for the Assessee on the observations of the Hon'ble Supreme Court in the case of Surat' Art Silk Cloth Mfrs. Association (supra) support the plea taken by him. As rightly contended by him the existence of a power to revoke the transfer that has to be seen and not the manner in which/ or at whose instance such revocation is brought about.
The alternative submission of the learned counsel for the Assessee that the provisions of Sec.63(a) of the Act, which deems existence of power of revocation in certain circumstances are also acceptable. In this regard prospectus: inviting contribution from contributors clearly lay down in certain circumstances 75% of the contributors can revoke their contribution to the fund at any point of time and the trustees shall then terminate the fund. Though the above power of the transferor/beneficiary to revoke the transfer is not in the instrument of transfer but by virtue of the power conferred in a document by which the investment manager appointed by the-trust by virtue of powers conferred under the trust' deed, would be sufficient to conclude that the transferor/beneficiary had deemed powers of revocation. In this regard the reliance placed by the learned counsel for the Assessee on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Jyothendrasinhji (supra)is squarely applicable to the present case:. In the aforesaid decision the Hon'ble Supreme Court held that Sec. 63(1) of the Act does not say that the deed of transfer must confer or vest an unconditional or an exclusive power of revocation in the transferor. It was further held, that the. fact that concurrence of the trustee had to be obtained by the transferor/settler for revocation mill not make the trust an irrevocable transfer. In such circumstances it. be held that the deed contains a provision giving the transferor a right to re- assume power directly or indirectly over the whole or any part of income or assets within the meaning of s. 63(a)(ii) of the Act.
8 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust 59. For the reasons given above we hold that Sec. 61 read with Sec. 63 of the Act which mandates that income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income tax as income-of the transferor will apply to the facts and circumstances of the present case and therefore the assessment in the hands of the transferee/representative assessee was not proper. 4.3.5 I find that in the case of appellant, the Trust deed provides following clause 7.7 for termination: Where in the opinion of the Trustee, the 'objectives for which the Trust was constituted have been fulfilled, and the Trustee is satisfied that all obligations of the Trustee under this deed have been satisfactorily discharged, the Trustee shall be entitled to terminate the Trust. Therefore, following the ITAT decision dated 22.02.2017 in appellant's own case for AY2010-11, it is held that the transfer of funds by the contributor is a revocable transfer in terms of section 61 of the Act and the income on such assets/funds is to be taxed in the hands of the beneficiary i.e. Bajaj Auto Finance Ltd(BAFL). 4.3.6. As regards ground No. 4 and 6, I find that there is merit in the without prejudice contention of the AO that the interest income arising from the securitized assets are to be assessed 'under 'the head 'income from business and-profession' since the said income has arisen out of business activities of taking over the loans/receivables and managing the same and provision of section 161(1A) can be invoked to assess the same in the hands of the appellant. However, I find that this! issue was also there before the ITAT, in the case of India Corporate Loan Securitization Trust-2008 series 14,' referred, to in para 4.3 above and it, was held in that case that the income of the receivables is the 'income 'of the PTC holders (park 8.5.3 of order dated 17.02.2017) by the principle of diversion of income by overriding title. Therefore, following the above said finding, which has been followed by the ITAT Mumbai in appellant's case for AY2010-11, vide order dated 22.02.2017, it is held that the income of the receivables is the income of the PTC holder i.e. BAFL by the principle of diversion of income by overriding title. 4.3.7 As regards ground no. 5, an inquiry was made from the appellant as to whether the income from 95 PTCs have been offered to tax by the said beneficiary (BAFL). The Appellant has submitted details which show that the investment in 95 PTCs are shown by the BAFL as part of the securitized assets, income from interest received on investment in securitized assets has been included as part of the 9 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust income from business and profession, in the return for AY2009-10 filed on 30.10.2009 and the same was assessed to tax vide order u/s.143(3) dated 29.12.2011 at total income of Rs. 156,09,16,770/- . The above facts could have been verified by, the AO too, as the appellant's contention even before the AO has been that the income from securitized assets are to be taxed in the hands of the single beneficiary i.e. BAFL who has filed its return of income and paid the tax. 4.3.8 I find that the' provision of section 161(1) and 161(1A) provide for taxing the income arising to beneficiary in the hands of the Trustee, in the capacity of a representative assessee the provision of section 166 provides for taxing the beneficiary by way of direct assessment in its case. However, there is no intention of the Act to tax the same income in the hands of beneficiary as well as in the hands of its representative assessee i.e. the Trust. So, once the income from loan receivables have been offered to tax by BAFL/beneficiary and the same has also been assessed to tax, there, is no justification to tax the same income in the hands of the appellant, as a representative assessee u/s. 161(1A) of the Act. 4.3.9. In, view of above discussion, the addition made by the AO in the case of the appellant of Rs.911,73,397 /- is found to be without justification and is hereby deleted. Ground No. 4', 5 and 7 are allowed 'and. ground -no. 6 is dismissed. 4.4. Ground no. 8 is a without prejudice ground to allow deduction of Rs.911.73,397/- while computing the income in the hands of the appellant. 4.4.1 This ground is dismissed as infructuous as the addition of Rs. 911,73,397/- has been deleted in para 4.3.9 above 4.5. Ground no. 9 is against levy of interest u/s.234B of the Act of Rs. 98,65,990/- 4.5.1 The AO is directed to allow consequential relief by recomputing the interest u/s.234B while giving effect to this Order.
In the result, the appeal is partly allowed.”
10 ITA.NO. 7966/MUM/2019 (A.Y: 2009-10) M/s. SME Retail Pool IV Trust 8. On a careful perusal of the order of the Ld.CIT(A) and the reasons given therein, we do not find any infirmity in the order passed by the Ld.CIT(A). Grounds raised by the revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced on 30.07.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.