ITO-22(1)(6), MUMBAI, MUMBAI vs. ARCIL RETAIL LOAN PORTFOLIO- 001- A- TRUST, MUMBAI

The CIT(A) examined the facts and noted that the issue involved stood covered in favour of the assessee by decisions of ARCIL RETAIL LOAN PORTFOLIO- 001- A TRUST the coordinate benches of the Tribunal on identical facts. Relying on such binding precedents, the CIT(A) held that the assessee could not be treated as an AOP and that the income was not taxable in its hands. Accordingly, the entire addition of Rs. 30,33,45,950/- made by the AO was directed to be deleted. The grounds relating to levy of interest under sections 234B and 234D were held to be consequential. Thus, the appeal of the assessee was allowed in full.

Aggrieved by the order of the CIT(A), the Revenue is in appeal before us and has raised following revised grounds:

The appellant craves leave to amend or alter or add a new ground which may be necessary.

During the course of hearing, the learned Authorised Representative (AR) for the assessee reiterated the facts and submissions as placed on record before the lower authorities. The AR submitted that Asset Reconstruction Company (India) Ltd. (ARCIL) is registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) as an Asset Reconstruction Company (ARC). It was submitted that ARCs are strictly regulated by the Reserve Bank of India and, in terms of the SARFAESI Act, no ARC can commence or carry on business without obtaining a certificate of registration from RBI. RBI has also issued detailed guidelines regulating the functioning of ARCs.

The AR submitted that the assessee trust was duly constituted by ARCIL by a declaration of trust dated 28.09.2007 in accordance with the Indian Trusts Act, 1882. The Assessing Officer erred in treating the assessee trust as an Association of Persons on the premise that there was a common purpose or common action. It was pointed out that, for the year under consideration, there was only one QIB, namely United Bank of India, and therefore the very foundation for invoking the concept of AOP was absent. The QIB merely applied for subscription to ARCIL RETAIL LOAN PORTFOLIO- 001- A TRUST SRs and the trustee, in its discretion, allotted SRs in accordance with the trust deed. The AR invited attention to the relevant clause of the trust deed which provides that the trustee may accept contributions from investors pursuant to an offer document and, upon acceptance, issue Security Receipts on such terms and conditions as stipulated therein, entirely at the discretion of the trustee.

The AR placed reliance on the Budget Speech of the Hon‟ble Finance Minister while presenting the Finance Bill, 2016, wherein securitisation trusts, including those set up by ARCs, were expressly recognised as trusts and granted pass-through status. The relevant extract relied upon reads as under: “I propose to provide complete pass through of income-tax to securitization trusts including trusts of ARCs. The income will be taxed in the hands of the investors instead of the trust.”

It was submitted that the amendment introduced by the Finance Bill, 2016 was clarificatory in nature with respect to taxability and did not alter the classification of such entities. Reliance was also placed on the Memorandum to the Finance Bill, 2016, which states that the income of securitisation trusts shall continue to be exempt.

The learned Authorised Representative further submitted that the issue involved in the present appeal is no longer res ARCIL RETAIL LOAN PORTFOLIO- 001- A TRUST integra and stands squarely covered in favour of the assessee by a series of decisions rendered by the co-ordinate Benches, on identical facts in the case of ARCIL securitisation trusts. It was submitted that in all such cases, the Co-ordinate Bench has consistently held that ARCIL-managed securitisation trusts cannot be assessed as an Association of Persons and that the income is not taxable in the hands of the trust. In this regard, the learned AR placed reliance on the following decisions, copies of which were placed in the paper book: 1. Order of the Income-tax Appellate Tribunal, „G‟ Bench, Mumbai, in the case ofScheme A1 of ARCIL CPS 002 XI Trust for A.Y. 2013–14(ITA No. 2293/Mum/2018).

Order of the Income-tax Appellate Tribunal, „A‟ Bench, Mumbai, in the case ofARCIL AARF-I-1 Trust for A.Y. 2013–14(ITA No. 7353/Mum/2019).

Order of the Income-tax Appellate Tribunal, „A‟ Bench, Mumbai, in the case ofScheme A1 of ARCIL CPS 002 XIII Trust for A.Y. 2009–10(ITA No. 434/Mum/2017).

Order of the Income-tax Appellate Tribunal, „A‟ Bench,Mumbai, in the case ofARCIL Retail Loan Portfolio 004 BTrust for A.Y. 2016–17(ITA No. 256/Mum/2024).

Order of the Income-tax Appellate Tribunal, „A‟ Bench,Mumbai, in the case ofARCIL Retail Loan Portfolio 001 J Trust (ITA No. 4199/Mum/2023) andARCIL Shalimar Wires Industries Ltd II Trust (ITA No. 2909/Mum/2023)for A.Y. 2016–17.

Per contra, the learned Departmental Representative (DR) relied heavily on the order passed by the Assessing Officer and submitted that the learned CIT(A) has erred in granting relief to the assessee without properly appreciating the statutory scheme of sections 61 to 63 of the Act. It was submitted that the assessee has wrongly claimed the benefit of revocable transfer, whereas, on a correct reading of the trust deed and surrounding facts, the trust does not satisfy the conditions prescribed under section 63 of the Act.

The learnedDR, further, submitted that the Assessing Officer has rightly held that the assessee trust is not entitled to pass-through treatment and that the income has been correctly assessed in the hands of the assessee by treating it as an Association of Persons, having regard to the nature of activities carried on and the manner in which income is generated. The learned DR, therefore, submitted that the order of the Assessing Officer deserves to be restored and the order passed by the learned CIT(A) deleting the addition be set aside.

In rejoinder, the learned AR invited our attention to the specific provisions of the Trust Deed governing revocation of contributions, and submitted that the contention of the learned DR that the trust is not revocable within the meaning of section 63 of the Act is contrary to the express contractual terms. The learned AR submitted that Clause 5.2 of the Trust Deed expressly provides for revocation of contributions by the Security Receipt Holders, and therefore the transfer squarely falls within the ambit of a “revocable transfer” as defined in section 63(a) of the Act.

We have carefully considered the rival submissions, perused the orders of the Assessing Officer and the learned CIT(A), examined the Trust Deed placed on record, and analysed the statutory provisions and judicial precedents relied upon by both

Sections 61 to 63 form a self-contained code dealing with taxation of income arising from revocable transfers. The legislative scheme is explicit that where the transferor retains, directly or indirectly, the right to re-assume control over income or assets, such income cannot be assessed in the hands of an intermediary entity but must be taxed in the hands of the transferor. Section 63 deliberately adopts a wide and inclusive definition of both “transfer” and “revocable transfer”. The statute does not prescribe that revocation must be unilateral, unconditional, or exercisable by an individual contributor. What is required is the existence of a contractual or legal mechanism for re-transfer of assets or re-assumption of power. This statutory scheme must be read harmoniously with the regulatory framework governing securitisation trusts, which are mandated under the SARFAESI Act and RBI Guidelines to operate as pass- through vehicles with beneficial ownership resting with Security Receipt Holders.

In this context, it is relevant to reproduce paragraph 9.4 of the order of the co-ordinate Bench in ITO v. Scheme A1 of ARCIL

The contention of the Revenue that revocation requiring consent of a specified percentage of holders negates revocability has been expressly rejected by the Co-ordinate Bench. In this regard, paragraph 18 of the order in ITO v. Scheme A1 of ARCIL CPS 002 XI Trust (supra) is directly applicable and is reproduced as under: “The Co-ordinate Bench further categorically rejected the precise objection raised by the Revenue in the present case, namely that revocation being conditional would render the transfer irrevocable, by observing as under in the same paragraph: Insofar, the view taken by the A.O, that as the revocation of the contributions is conditional upon the consent of the contributors holding 75% of the units, we are afraid that the same would not render the contributions as irrevocable.”

In view of the above binding exposition of law, it is evident that section 63 does not mandate unilateral or unconditional revocation, and that a revocation mechanism embedded in the governing instrument is sufficient. Collective revocation does not dilute the revocable character of the transfer.

The learned CIT(A), in our view, has rightly relied upon the aforesaid co-ordinate Bench decisions, including paras 9.4, 18– 19 and 7.6.4–7.6.5 of the decision in ITO v. Scheme A1 of ARCIL CPS 002 XI Trust (ITA No. 2293/Mum/2018).

The Assessing Officer has further sought to assess the assessee as an Association of Persons, invoking section 164 on ARCIL RETAIL LOAN PORTFOLIO- 001- A TRUST the premise that beneficiaries are indeterminate and that the trust carries on business with a profit motive. We are unable to agree with this approach.

Firstly, the formation of the assessee trust is statutorily mandated under the SARFAESI Act and RBI Guidelines. The trust is not a voluntary association of persons coming together for a common purpose, but a regulatory vehicle created for securitisation. The trustee functions independently and exclusively in accordance with the Trust Deed. There is no joint management, no sharing of responsibilities, and no common volition among Security Receipt Holders so as to constitute an AOP.

Secondly, the beneficiaries are clearly identifiable with reference to the Trust Deed, Offer Documents and contribution records, and their respective shares are determinable in proportion to Security Receipts held. Merely because the names of beneficiaries are not set out in the Trust Deed itself does not render the trust indeterminate. This position is well settled by judicial precedents relied upon by the assessee and accepted by the learned CIT(A).

Thirdly, once it is held that the trust is revocable, section 164 has no independent application. Sections 61 to 63 override section 164 in cases of revocable transfers. The Assessing

The issue before us is no longer res integra. The Mumbai Benches of the Tribunal, in a series of decisions involving ARCIL securitisation trusts with identical trust deeds, have consistently held that such trusts are revocable within the meaning of section 63, income is not taxable in the hands of the trust, and the trust cannot be assessed as an AOP.

In Scheme A1 of ARCIL CPS 002 XI Trust (A.Y. 2013–14) and ARCIL CPS 002 XIII Trust (A.Y. 2009–10), the Co-ordinate Bench examined Clause 5.2 in detail and categorically rejected the Revenue‟s argument that conditional revocation negates section 63. Similar conclusions have been reached in ARCIL Retail Loan Portfolio trusts for A.Y. 2016–17, which are directly comparable to the present case.Judicial discipline requires that, in the absence of any distinguishing facts or contrary higher judicial authority, we follow the consistent view taken by co- ordinate Benches. The Revenue has not demonstrated any departure either in facts or in law.

The legislative intent to treat securitisation trusts as pass- through entities is further reinforced by later amendments and CBDT clarifications. The Finance Bill, 2016 expressly recognised securitisation trusts, including those set up by ARCs, as vehicles through which income is to be taxed in the hands of investors ARCIL RETAIL LOAN PORTFOLIO- 001- A TRUST and not the trust. These amendments are clarificatory in nature, explaining the manner of taxation rather than altering the character of such trusts. They fortify the conclusion that, even prior to the amendments, the law recognised the trust as a conduit and not as a separate taxable entity in respect of such income. In view of the foregoing discussion, we hold as under: 1. The assessee trust is a revocable trust within the meaning of sections 61 to 63 of the Act.

The income arising from the trust is not chargeable to tax in the hands of the trust, but in the hands of the Security Receipt Holders.

The assessee cannot be assessed as an Association of Persons, and section 164 has no application to the facts of the case.

The learned CIT(A) has correctly appreciated the statutory scheme, the Trust Deed, and the binding judicial precedents, and has rightly deleted the addition made by the Assessing Officer.

Accordingly, the order of the learned CIT(A) is affirmed, and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 22.01.2026. Sd/- Sd/- (AMIT SHUKLA) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 22/01/2026 RY, Sr. P.S.