ITO 19(3)(2), MUMBAI vs. INDIAN CORPORATE LOAN SECURITIZATION TRUST 2008 SERIES 14I, MUMBAI

Per Bench

These cross appeals, by the assessee and Revenue, are directed against the order of the CIT(A)-30, Mumbai dated 30.03.2013 for A.Y. 2009-10 . 2. The facts of the case, briefly, are as under: - 2.1.1 The assessee, Indian Corporate Loan Securitisation Trust 2008 Series 14 is a trust, formed vide Trust Deed dated 20th May, 2008 settled

2 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust by IL&FS Trust Co. Ltd. (ITCL). For the assessment year under consideration, the assessee filed its return of income on 29.07.2009 declaring total income at Nil. In the said return of income, the assessee had showed interest of `21,49,72,486/-, under the head “other income” and at item No. 50 thereof – Distribution to Beneficiaries of the same amount. Consequently, the total income returned was shown as Nil. In the course of assessment proceedings, the Assessing Officer (AO) sought to bring this interest income to tax in the assessee’s hands and this was how this issue came to be raised. 2.1.2 ITCL is a company registered under the Companies Act, 1956. It is the trustee of the assessee, which is a trust, formed by ITCL by means of Trust Deed dated 20th May, 2008. Thus, the assessee is a private specific trust. The beneficiaries to the trust are seven Mutual Funds, namely, (1) UTI Mutual Fund, (2) SBI Mutual Fund, (3) DBS Chola Mutual Fund, (4) ICICI Prudential Mutual Fund, (5) HDFC Mutual Fund, (6) Lotus Mutual Fund and (7) Franklin Templeton Mutual Fund. The beneficial interest of these mutual funds in the trust is proportionate to their contribution in the assessee trust. 2.1.3 In the case on hand, Hindustan Petroleum Corporation Ltd. (HPCL), a Government company, proposed to raise loans for `300 crores. Based on an e-bid enquiry, Yes Bank (hereinafter referred to as ‘Yes Bank’/ Originator/Seller) made the loan offer which was accepted by HDFC on 15.05.2008, to be effective from 16.05.2008 for 364 days at an interest rate of 9.18%. An Agreement for the loan was purportedly entered into between HPCL and Yes Bank on 15.05.2008, which specified that a standard format agreement shall be executed. This standard format agreement was executed on 21.05.2008, making it effective from 16.05.2008. Yes Bank entered into a Deed of Assignment dated 20.05.2008 assigning the receivables under the aforesaid loan to the Assessee for a consideration of `300,55,82,700/-. This transaction of Yes Bank assigning the receivables from the loan advanced to HPCL to the

3 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust assessee in such haste is an issue, on which Revenue has strongly relied upon in advancing its case. 2.1.4 In parallel, the assessee trust decided to issue Pass Through Certificates (PTCs). Such PTCs are securities that can be issued only to Mutual Funds (MFs), Banks and Non-Banking Financial Companies (NBFCs) as per RBI ‘Guidelines on Securitization of Standard Assets’. Meanwhile, an Information Memorandum dated 20.05.2008 was jointly issued by the assessee and Yes Bank to MFs, inviting them to subscribe to the PTCs to be issued by the assessee, in terms of which, three different series of PTCs, i.e. Series A1, Series A2 and Series A3 were issued. These PTCs were subscribed by seven MFs, who are incidentally the beneficiaries of the trust, holding beneficial interest in the assessee. In terms of this subscription, the MFs transferred funds to the assessee towards purchase of these PTCs. Having received funds from the MFs, the assessee utilized these funds to pay the consideration to Yes Bank, towards the receivables taken over by it through the Assignment deed. 2.1.5 To achieve this loan securitization process multiple transactions have been executed by different organizations as under: - (i) The sanction of loan by Yes Bank to HPCL (15.05.2008) (ii) Execution of Standard Agreement between Yes Bank and HPCL (21.05.2008) (iii) Formation of the assessee trust, with seven MFs as their beneficiaries (20.05.2008) (iv) Approval of the MF trustees to become the beneficiaries in the assessee trust (v) Approval of Yes Bank Board for the loan and its assignment (vi) Deed of Assignment between Yes Bank and assessee trust (20.05.2008) (vii) Issue of PTCs by the assessee trust – the procedures and approvals for such issue

4 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust (viii) Issue of Information Memorandum by assessee and Yes Bank, inviting MFs to subscribe to the PTCs (20.05.2008) (ix) Approval procedures in the seven MFs to subscribe to the PTCs (x) Subscription by the beneficiary MFs to the PTCs (xi) Transfer of funds by the assessee to Yes Bank, in terms of the Assignment Deed All these transactions have happened between 15.05.2008 (when Yes Bank and HPCL executed the agreement of intent for the loan) and 21.05.2008, when the standard format agreement was executed between Yes Bank and HPCL. The main borrower, HPCL is out of all these transactions. HPCL shall pay the interest and loan repayment only to Yes Bank. Yes Bank, in terms of all these transactions will transfer the receivables, comprising both the loan amount and the interest thereon, to the assessee trust to be received by the mutual funds, being the beneficiaries of the assessee trust. It is in the background of these facts that the AO has held the Trust to be not genuine. Assessee’s stand 2.2 The assessee filed its return of income for A.Y. 2009-10 declaring taxable income at Nil, as according to the assessee, the amounts received by the assessee from Yes Bank and in turn paid by it to the beneficiaries in proportion to their investment in PTCs as pay outs in a pre determined manner are not chargeable to tax in the hands of the assessee. During the assessment year under consideration, the assessee received an amount of `21,49,72,486/- as interest from Yes Bank and the entire proceeds were distributed to the beneficiaries of the assessee Trust, i.e. the MF beneficiaries through the PTCs, in proportion to their investment. It is the claim of the assessee that it received the interest for and on behalf of the benefit of the beneficiaries and since the income of the beneficiaries was exempt from tax u/s 10(23D), the interest received by it for their benefit was not chargeable to tax in its hands in terms of provisions of section 160(1)(iv) read with section 161(1) of the Income-tax Act. Therefore, even if these were to be treated as income of the assessee in accordance with the

5 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust provisions of Sec 161(1), which stipulates the tax to be levied upon representative assessee in like manner and to the same extent as it would be leviable upon the person represented, no tax is leviable upon the representative assessee since MFs income is exempt from tax. Therefore, it is the contention of the assessee that the impugned interest income is not chargeable to tax, either in the hands of the assessee trust or its beneficiaries or Yes Bank. Assessing Officer's (AO) stand 2.3.1 The AO did not agree with the assessee on two main grounds. The A.O held that the assessee was not a genuine trust. He based his decision on the premise that, "to constitute a valid a trust, the Settlor, the Contributor and the Beneficiary are required to be independent". In the case on hand, the Contributor and the Beneficiaries are the same. Therefore, the AO held that the trustee and the seven beneficiaries, all financial institutions, had come together and had subscribed certain amount of money for earning profit, thereby constituting an Association of Persons (AOP). The AO held that the assessee is an AOP of the seven Mutual Funds and ITCL and held that the provisions of section 160(1)(iv)/161(1) of the Act applicable to a trustee as a representative assessee did not apply to the assessee in the case on hand.

2.3.2 The AO further held that the activity of the assessee is business in nature and therefore Sec. 161(1A) of the Act was attracted. Therefore, the AO held that the interest income so earned is out of the business and was chargeable to tax in the assessee’s hand as "Income from business or Profession". The AO accordingly, completed the assessment bringing to tax the entire amount of `21,49,72,486/- as business income in the hands of an Association of Persons(AOP) comprising eight members - the trustee and the seven mutual funds. Having held this interest income as being derived out of "Income from Business", the AO alternatively held that even if the assessee was to be regarded as a valid trust, the assessment would be made in the hands of the trustee as a single unit and tax shall be payable at maximum marginal rate in terms of section 161(1A) of the Act, because as per the A.O,

6 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust Section 161(1A) of the Act overrides section 161(1) and accordingly, the fact that the income of the beneficiary mutual funds is exempt under section 10(23D) of the Act , would be of no consequence. The provision of section 161(1A) of the Act would still be applicable even if the income of the individual beneficiaries is exempt from tax. The assessment was accordingly completed u/s 143(3) of the Act, vide order dated 30.11.2011. CIT(A)'s stand 2.4.1 Aggrieved by the order of assessment for A.Y 2009-10 dated 30.11.2011, the assessee carried the matter in appeal to the CIT(A) - 30, Ii Mumbai. The CIT(A), vide order dated 30th March, 2013, upheld the action of the AO in holding that the trust is not a valid trust and that the assessee constituted an AOP, not of eight members as held by AO, but consisting of nine members - the bank (Yes Bank), the trustee and seven mutual funds who were the beneficiaries. In support of his decision that the assessee is not a valid trust, the CIT(A) gave the following reasons: - (i) A Corporate entity is not entitled to create a Trust. The amount settled is in the nature of 'Gift' and a corporate entity cannot make a gift in excess of `50,000/- as per section 293 of the Companies Act. As ITCL had gifted in excess of `50,000/- (considering the aggregate of the amounts settled by ITCL during the year to settle various trusts) the Trust is invalid. (ii) The beneficiaries have not been assigned any beneficial interest in the corpus of the assessee trust. (iii) A Trust cannot be a beneficiary of another Trust as per section 8 of the Indian Trusts Act, 1882 and as the Mutual Funds, who are the beneficiaries under the trust created by ITCL, the assessee is an invalid Trust. (iv) The initial corpus of `500 for settling the Trust was transferred by the Settlor to the Account of the assessee only on 14th January, 2009 and, hence, the Trust did not come into existence on 20th May, 2008 as there was no trust property which was transferred from the Settlor to the trustees.

7 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust He also upheld the decision of the AO that the provisions of section 160(1)(iv) of the Act and section 161 as regards representative assessee did not apply to the assessee in the case on hand. He also upheld the action of the AO in treating the interest received as "Income from business", as against the claim of the assessee that it is not its income but that of the beneficiaries. The assessee is in appeal against this order. 2.4.2 As regards the quantum of income, the CIT(A) held that interest accrued on day to day basis, as against the contention of the assessee that interest has to be accounted on actual receipt basis. The CIT(A) worked out accrued interest at `23,84,28,493/- as against `21,49,72,486/- declared by the assessee, thereby enhancing the income by the difference of these two amounts. Having held thus, the CIT(A) held that the assessee was entitled to deduction payment etc. aggregating to `20,61,55,310/- during the year and recomputed the total income of the assessee at `3,22,73,183/- against `21,49,72,486/- assessed by the AO. The assessee is in appeal against the order of the CIT(A) enhancing the interest income and the Department is in appeal against the learned CIT(A) ordering deduction of `20,61,55,310/-, on account of interest payment being allowed to the assessee. Thus, both the assessee and the Revenue are in appeal before us against the impugned order of the CIT(A). These appeals are being disposed off in seriatum as under: - 3. Grounds of appeal of assessee in ITA No. 3986/Mum/2013 3.1 In this appeal the assessee raised the following grounds and concise grounds of appeal: - “I. Ground I: Holding the Trust to be not a valid Trust a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in ruling that the Trust is not a valid trust. b. The CIT(A) failed to appreciate and ought to have held that: i. All the essentials for the creation of a valid trust were fulfilled; ii. Provisions of sections 6 or 8 of the Indian Trust Act, 1882 have not been breached;

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iii. There is no violation of the provisions of section 293(1)(e) of the Companies Act, 1956; iv. The circumstances relied upon by him do not render invalid creation of the trusts by IL&FS Trust Company Ltd; v. The Settlor in the present case is empowered under its Memorandum of Association to carry on the Trusteeship business and to do all that may he essential for achieving the said object and hence it is entitled to create a trust and act as its trustee as a commercial activity; and vi. The share of each of the beneficiary in the income of the Trust is known and determinate. c. The Appellant prays that it be held that the Trust is a valid trust. II. Ground II: Holding that the Trust was not revocable a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in rejecting, the applicability of sections 61 to 63 of the Act on the ground that (i) there is no contribution by the Beneficiary to the trust and (2) it is only where through artefact arrangement, the income is shifted to other than the beneficial owner, the section would come into play. b. The CIT(A) failed to appreciate and ought to have held that: i. The Mutual Funds are the transferors of funds in the Trust and they are also the beneficiaries; and ii. Therefore, the income of the Trust ought to be charged to tax in the hands of the investors / beneficiaries, namely the Mutual Funds only in view of the clear provisions of section 61 to 63 of the Act. c. The Appellant prays that it be held that the income of the Trust is chargeable in the hands of the investors/beneficiaries, namely the Mutual Funds and not in the hands of the Trust. III. Ground III: Diversion by overriding title Without prejudice to grounds above: a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the income is not divested at source on the ground that an overriding title cannot be created by voluntary act of parties. b. The CIT(A) failed to appreciate and ought to have held that: i. Diversion by overriding title can be created by voluntary act of the parties; and ii. Without prejudice, the income is diverted as an overriding title is created as per the RBI Guidelines on Securitization of Standard Assets.

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c. The Appellant prays that it be held that the income of the Trust is divested at source by overriding title and is not chargeable in the hands of the trust. IV. Ground IV: Treating the status of the appellant as "AOP" a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the status of the Appellant is that of an "Association of Person. b. The CIT(A) failed to appreciate and ought to have held that: i. The beneficiaries have not joined in a common venture or a joint enterprise but have made investments in the Trust individually; and ii. The fact as to whether one Mutual Fund knows which other Mutual Funds are the beneficiaries under the Trust is not decisive of the legal relationship and a mere co-investor or co-beneficiaries cannot be regarded as having formed an Association of Persons in law. c. The Appellant prays that it be held that the Appellant is not an AOP. V. Ground V: Invalidity of assessment order a. The CIT(A) having held that the AOP is constituted by Yes Bank Limited (originator), the Seven Mutual fund (PTC Holders) and IL&FS Trust Co. Ltd. ought to have quashed the assessment made by the AO on the AOP constituted by the Seven Mutual fund (PTC Holders) and IL&FS Trust Co. Ltd. b. The CIT(A) failed to appreciate that once he has come to the conclusion that the members of the AOP is not the same as what has been treated as the members of the AOP by the AO, the assessment made by the AO ought to be quashed as the said assessment is on a non existing entity. VI. Ground VI: Enhancement of income by the CIT(A) a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in enhancing the income of the Appellant. b. The CIT(A) erred in holding that income by way of interest on receivables accrues on day to day and not as and when it becomes due. c. The CIT(A) failed to appreciate and ought to have held that: i. The Trust not being a corporate entity is free to accrue its income either under the cash or mercantile method and that mercantile method is not mandatory in law; and ii. Even under the mercantile method, the income by way of interest on receivables accrues as and when it is due and

10 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust not on day to day basis. d. The Appellant prays that the gross interest as computed by the CIT(A) amounting to Rs. 238428493/- be reduced to a sum of Rs. 214972490/- as disclosed by the Appellant in its return and accordingly, the enhancement of Rs. 23456003/- be deleted. VII. Ground VII: Disallowance of expense on accrual basis Without prejudice to ground I & II above and assuming the CIT(A) is right in holding that the sum of Rs.23456003/- was assessable as income of Assessment Year: a. CIT(A) erred in not allowing expense by way of interest / return on investment payable to the PTC holders on the same basis as applied by him for charging to tax the interest income on receivables. b. The CIT(A) failed to appreciate and ought to have held that: i. Whatever income is receivable by the Trust is all payable by the Trust to the beneficiaries; and ii. There cannot be double standards for charging of income and for allowance of expense. c. The Appellant prays that if enhancement of income by way of interest on receivables is upheld, then the corresponding expense be also allowed as a deduction. VIII. Ground VIII: Levy of interest u/s 234B & 234C of the ACT a. The AO erred in levying interest amounting to Rs 5484850/- and Rs. Nil u/s 234B and 234C of the Act. The Appellant denies its liability towards the same b. The Appellant prays that the interest levied u/s 234B and 234C of the Act be deleted. IX. Ground IX: General The Appellant craves leave to add to, alter or modify all or any of the above grounds of appeal. 3.2 Concise grounds of appeal As per the Tribunal's direction we file the concise grounds of appeal which are without prejudice to the original grounds of appeal filed by the Appellant. Ground I: Holding the Trust to be not a valid Trust a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in ruling that the Appellant is not a valid trust on the alleged ground that all the essentials for a valid trust were not fulfilled. Ground II: Holding that the Trust was not revocable a. On the facts and in the circumstances of the case and in law,

11 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust the CIT(A) erred in rejecting the applicability of sections 61 to 63 of the Act to the contribution made by the Beneficiaries to the Appellant. Ground III: Diversion by overriding title without prejudice to grounds above: a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the income of the Appellant is not diverted at source to the Beneficiaries/PTC Holders on the alleged ground that an overriding title cannot be created by voluntary act of parties and, hence, not chargeable to tax in the hands of the Appellant. Ground IV: Treating the status of the appellant as "AOP" a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding the status of the Appellant as that of an "Association of Person" constituted by Yes Bank Limited, the Seven Mutual fund (Beneficiaries/PTC Holders) and L&FS Trust Co. Ltd. Ground V: Invalidity of assessment order without prejudice to ground above: a. The CIT(A) having held that the AOP is constituted by 9 members i.e. Yes Bank Limited., the Seven Mutual funds (PTC Holders) and IL&FS Trust Co. Ltd. ought to have quashed the assessment made by the AO on the AOP constituted by 8 members the Seven Mutual funds (PTC Holders) and IL&Fs Trust Co. Ltd. Ground VI: Enhancement of income by the CIT(A) a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in enhancing the income of the Appellant on the alleged ground that income by way of interest on receivables accrues on day to day and not as and when it becomes due. Ground VII: Without prejudice to grounds above and assuming the CIT(A) is right in holding that income by way of interest on receivables accrues on day to day basis and not as and when it becomes due: a. The CIT(A) erred in not allowing expense by way of interest / return on investment payable to the PTC Holders on the same basis as applied by him for charging to tax the interest income on receivables as there cannot be double standards for charging of income and for allowance of expense. Ground VIII: Levy of interest under section 234B of the Act a. The AO erred in levying interest u/s 234B of the Act. The Appellant denies its liability towards the same. b. The Appellant prays that the interest levied u/s 234B of the Act be deleted.

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Ground IX: General The Appellant craves leave to add to, alter or modify all or any of the above grounds of appeal.” 4. Both the learned Senior Counsel for the assessee, Shri S.E. Dastur and the Senior Standing Counsel for Revenue, Shri P.C. Chhotaray have made detailed oral and voluminous written submissions on the facts of the case, issues involved and the legal principles governing the issues in appeal. The same has been entirely perused and carefully considered and references to those portions which, in our view, is relevant to the issues on hand are being made in this order. 5. Concept of securitization 5.1 Before discussing the individual grounds of appeal and the issues involved, it will be useful and necessary to discuss the principle of securitization of loans and the legal and statutory framework governing the same. The concept of securitization of loans is guided by the RBI guidelines, issued under the name and style of "Guidelines on Securitization of Standard Assets" dated February 01, 2006. Some of the salient concepts, procedures and features of the RBI Guidelines on securitizations are outlined in the following paragraphs, as under: i) Securitization is defined as a process by which assets are sold to a bankruptcy remote special purpose vehicle (SPV) in return for an immediate cash payment. ii) Securitization involves a two-stage process. In the first stage, there is a sale of single asset or pooling and sale of pool of assets to a bankruptcy remote SPV in return of an immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset or pool of assets to third party investors by issuance of tradable debt securities. iii) 'SPV' is special purpose vehicle set up during the process of securitization to which the beneficial interest in the securitized assets are sold/transferred on a without recourse basis. The SPV may be a

13 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust partnership firm, a trust, or a company. iv) 'Service Provider' means a bank that carries out on behalf of the SPV (a) administrative functions relating to the cash flows of the underlying exposure or pool of exposures of a securitization; (b) fund management; and (c) servicing the investors. v) Any transaction between the originator and the SPV should be strictly on arm's length basis. Further, it should be ensured that any transaction with SPV should not intentionally provide for absorbing future losses vi) The 'SPV' should be entirely independent of the originator and the originator should not have any ownership, proprietary or beneficial in the SPV. vii) The originator should not hold any share capital in the SPV. The originator shall not exercise control, directly or indirectly, over the SPV and the trustees and shall not settle the trust deed. The originator shall not support the losses of the SPV except under the facilities explicitly permitted under these guidelines and shall also not be able to meet the recurring expenses of the SPV. viii) The guidelines emphasize the requirement of true sale. It states that for enabling the transferred assets to be removed from the originator in a securitization process, the isolation of assets or 'true sale' from the originator to the SPV is an essential requirement. The sale should result in immediate legal separation of the originator from the assets which are sold to the SPV. The assets should stand completely isolated from the originator, after its transfer to the SPV, i.e. put beyond the originator's as well their creditor's reach, even in the event of the bankruptcy of the originator. ix) The sale shall be only on cash basis and the consideration shall be received not later than at the time of transfer of assets to the SPV. The sale consideration should be market based and arrived at in a transparent manner on the arm's length basis.

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x) The originator should effectively transfer all risks/rewards and rights/obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale to the SPV. The originator shall not have any economic interest in the assets after its sale. xi) In case the originator also provides servicing of assets after securitization, under an agreement with the SPV, and the payments/repayments from the borrowers are routed through it, it shall be under no obligation to remit funds to the SPV/investors unless and until these are received from the borrowers. xii) The originator shall not indulge in market- making or dealing in the securities issued by the SPV. 5.2 By securitizing the existing loans, the banks can free up the funds for lending without diluting equity or incurring constraints of additional deposits. Thus the banks will be able to undertake larger volumes of business using the same amount of capital. On the supply side, securitization results in growth of retail loan portfolios in Banks/NBFCs. On the demand side, the capital available with mutual funds and other institutions is put to gainful use. Now we proceed to discuss the Grounds of appeal raised by the assessee. 6. Ground No. 1 6.1 Holding the trust to be not a valid trust and consequently that section 161(l) of the Act is not applicable: (a) On the facts and in the circumstances of the case and in law, the CIT(A) erred in ruling that Trust is not a valid Trust. (b) The CIT(A) failed to appreciate and ought to have held that: (i) All the essentials for creation of a valid trust were fulfilled. (ii) Provisions of section 6 or 8 of the Indian Trusts Act have not been breached. (iii) There is no violation of the provisions of section 293(1)(a) of the Companies Act, 1956. (iv) The circumstances relied upon by CIT(A) do not render invalid creation of the trusts by IL&FC Trust Company Ltd. (ITCL).

15 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust (v) The Settler (i.e. ITCL) in the present case is empowered under its Memorandum of Association to carry on the Trusteeship business and to do all that may be essential for achieving the same object and hence it is essential to create a trust and act as its trustee as a commercial activity, and (vi) The share of each of the beneficiary in the income of the Trust is known and determinate. (c) The applicant prays that it may be held that the Trust is a valid trust. 6.2 Assessee's contentions During the course of the appellate proceedings before us, the learned Senior Counsel for the assessee made detailed oral and written submissions. The written submissions were given to the Revenue and the counter submitted by Revenue was made available to the assessee and the assessee, in the rejoinder, made submissions rebutting the Revenue's counter. The assessee also submitted detailed note on the various submissions made during the course of the entire proceedings. The copies of the various judicial pronouncements cited and relied upon have been perused. While all the judicial pronouncements have been considered, only those relevant and germane to the issue have been discussed in the order. Authority of AO Before taking up on the various issues raised in this Ground of appeal, the issue of jurisdiction raised by the assessee needs to be discussed. The assessee has questioned the authority of the AO and CIT(A) in holding that the Trust is invalid and to treat the assessee as an AOP. It was the contention of the assessee that the Trust has been created by a valid Deed of Trust and the AO cannot on his own come to the conclusion that the instrument of trust is invalid. As per the assessee, a trust can be declared invalid only by a court of competent jurisdiction and not by the AO. In this context, it is submitted that while Section 281 of the Act provide a transaction to be void as against tax payable by the transferor, if the transaction has taken place during the pendency of income-tax proceedings, the AO will have to get an order from the Competent Court to declare the transaction to be invalid as per section 281 of the Act. Reliance in this regard is placed on the decisions of:

16 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust i. TRO vs. Gangadhar Vishwanath Ranade 234 ITR 188 (SC) at S. No. 7 of Assessee's Legal Compilation Box File No. 1 ii. Sancheti Leasing Co. Ltd. vs. ITO 246 ITR 814 (Mad.) at S. No. 5 of Assessee's Legal Compilation Box File No. 1 Reliance was also placed on the decision in the case of DHFL Venture Capital Fund vs. ITO (ITAT Mum.) wherein it was held that when SEBI has granted registration to the venture capital fund, it is not open to the AO to go into the validity of the said registration as the same is not within the domain of the AO. 6.2.2 It was also submitted that the RBI Guidelines on Securitization provide that securitization can be undertaken by company, trust or firm. The assessee has undertaken the securitization as a 'trust', which is valid and which was duly reported to the RBI and the RBI has not raised any objections to the securitization. It was also submitted that the reliance placed by Revenue on the decision of the Hon'ble Supreme Court in the case of Southern Technologies vs. JCIT 320 ITR 577 (SC) too is misplaced. It was submitted that, in the quoted case, the Hon'ble Supreme Court was concerned with taxability under the Act of the provision created as per the RBI Directions, whereas in the case on hand, there are allegations of the breach of provisions of the Indian Trusts Act 1882 which was not an issue before the Supreme Court. Therefore, the decision relied by the Revenue has no bearing on the facts of the case on hand. 6.3.1 Per contra, the submission of Revenue is that the Income-tax Act is a self-contained code and the AO can determine the income of an entity under the Act. The gist of the submissions in this regard is as under: (i) The assessee’s reliance on the decision in the case of Gangadhar Vishwanath Ranade (supra) was misplaced, as the question in that case was on the power of the Tax Recovery Officer to declare a transfer as void under section 281 of the Act, in a proceeding under Rule 11 of the Second Schedule to the Income-tax Act. In that context, it was held that the TRO cannot declare a transfer made by the assessee in favour of a third party void and the Revenue will have to file a suit under Rule 11(6) to have the transfer declare void. It was held that intricate questions of title cannot be

17 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust decided in summary proceedings under Rule 11. However, the case in hand does not involve the title of any property and is mere determination of the income and tax arising from certain transactions. The legal inter se rights of the parties are not affected by the order of the income-tax authorities. Those rights remain unaffected and would be decided in the Civil Court if any dispute arises. Assessment of income and the legal title to the property are different thing altogether. (ii) The Assessing Officer has to administer the provisions of the Income- tax Act and need not get influenced by any other authority like RBI in this regard. (iii) It is also not necessary to get the trust declared as void by the courts, for the purpose of income determination under the Income Tax Act. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. vs. JCIT, Coimbatore, [2010], 320 ITR 577(SC). In that case, the Hon'ble Supreme Court held that the AO is bound by the provisions of the Income-tax and is not bound by the directions of the RBI to NBFC; that the Income-tax Act is a separate code by itself and the taxable total income has to be computed in terms of the provision of the IT Act. 6.4 After having heard heard the rival submissions and perusing and carefully considering the material on record and judicial precedents cited, we are of the considered view that the AO is competent to compute the income of an assessee under a head of income, other than what was claimed by the assessee, of course, after marshalling the facts properly and furnishing proper reasons. Merely by computing the interest accrued as income of the assessee instead of non taxable as claimed,, the inter-se rights of the assessee under any other statutory framework does not get affected. There is no requirement under the Income Tax Act that the AO has to get an order of the court for income determination. The requirement u/s 281 of the Act to get a suit initiated to annul a transfer of property before effecting attachment is totally different and has no connection to this issue. The Income Tax Act is a self-contained Act and the AO is

18 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust entitled to determine the head of income under which the income of a particular assessee is to be assessed. The decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd (supra) squarely applies to the facts of this case. The assessee's appeal on this issue is dismissed. Now we proceed to examine the other issues raised in Ground No. I. 6.5 A corporate entity is entitled to settle a Trust: 6.5.1 The assessee submitted that Section 7 of The Indian Trust Act, 1882, provides that a Trust can be created by any person who is competent to contract. Therefore, a corporate entity is competent to contract, i.e., ITCL was competent to settle a Trust. The settlement of the Trust by ITCL is for the purpose of acting as Trustees and, therefore, the Trust created is a valid Trust. In this regard, reliance was placed on the decision in the case of M.N. Chaya & Others vs. P.R.S. Mani (2005) 127 Comp Cas 863 (Bom.) 6.5.2 Section 293(1)(e) of the Companies Act, 1956, prohibits contributions to charitable and other funds in excess of 5% of the average net profits (during the three financial years immediately preceding). It was submitted that the provision of section 293(1)(e) of the Companies Act is not applicable to the facts of the present case for the following reasons: (i) There was no Contribution by ITCL. Settlement is not contribution. (ii) The contribution by ITCL is not to a charitable or other fund. The settlement is not to a charitable fund and the phrase "other fund" in section 293(1)(e) has also to be interpreted to mean a fund which is of a charitable nature. The assessee trust is not of that type. (iii) The contribution is related to the business of the company', ITCL; whose object is inter alia to act as a Trustee for Trusts and earn trusteeship fees from such trust. In any case, the total alleged contribution of `4,34,100/- is less than the 5% of the total income of ITCL, which is within the specified limit. (iv) Section 8 of the Indian Trust Act provides that the subject matter of a trust must be property transferable to the Beneficiary and not be

19 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust merely beneficial interest under a subsisting Trust. In case of the assessee, the subject matter of the Trust is `500/-. The subject matter is not a beneficial interest held by the settlor under a subsisting trust. (v) Section 8 does not provide that a Trust cannot be a beneficiary of another Trust. On the contrary, section 9 of the Trust Act provides that every person capable of holding property may be a beneficiary. A trust is capable of holding property and is therefore entitled to be a beneficiary of another trust. In this regard, reliance is placed on the following decisions wherein the beneficiary of a trust was another trust: (a) CIT vs. Trustees of Jadi Trust 133 ITR 494 (Born.) (b) Dr. D. E. Anklesharia vs. CIT 207 ITR 1068 (Guj.) (c) CIT vs. Sinivali Trust 267 ITR 165 (Guj.) (vi) The reference by the learned CIT(A) to the decision of Pestonji Jalbhoy Chichgar vs. Jalbhoy Jehangir Chichgar 1934 AIR (Bom.) 64 is erroneous as it has no relevance to the facts of the present case. (vii) The initial contribution of `500/- is for the benefit of the initial investors who are also the beneficiaries of the Trust. Hence the conclusion of the CIT(A) that there is no beneficiary at the time of the settlement of the Trust is invalid and incorrect. (viii) Section 6 of the Trust Act inter alia provides that transfer of trust property to the trustee is pre requisite for creation of a valid trust, except when the author of the Trust is the trustee himself. 6.5.2 In view of all of the above, it was contended that it is sufficient that the Trust was settled with `500/- and the actual transfer of the said amount to the trustee was not necessary. Therefore, the finding by the CIT(A) that the trust was invalid as the initial corpus of `500/- was transferred to the account of trustee after the creation of Trust is incorrect. Reliance is placed on the decisions of the Hon'ble Apex Court in the case of Tulsidas Kilachand vs. CIT 42 ITR 1, 6 (SC) as well as the decision in the case of Moti Lal Chhadami Lal Jain vs. CIT 190 ITR 1 (SC). Thus, it was

20 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust the contention of the assessee that all the legal requirements for creation of a valid trust has been fulfilled and the reasons given by the learned CIT(A) to hold the trust to be an invalid trust is not sustainable in law and the assessee trust cannot be regarded as an invalid Trust. 6.5.3 Besides the legal requirements, the assessee also put forth the following arguments: (i) When the parties have understood and interpreted the transaction in a particular way, it is not open to the AO to give another interpretation. Reliance was placed on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Arun Dua 186 ITR 494 (Cal.) in this regard. In the case on hand, when all the parties have understood and interpreted the transaction as a valid securitization and assignment by Yes Bank in favour of trust, then it is not open to the AO to come to a contrary conclusion. (ii) Chapter XII-EA of the Income Tax Act, 1961, inserted by Finance Act, 2013 provides that for securitization of loan by a trust the SPV has been defined in explanation clause (d) to section 115TC of the Act. That there has been a securitization by Yes Bank of the loan advanced to HPCL is not disputed. (iii) Revenue accepts that a loan has been advanced by Yes Bank; that Yes Bank has assigned the receivables to the assessee (which is constituted as a trust), contributions have been made to the assessee by the mutual funds, but yet in contradiction to the above it disputes the validity of the trust. If a valid trust is not in existence, then the entire securitization scheme would fail. (iv) A trust cannot be regarded as an AOP, as held by the Jurisdictional High Court in the case of: (l) DIT vs. Shardaben Bhagubhai Mafatlal 247 ITR 1 (Bom.), L R. Patel Family Trust vs. ITO 262 ITR 520 (Bom.) and CIT vs. Marsons Beneficiary Trust 188 ITR 224 (Bom.) 6.5.4 Therefore, the contention of the assessee is that it is a valid trust and since it has complied with all the required statutory approvals and procedures, it cannot be considered as an invalid trust, for income tax purposes.

21 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 6.6.1 Per contra, the learned counsel for Revenue strongly argued that the assessee is not a valid trust. In detailed arguments, both oral and written submissions, the learned counsel for Revenue strongly relied on the documents created for the transactions that went into the securitization process to contend that the trust was only a facade, if not a farce. The submissions of Revenue as regards the mistakes in the documentation related to the securitization process are elaborately outlined therein. The sum and substance of the contentions of the Revenue regarding the mistakes infirmities are summarized as under: - (i) The assessee trust is not a valid trust. (ii) Even before the trust was formed, the loan from Yes Bank has been assigned and all the procedures/ formalities related to the securitization had been completed. Therefore, the entire securitization process is only a façade and a farce. (iii) It was the Yes Bank which has been responsible for all the transactions and has controlled all the transactions. All the other players in the process are only dummies and have only lent their name for a fee/income. (iv) There was no intention to implement the scheme of securitization as envisaged in the RBI Guidelines 6.6.2 It is the contention of Revenue that securitization guidelines indirectly liberated the mutual funds from the prohibition from advancing loans. Banks also got an opportunity to rotate their loans, through the medium of a façade of a trust (SPV). The parent trust could earn money by floating a large number of trusts and lend its name for which it did not incur any expenditure. It was submitted that the Bank has not followed the rules of procedure and opened the Bank accounts without the mandatory basic information and the only inference is that Yes Bank, ICTL and the mutual funds are in collusion to effect this transaction. Therefore, the learned CIT(A) has rightly concluded that this is an association of persons (AOP) formed coming together to make quick profit. Securitization

22 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust was an excuse for mutual funds to get over the SEBI Regulations and without proper check, made payment to an account of a trust which was not in existence. Revenue relied heavily and substantially on the decision of the Coordinate Bench of Mumbai Tribunal in the case of IGHCC Loan Trust vs. CIT, ITA No. 3274/Mum/2012. 6.7.1 In response to the reliance placed as above by the Revenue on the decision of the Co-ordinate Bench of Mumbai Tribunal in the above mentioned case, i.e., IGHCC Loan Trust (supra) the assessee submitted that the decision of the Tribunal in the cited case (supra) was not rendered on the merits of the case on any issue before the Bench in the case on hand but only on the applicability of section 263 of the Act. This was specifically clarified by the Coordinate Bench in Para 5.8 at Pg. 18 of its order. The reference to the facts of the case by the tribunal was in the context of its observation that the facts have not been understood by the AO or CIT and fresh application of mind was required in the matter. At Para 5.5 of the order, the Tribunal has specifically mentioned that it is not opining on the merits of the case. It was also submitted that the High Court has admitted appeal against the Tribunal's order. 6.7.2 In this context, the assessee has put forth the following arguments: (i) Neither the AO nor the learned CIT(A) have held that the various documents executed are bogus or to be disregarded. Both the AO and the learned CIT(A) have accepted these documents and based their findings on the same. This argument put forth is an afterthought by the Department. (ii) The Agreement to give the loan by Yes Bank to HPCL was executed on 15th May, 2008, which provided for a standard format agreement to be executed. Hence, it is not correct to say that the agreement was executed after the securitization process was completed. The loan agreement provides that the loan agreement would be effective from 15th May, 2008.

23 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust (iii) The loan agreement refers to the Demand Promissory Note to be executed by HPCL in favour of Yes Bank. In the Trust Deed instead of mentioning "to be executed on 21 Day of May, 2008" it has been stated as "dated 21st Day of May, 2008". Merely because a clause has not been properly drafted does not mean that the document or the agreement is null and void. (iv) If the proposed trustees have made the bank opening application before the settling of the Trust knowing that the Settlor is going to be trustees, it cannot have a bearing on the validity of the Trust especially considering that the Settlor and Trustee are same in the present case. (v) RBI Guidelines itself contemplate that the securitization is to be carried out by the originator i.e. the Yes Bank. The Trust Deed refers to the trust being settled at the instance of the Yes Bank. Therefore, there is no doubt that the transaction has been initiated at the instance of Yes Bank. It doesn't matter at whose instance the transactions has been initiated, as long as parties have acted as per the transaction, the transaction has to be accepted as agreed by the parties. 6.7.3 The assessee has further submitted that: (i) A residuary beneficiary is one who is to get the trust property remaining after payments have been made to all the other beneficiaries. This ensures that no property of the trust remain undisposed of. There is no prohibition in law to have a residuary beneficiary and in fact, is a provision normally made out of abundant caution. (ii) Regarding the revocation clause, it is not for the Department to tell the settlor as to what to include and not to include in the trust deed. It is for the settlor to decide as to what should be the terms of settlement. The parties have not even objected to any provision in the Trust Deed nor can they. (iii) Yes Bank is providing services and act as a servicer under the securitization transaction. The RBI Guidelines contemplate Originator

24 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust to be the Servicer and the residuary beneficiary. Yes Bank has no control over the trust property after assignment. (iv) The other points made about the infirmities in the documents are mere surmises and anyway are of no relevance/concern to the income tax department. 6.7.4 As regards the point that the Securitization process is in breach of provision of SEBI (Mutual Fund) Regulations, 1996 and the point that the loan by Yes bank to HPCL is an unsecured loan and therefore the securitization debt instrument is not asset backed or mortgage backed, it is submitted that the RBI Guidelines refer to sale of 'single asset' or a 'pool of assets' i.e. the receivables are assets which back the PTCs. Also, as per clause 11 of the loan agreement, security to the satisfaction of the lender is required to be created in case of default by HPCL. Therefore, the loan itself must also be treated as asset backed loan as there is a provision for creation of a security in case of default. 6.7.5 As regards the point of breach of RBI Guidelines for securitization of standard assets, it was submitted that securitization transaction is a two- stage process. In the first stage there is sale of single asset to the SPV in return for an immediate cash payment and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the asset to third party investors by issuance of tradable debt securities. It is the contention of the Revenue that the assessee has executed the transaction in the reverse order i.e. they have executed the second step first and then the first step and, therefore, the assessee has breached the RBI Guidelines. It is wholly unrealistic to hold that the trust must itself first finance the securitization and then issue the PTCs to the mutual funds contributors. � All Clauses of the RBI Guidelines are required to be read in entirety. RBI Guidelines emphasize on transfer of assets from the Originator to SPV, issue of PTC by receiving contributions from the PTC holders and payment of cash by the SPV to the originator. In the present case, the transaction has happened as per the RBI Guidelines.

25 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust � Firstly an agreement to assign receivables is entered into by the parties. Then the PTC are issued and contribution received by the assessee and subsequent thereto, the deed of assignment is executed by the parties. This clearly shows that the guideline has been followed by the assessee as agreement to assign receivables is entered into before the PTCs are issued. � It is practically not possible to borrow money for purchase of acquiring the receivables and repay the borrowings after receipt of moneys from the PTC holders and such borrowing by the SPV is not even contemplated in the RBI Guidelines. � Also, the Guidelines are broad Guidelines for all types of securitization transaction. It is not necessary that all the clauses of the RBI Guidelines must be covered in all the securitization cases as the same is wholly impractical. Similarly, merely stating that certain clauses in the Trust deed are not provided in the Guidelines is of no consequence, unless it is shown that the clauses are contrary to the provisions of the Guidelines � Also, the various issues raised by the Revenue do not detract from the fact that a valid securitization has been made by Yes Bank and the assessee trust. The flaws mentioned do not render the securitization as invalid. � If the trust does not come into the picture and the securitization process has not taken place, as alleged, what remains is the lender- borrower relationship between Yes Bank and HPCL and, therefore it must follow that the assessee cannot be assessed as the loan remains intact. 6.7.6 It was also submitted that the judicial pronouncements relied on by the Revenue, to substantiate the arguments that the documents are bogus and the same should be disregarded are not applicable to the facts of the assessee's case. The assessee placed reliance on the following judicial pronouncements to support its stand: -

26 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust (a) Delhi Development Authority vs. Durga Chand AIR 1973 SC 2609 (b) Provident Investment Co. Ltd. vs. CIT 24 ITR 33 (Bom) affirmed in 32/190(SC) (c) Sumathy Amma vs. Sankara Pillai AIT 1987 Ker 84 (d) Delta International Ltd. vs. Shyam Sunder Ganeriwalla 1999 4 SCC 545 In view of the above, it is submitted that the assessee must be regarded as a valid Trust. 6.8.1 We have heard the rival contention and perused and carefully considered the submissions made, the judicial pronouncements cited by both the parties and the rebuttal submitted by each of the parties to the arguments of the other. That HPCL, the borrower, had borrowed the loan from Yes Bank is not disputed. After this loan transaction, HPCL is totally out of all other transactions in connection with securitization. In fact, even after all the securitization transactions, HPCL repays the loan and interest to Yes Bank only. All the other transactions have been initiated and virtually controlled by Yes Bank. In fact, it is fairly accepted by the assessee that all the transactions are initiated and regulated by the Bank, by claiming that the RBI Guidelines envisage the lender to be the Originator. 6.8.2 The main contention of Revenue is that all the transactions related to securitization are a facade worked out by the Bank and the assessee trust is not a valid trust. The bank, the assessee trust, the mutual funds beneficiaries, and trustees, have worked closely together in putting up the facade of the trust and have come together to indulge in business activities for a profit and therefore have been rightly assessed as an AOP. It was also submitted that in case the transactions related to securitization had not happened, only the lending transaction of Yes Bank remains and the interest income from the loan would have been the income of the Yes Bank and it would have got deduction of expenses incurred, including the interest paid by Yes Bank on its borrowings. If at all the above contentions of Revenue were to be accepted, the consequences thereof will be that all the transactions subsequent to the lending transaction by Yes Bank are made-up transactions, not reliable and therefore would have to be

27 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust disregarded. That would mean that the formation of the trust itself is not acceptable and hence the question of assessing the assessee as AOP or trust itself will not survive. 6.8.3 The contention of the assessee is that the assessee trust is a valid trust which has complied with all the legal requirements that are required to be made. As against this, the contention of the Revenue is that the entire facade of securitization was orchestrated by Yes Bank, by wrongly taking advantage of the securitization process to subvert the entire system, leading to several violations. Revenue contends that the manner in which the securitization has been done has led to the following violations: (i) The Bank cannot normally access the Mutual funds for loans, By the securitization process, the Bank has gained access to the funds of Mutual funds and has made huge profits in a matter of few days. (ii) The Bank was able to rotate the moneys raised from mutual funds thereby making a mockery of RBI Guidelines. (iii) Mutual Funds cannot invest its funds in advancing loans. By using the intermediary trust and the medium of the trust's PTCs, mutual funds were in fact investing in loans. (iv) ITCL merely lends its name and forms hundreds of intermediary trusts and earns money for merely lending its name and doing nothing. (v) Yes Bank has flouted rules related to bank accounts and other procedures. 6.8.4 We have carefully considered the rival submissions. That the procedures and processes involved in the formation of a trust have been followed is not in doubt. RBI Guidelines itself contemplate the securitization process to be carried out by the originator; Yes Bank in this case. Therefore, no adverse inference can be drawn of the point strenuously put forth by the Revenue that the originator has been the guiding force of the securitization process. Most of the infirmities/defects pointed out in the documents by the Revenue is mainly on the point that

28 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust all the securitization transactions were carried out between 16.05.2008 and 20.05.2008 whereas the loan agreement was signed on 21.05.2008. The agreement between HPCL and Yes Bank was first signed on 15.05.2008, which provided that the standard format agreement will be signed. The standard format agreement was signed on 21.05.2008. All the procedures and documents related to the securitization process was carried out on 20.05.2008. The insistence of Revenue that only the standard format agreement has to be reckoned and not the agreement dated 15.05.2008 does not appear to be tenable. Even assuming that the agreement dated 15.05.2008 was only in the nature of a letter of intent, it cannot be disputed that the lender, Yes Bank had full knowledge of the loan and had disbursed the amount. Therefore, it is very likely that Yes Bank had initiated the securitization process, pending signing of the standard format agreement. These are all standard documents that are signed up in such transactions. The reference to the agreement in the documents related to the securitization process needs to be understood in this perspective. Even assuming that minor infirmities exist in the documents, those can at best be characterized as procedural defects and this alone is not enough to disregard the documents totally. It is a settled principle that a legal document has to be viewed in its entirety and mistakes in some of the clauses cannot, by itself, negate the existence of the documents. 6.8.5 The assessee had argued that there has been no violation of RBI Guidelines by Yes Bank and other parties in the securitization process. It was also argued that the investment made by the mutual funds were not in violation of SEBI Guidelines. Whether there has been any violation of RBI Guidelines/SEBI Guidelines are not of any significance in the proceedings before us. Even if there has been any such violations, that will not have any bearing on the validity of the trust or the characterization of its head of income. 6.8.6 Revenue has forcefully put forth its point that the trust is not a valid trust and the securitization process is only a facade by which all the

29 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust parties to the process have made unfair gains. Assuming for a moment that the contention of the Revenue; that the trust is not valid and the securitization itself is a falsity, then it would imply that the trust does not exist. If the trust does not exist, then what is the legal sanction to treat the trust as AOP? There is an inherent contradiction in the argument urged by Revenue, which in our considered view is a fatal flaw to the proposition advanced by Revenue. If the securitization process is only a facade and the trust is not valid, then it follows that the only transaction that subsists will be the loan transaction between HPCL and Yes Bank and further the question of assessing the assessee trust as AOP or any other head of income is just not tenable, Even assuming for a moment that the infirmities in the documents point to a collaborative exercise between the concerned parties, the fact of the matter is that funds have flowed from the mutual funds beneficiaries to the trust through the medium of PTCs and the assessee trust, in turn, has taken over the receivables on Yes Bank loan to HPCL. The documents, though they may be having marginal mistakes, have to be accepted in order to give a legal framework to the flow of funds. 6.8.7 Considering the totality of the factual and legal matrix of the issue, as discussed above, we are inclined to hold that the learned CIT(A) was wrong in holding that the assessee trust was not a valid trust. In our considered view all the necessary ingredients for the formation and existence of the trust have been fulfilled and all these documents, processes and money trail cannot be disregarded, only due to the marginal mistakes in the clauses in the documents and also the timing of signing of these documents. Accordingly we hold that the assessee Trust is a valid Trust. 6.8.8 Consequently, this portion of ground of appeal No. 1 is decided in favour of the assessee by holding the assessee to be a valid trust. 7. Ground II: Holding the trust was not a revocable trust/ contribution by beneficiaries was not a revocable transfer: 7.1 In this regard, the assessee has raised the following grounds of appeal: -

30 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in rejecting, the applicability of sections 61 to 63 of the Act on the ground that (i) there is no contribution by the Beneficiary to the trust and (2) it is only where through artefact arrangement, the income is shifted to other than the beneficial owner, the section would come into play. b. The CIT(A) failed to appreciate and ought to have held that: i. The Mutual Funds are the transferors of funds in the Trust and they are also the beneficiaries; and ii. Therefore, the income of the Trust ought to be charged to tax in the hands of the investors / beneficiaries, namely the Mutual Funds only in view of the clear provisions of section 61 to 63 of the Act. c. The Appellant prays that it be held that the income of the Trust is chargeable in the hands of the investors/beneficiaries, namely the Mutual Funds and not in the hands of the Trust. 7.2 Before the learned CIT(A), the assessee argued that the contributions made by the mutual fund beneficiaries represented "revocable transfer" as envisaged u/s 63 of the Act and therefore the income ought to be assessed in the hands of the beneficiaries. The learned CIT(A) rejected the assessee’s contention, holding that there has been no contribution to the trust fund by the beneficiaries as they have only purchased PTCs. As per the learned CIT(A), section 63 of the Act can come into play only when the income is shifted to one other than the beneficiary owner by means of an arrangement. The CIT(A) was of the view that no such arrangement exists in this case. 7.3.1 It is against this decision of the learned CIT(A) that the assessee is in appeal before us. The assessee's contentions for holding the trust to be a revocable trust is two-fold: - (i) the trust is a revocable trust as there is a provision in the Trust Deed for revoking the Trust; and (ii) the contributions are deemed revocable transfers under section 63 of the Act as there is a provision for re-transfer of the income and/or assets to the contributor. 7.3.2 It was submitted that the assessee trust is a revocable trust as the beneficiaries are entitled to revoke the trust. In this regard, our attention

31 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust was drawn to section 10.02 and section 10.04 of the Trust Deed. The assessee also drew our attention to several pages in the Trust deed and the Deed of Assignment to support its stand. It was submitted that Section 10.02 of the Trust Deed provides that the trust may be terminated with consent of all the beneficiaries, who are the PTC holders. Section 10.04 thereof provides that when the PTC holders unanimously agree and decide to transfer the receivables, the Trustee shall revoke the Trust at the request of the beneficiaries/PTC holders, and shall assign legal ownership in the receivables and in the Other Benefits to the PTC holders in the proportion in which the amounts payable to them under the PTCs held by each of them bears to the aggregate amount of all the receivables remaining outstanding at that time and thereupon the assessee shall stand extinguished and revoked. 7.3.3 It was submitted that these two sections in the Trust Deed show that the assessee Trust is a revocable trust and the income of the Trust would be chargeable to tax in the hands of the Beneficiaries. It was also submitted that the contributions by the PTC holders are revocable transfer as per section 63(a)(i) of the Act, as there is a provision for retransfer of the receivables, i.e. the income as well as the contributions made by the transferor/PTC holders. Therefore, the receivables collected by the assessee are taxable in the hands of the mutual fund beneficiaries, i.e. the transferor/PTC holders as per provisions of section 61 of the Act. In this regard, reliance was placed on the decision of Hon'ble Bombay High Court in the case of Behramji Sorabji Lalkaka vs. CIT 16 ITR 301 (Bom). Reliance was also placed on the following judicial pronouncements: - (a) CIT vs. Jitendra Nath Mallick 50 ITR 313 (Cal.) (b) Gadi Cheluvaraya Chetty vs. CIT 150 ITR 60 (Kar.) (c) K. Subramania Pillai vs. Agricultural ITO 53 ITR 764 (Mad.) (d) Jyotendrasinhji vs. S. I. Tripathi and Others 201 ITR 611 (SC) 7.3.4 It was submitted that the principles laid out in the aforesaid judicial pronouncements (supra) have been applied by a Bench of the ITAT Bangalore in the case of DCIT vs. India Advantage Fund VII (ITA No.

32 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 178/Bang/2012)/ (46 ITR(T) 304) (Bangalore Tribunal), wherein on similar issues, the Tribunal has held that the Trust was a revocable trust and the income of the Trust would be taxed in the hands of the Beneficiaries. This decision has subsequently been followed in the case of ITO vs. India Advantage Fund-I (Bang Trib.) and, inter alia, by the Coordinate Bench of the ITAT Mumbai in the case of Milestone Army Navy Trust in ITA No. 4067/Mum/2014 dated 23.12.2015. In view of this, it was submitted that this issue stands concluded in favour of the assessee. 7.4 Per contra, the learned counsel for the Revenue strongly supported the stand of the CIT(A). It was submitted that the judicial pronouncements relied upon by the assessee do not relate to securitization, specifically. Further, the settlor and trustee therein were different, the trust was for a long period of two years and the beneficiaries were not fraudulent in that case. It was also submitted that the provisions of section 61 to 63 of the Act are Revenue friendly provisions, which the assessee is using to evade tax. 7.5 In Rejoinder, The learned senior Counsel of the assessee submitted that the averments of Revenue (supra) cannot be reason enough for not considering the principles enunciated in the judicial pronouncements relied upon. The assessee submitted that the beneficiaries are recognized mutual funds and cannot be called fraudulent. It was also submitted that there cannot be friendly or adverse provisions in law and any provisions of law should be applied to all the parties equally and not in favour of or against any party. If the law had intended to make such restriction, it is specifically provided. As no such restriction is provided in section 61 to section 63 of the Act, such a restriction cannot be read into these sections. Sections 61 to 63 of the Act and the wordings employed therein lay down absolute rules which have to be applied in all cases which come within the scope of these provisions irrespective of (a) who benefits (b) what is the reason for the transfer being dubbed as revocable (c) the intention of the parties (d) whether the circumstances which render the transfer revocable has actually taken place. Reliance for this proposition was placed on, inter

33 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust alia, the decision of the Hon'ble Calcutta High Court in case of Tarunendra Nath Tagore vs. CIT 33 ITR 492 (Cal.) and few more judicial pronouncements. 7.6.1. We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. We find that the Bangalore Bench of ITAT, in the case of DCIT vs. India Advantage Fund VII (supra) has explained the principles related to Trusts and their taxation. Even though the facts of the cited case does not pertain to securitization, as pointed out by the Revenue, the principles enunciated in that decision are universally applicable and certainly to the case on hand, as the issues raised in this case are similar to that of the cited case. 7.6.2 In para 11 of the order the ITAT, Bangalore Bench has explained the scope of sections 61 to 63 of the Act related to revocable transfer, as under: - “11. Under section 61 of the Act "All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income". Section 62 of the Act provides that if a transfer is irrevocable for a specified period then section 61 will not apply. Section 63 defines as to what is "transfer" and "revocable transfer" for the purpose of sections 61 & 62 of the Act. It provides that:- (a) a transfer shall be deemed to be revocable if: (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement. The contention of the Assessee as can be seen from the reasons for filing revised return was that the monies given by the beneficiaries to the Trust was a revocable transfer and therefore any income arising from such revocable transfer will have to be necessarily assessed only in the hands of the transferee i.e., the beneficiaries and not the transferor, i.e., Trustee.” 7.6.3 The concept is further elaborated in paras 24 to 35 of the same order of the Bangalore Tribunal (supra), which extracted below: - “24. With the aforesaid prelude, he made submission on the grounds raised by the Revenue before the Tribunal in the grounds of appeal. On ground No.3 raised by the Revenue in which the revenue has

34 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust attacked the findings of the CIT(A) that the Assessee trust is a revocable trust and it need not be subjected tax as the tax obligation have been fully discharged by the beneficiaries of the Assessee trust, the learned counsel for the Assessee drew our attention to Sec.61 and 63 of the Act. Section 61 of the Act provides that “All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income”. Section 63 defines as to what is “transfer” and “revocable transfer” for the purpose of Sec.61 of the Act. It provides that:- (a) a transfer shall be deemed to be revocable if – (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or (ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets; (b) "transfer" includes any settlement, trust, covenant, agreement or arrangement. The first aspect pointed out by him was that the beneficiaries transfer funds to the trust in accordance with the terms of the trust deed and therefore there is a transfer within the meaning of Sec.61 of the Act. It was his contention that the Sec.61 talks of a specific power of revocation conferred under the instrument of transfer and Sec.63 defining “revocable transfer” deals with “deemed revocable transfers”. According to him, if there is a direct power or revocation under the instrument of transfer there is no need to resort to the provisions of Sec.63 of the Act. 25. He next drew our attention to Article-13 of the Trust deed which reads thus:- “13 Term and termination of the Trust 13.1 Term: The term of this Indenture shall 7 (seven) years from the date of the Initial Closing (hereinafter referred to as the “Term”) 13.2 Extension of term: The Trustee may extend the Term for two additional periods of one year each upon the prior recommendation of the investment Manager and the approval of 75% of the Contributors. 13.3 Premature termination of the Trust and revocation of Contributions: 13.3.1 The Trustee may at anytime before the expiry of the Term, terminate this Indenture with the prior written recommendation of the Investment Manager and upon obtaining the prior written consent of all the Contributors for such termination in writing. 13.3.2 Trustees may refund the Fund Contribution to the Contributor, without interest, within a period of 3 months from the date of receipt

35 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust of first contribution, in the event the minimum fund commitment is not received. 13.4 Procedure on termination: In the event of the Trust being terminated in the circumstances above mentioned, the Trustee shall as soon as practicable thereafter. 13.4.1 take all practical steps to sell all the non-cash assets of the Trust Fund in the manner the Trustee deems fit or advisable; 13.4.2 shall commence arrangements to pay all the liabilities of the Trust; 13.4.3 return to the extent of the available cash in the Trust Fund, all outstanding interests in the Trust in proportion to the percentage of the Capital Contribution held by the respective Contributors immediately prior to the date of termination of the Trust; and 13.4.4 distribute initial Settlement, accretions thereto to the Settler or their respective nominees and assigns. 13.4.5 distribute the residual portfolio in specie.” 26. It was submitted by him that the above power of revocation which is a general power of revocation is sufficient for construing the transfer in the present case as a revocable transfer. According to him it is not necessary that the power of revocation should be at the instance of the contributors/beneficiaries and it can be at the instance of any person either the settler, trustee or the beneficiaries. According to him the provisions of Sec.61 of the Act does not contemplate a power of revocation only at the instance of the transferor. In support of the above contention the learned counsel for the Assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of Addl.CIT Vs. Surat Art Silk Cloth Mfrs. Association 121 ITR 1 (SC) at page-17, wherein the Hon’ble Supreme Court had to examine the question as to whether the expression “ advancement of any other object of general public utility not involving the carrying on of any activity for profit” would mean that the charitable organisation cannot carry on any business. The Hon’ble Supreme Court observed as follows:- “It is clear on a plain natural construction of the language used by the legislature that the ten crucial words "not involving the carrying on of any activity for profit" go with "object of general public utility" and not with "advancement". It is the object of general public utility which must not involve the carrying on of any activity for profit and not its advancement or attainment. What is inhibited by these last ten words is the linking of activity for profit with the object of general public utility and not its linking with the accomplishment or carrying out of the object. It is not necessary that the accomplishment of the object or the means to carry out the object should not involve an activity for profit. That is not the mandate of the newly added words. What these words require is that the object should not involve the carrying

36 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust on of any activity for profit. The emphasis is on the object of general public utility and not on its accomplishment or attainment. The decisions of the Kerala and A.P. High Courts in CIT vs. Cochin Chamber of Commerce and Industry (1973) 87 ITR 83 (Ker) : TC23R.239 and A.P. State Road Transport Corporation vs. CIT 1975 CTR (AP) 43 : (1975) 100 ITR 392 (AP) : TC23R.248, in our opinion, lay down the correct interpretation of the last ten words in s. 2, cl. (15). The true meaning of these last ten words is that when the purpose of a trust or institution is the advancement of an object of general public utility, it is that object of general public utility and not its accomplishment or carrying out which must not involve the carrying on of any activity for profit.” 27. It was pointed out by the learned counsel that the ratio laid down in the aforesaid decision if applied to the interpretation of the provisions of Sec.61 can only mean that it is the existence of the power to revoke the transfer that has to be seen and not the person at whose instance such revocation can be done. It was his submission that the reason behind the rule, bringing to tax income in the hands of the transferor, is existence of a power by which the transferor can derive the benefit of income arising by virtue of the transfer. The source of such power need not be only in the hands of the transferor. It was thus submitted by the learned counsel for the Assessee that there was a specific power of revocation conferred under the instrument of transfer and therefore Sec.61 would apply and there is no need to resort to the provisions of Sec.63 of the Act. Consequently the income arising by virtue of the transfer has to be brought to tax only in the hands of the transferor/beneficiary and not in the hands of the trustee/transferee. 28. His next submission was that even if it is assumed for the sake of argument that there is no direct specific power to revoke Transfer, the provisions of Sec.63 defining “revocable transfers” will apply and consequently income has to be brought to tax only in the hands of the beneficiary/transferor. In this regard our attention was drawn to the document in the form of prospectus inviting contribution from contributors wherein the following clauses are found: “The Fund is expected to terminate seven years from the date of the Indenture of Trust. The process of redemption/termination shall be completed within a period of twelve months to completely liquidate its assets. However, in the event that the investments in the Portfolio Companies are not realised at the end of seven years from the date of the Indenture of Trust, its term may be extended for two additional periods of one year each, upon the recommendation of the Investment Manager and the approval of 75% of the Contributors. In addition, 75% of the Contributors, if unsatisfied with the performance of the Fund, by a written notice can revoke their

37 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust Contribution to the Fund at any point of time and the Trustee shall then terminate the Fund subject to the following: (i) Capital Commitments will not be terminated to the extent necessary to pay Fund Expenses or honour investment commitments previously made by the Fund; (ii) The Fund will continue for such period of time as may be necessary to liquidate existing investments in an orderly manner; and (iii) The Management Fee will continue to be payable until the Fund terminates based upon the total Capital Commitments without regard to any termination thereof.” 29. The above power of the transferor/beneficiary to revoke the transfer though 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. 30. Our attention was drawn to the decision of the Hon’ble Supreme Court in the case of Jyothendrasinhji vs. S.I.Tripathi & Ors., 201 ITR 611 (SC), wherein it was 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. The fact that concurrence of the trustee had to be obtained by the transferor/settler for revocation will not make the trust an irrevocable transfer. In such circumstances it must 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(1)(ii) of the Act. 31. Our attention was drawn to clause-6 of the trust deed which provides for distribution of the Trust Fund and Income. Clause 6.3 of the trust deed provides as follows: “6. Validity of Decisions Made by the Trustee …….. 6.3 Frequency of Distribution: Subject to obtaining any regulatory clearance for any distribution and subject to the Investment Manager determining in its reasonable opinion that the amounts to be distributed are not deminimis, Income, gains and any other receipts that are realized and received in cash by the Fund and which the Fund does not have a right to retain pursuant to the terms of this Indenture, the Private Placement Memorandum or the Contribution Agreements will be distributed as soon as practicable after such gains are realized. The Trustee may retain Income, gains and/or other receipts of the Fund to satisfy current or anticipated liabilities of the Fund. However there may be times when the Trust may not distribute any income. The Trust may

38 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust also declare special distributions, if any, on as-needed basis. Further, to the extent of any un-drawn Capital Commitments, the Fund may, at the discretion of the Investment Manager, apply any Distribution Proceeds (as defined below) towards any purpose, which could otherwise have been funded by a Drawdown from Contributors. However the distribution will be at the discretion of the Trustee in consultation with the Investment Manager.” 32. Our attention was drawn to the order of the CIT(A) in which the remand report of the AO filed before CIT(A) is extracted in the order of the CIT(A). In para-17.5 of the CIT(A)’s order the remand report of the AO on the aspect of the trust being revocable has been set out. It was pointed out by the learned counsel for the Assessee that the AO has not disputed in his remand report the fact that the Assessee trust is revocable but only says that beneficiaries are assessed at different places in India and it is very difficult to monitor all these beneficiaries as to whether they have filed their returns and even if filed, whether correct share of income received/receivable from the Assessee are admitted. To avoid such eventuality it would be correct to Assessee the trustee/representative Assessee. It was his submission that once the trust is accepted to be revocable then there is no question of assessing the transferee and it is only the transferor who can be assessed. It was his submission that Sec.61 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 and therefore the assessment in the hands of the transferee/representative assessee is not proper. 33. The learned counsel for the Assessee then drew our attention to Gr. Nos. 4 to 7 raised by the Revenue in which the Revenue has contended that :- (a) the names of the Beneficiaries are not identifiable in the original Trust Deed; (b) the shares of the beneficiaries are not mentioned in the trust deed; (c) the shares of the beneficiaries are not determinate on the basis of the trust deed; & (d) even the distribution of shares of the beneficiaries have not been made by the trust as per the formula laid down in the trust deed. 34. On the above stand of the revenue as reflected in Gr.Nos.4 to 7 the learned counsel for the Assessee drew our attention to Clause 1.1.13 of the Trust deed which reads thus: “1.1.13 “Contributors” or “Beneficiaries’ means the Persons, each of whom have made or agreed to make Contributions to the Trust in accordance with the Contribution Agreement.” 35. According to him the above clause in the Trust deed is enough to identify the beneficiaries. Our attention was also drawn by him to

39 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust CBDT Circular No.281 dated 22.9.1980 wherein the CBDT has explained the scope of Sec.164 with regard to stating the name of the beneficiaries in the trust deed. In the said circular the provisions of Expln.-1 to Sec.164 of the Act regarding identification of beneficiaries has been explained to the effect that for identification of beneficiaries it is not necessary that the beneficiary in the relevant previous year should be actually named in the order of the Court or the instrument of trust or wakf deed, all that is necessary is that the beneficiary should be identifiable with reference to the order of the Court or the instrument of trust or wakf deed on the date of such order, instrument or deed. He also drew our attention to the following decisions:- (1) CIT Vs. P. Sekar Trust 321 ITR 305 (Mad) wherein the Hon’ble Madras High Court held that so long as the trust deed gives the details of the beneficiaries and the description of the person who is to be benefited, the beneficiaries cannot be said to be uncertain, merely because wife/children cannot be known until the marriage and begetting of children by the stated beneficiaries. The Hon’ble Court noticed in the above case that the Beneficiaries were five in number for the period from 1st April, 1986 to 31st March, 1989 and the respective share of each beneficiary was in different percentage as stated in the deed itself. From 1st April, 1989 onwards the beneficiaries were seven in number and their shares in the income was equal. As per trust deed, as and when B and P are married, their spouses would automatically become beneficiaries along with the other continuing beneficiaries in the said accounting year and subsequent accounting years and equally divide the beneficial interest in income of the aforesaid beneficiaries. Likewise, as and when any child or children is/are born to the said B and P the child or children so born shall automatically become a beneficiary/ beneficiaries along with the other continuing beneficiaries in the said accounting year and subsequent accounting years and equally divide the beneficial interest in income of the aforesaid beneficiaries. Deed also provided that in the event of death of a beneficiary what should be done. The Hon’ble High Court having regard to the terms of the trust deed, held that the deed clearly prescribes the beneficiaries and the shares they are entitled to and other terms relevant to the share of interest in the corpus on determination or termination of the trust and therefore Sec.164 was not attracted. (2) CIT Vs. Manilal Bapalal 321 ITR 322 (Mad) wherein the Hon’ble High Court had to deal with a case where the CIT in exercise of powers u/s.263 revised an order of the assessment as erroneous and prejudicial to the interest of the revenue as the trust had not been treated as an AOP and taxed on that basis, as in his view the trust deed did not identify all the beneficiaries and the shares were also not determinate. That view of the CIT was found to be erroneous by the Tribunal and quashed. On further appeal by the Revenue, the Hon’ble High Court found that the beneficiaries of the trust included the prospective spouses of some of the beneficiaries. The trust deed

40 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust also provided that in the event of a beneficiary dying before marriage or not marrying before the trust came to an end, that part of the benefit which was to be given to the spouse would be given to the heir of the beneficiary or to the beneficiary himself or herself. The Hon’ble High Court therefore came to the conclusion that the share to be allotted to the beneficiaries was determinate under the trust deed and the beneficiaries also being known, the Tribunal has rightly held that the CIT was in error in revising the order of the AO on the ground that the shares were indeterminate and that the trust deed is void or vagueness. (3) Companies Incorporated in Maurituis, In Re 224 ITR 473 (AAR): The Authority for Advance Ruling (AAR) held that if the trust deed sets out expressly the manner in which the beneficiaries are to be ascertained and also the share to which each of them would be entitled without ambiguity, then it cannot be said that the Trust deed does not name the beneficiaries or that their shares are indeterminate. The persons as well as the shares must be capable of being definitely pin-pointed and ascertained on the date of the trust deed itself without leaving these to be decided upon at a future date by a person other than the author either at his discretion or in a manner not envisaged in the trust deed. Even if the Trust deed authorises addition of further contributors to the trust at different points of time in addition to initial contributors, than the same would not make the beneficiaries unknown or their share indeterminate. Even if the scheme of computation of income of beneficiaries is complicated, it is not possible to say that the share income of the beneficiaries cannot be determined or known from the trust deed.” 7.6.4 From an appreciation of the above extracted paragraphs of the decision of the Bangalore Bench of ITAT in India Advantage Fund – VII (supra), in our view, it emerges that: - (i) It is the power to revoke the transfer that has to be seen and not the person at whose instance such revocation can be done. (ii) The provisions of section 63 of the Act defining “revocable transfer” will apply and consequently income has to be brought to tax only in the hands of the beneficiary/transferor. iii) The section does not say the deed of transfer must confer or vest an unconditional or an exclusive power of revocation in the transferor. What emerges from out of the above discussion is that the beneficiaries need to be identifiable and the Trust Deed must contain provisions that vest the power of revocation. There is nothing in the

41 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust section to read that such a power should be unconditional. As mentioned earlier, the Trust Deed and the Deed of Assignment contain clauses which indicate that the power of revocation has been granted. Incidentally, we find that these principles on revocable transfer have been followed by the Coordinate Bench of Mumbai Tribunal in the case of M/s. Milestone Army Navy Trust, ITA No. 4067/Mum/2014, dated 23/12/2015. 7.6.5 In view of the discussion 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-VII (supra) 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. In this view of the matter, we allow this ground of appeal No. II raised by the assessee. 8. Ground III: Diversion by overriding title 8.1 On this issue assessee raised the following grounds: - a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the income is not divested at source on the ground that an overriding title cannot be created by voluntary act of parties. b. The CIT(A) failed to appreciate and ought to have held that: i. Diversion by overriding title can be created by voluntary act of the parties; and ii. Without prejudice, the income is diverted as an overriding title is created as per the RBI Guidelines on Securitization of Standard Assets. c. The Appellant prays that it be held that the income of the Trust is divested at source by overriding title and is not chargeable in the hands of the trust.” 8.2.1 In this ground, the assessee’s contention is that the amounts received by the assessee from Yes Bank under the Deed of Assignment dated 20th May, 2008 are diverted at source by an overriding title to the PTC holders (Mutual Funds) and therefore the amount of `21,49,72,486 /-

42 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust handed over to the assessee and paid to the PTC holders in proportion to their respective investments is not income of the assessee for the A.Y. 2009-10. It was submitted that ‘irrespective of whether the assessee is regarded as a ‘Trust’ or an ‘AOP’ the doctrine of diversion at source by overriding title will apply so as to render the amount as not being taxable as the assessee's income. 8.2.2 The assessee submits that there is a diversion of income by overriding title for the following reasons: - (i) "Series A1/A2/A3 Pass Through Certificate" is defined in the Trust Deed as evidencing an undivided share in the right and the beneficial interest of the holder in the Trust Property, consisting of the Loan, Interest and other benefits, which is clear evidence that charge is created as the PTC holders have a direct interest in the property, which are the receivables from Yes Bank. Therefore, there it is a clear case of diversion at source by overriding title. The Recital A of the Deed of Assignment also states that the PTC's represent undivided interest of the holder of the PTC in the receivable. (ii) As per clause (ie) of Securities Contract (Regulation) Act, 1956, a PTC is an instrument issued by a SPV (assessee, in this case) which possesses any receivable (in Loan of Yes Bank) assigned to the assessee and acknowledging the beneficial interest of the investor (Mutual Funds) in the receivables. This indicates a direct interest of the PTC holder in the receivables which proves that in the case on hand there is a diversion of income by overriding title. (iii) As per RBI Guidelines, the counter party for the investor (PTC holders) is the receivables and not the assessee which has issued the PTC, which indicate a direct relation between the investor PTC holder and the receivables and, therefore, there is a diversion of income by overriding title in favour of the PTC holders. 8.2.3 The assessee had raised this ground of appeal before the learned CIT(A), but the learned CIT(A) rejected the assessee’s contentions holding

43 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust that an overriding title cannot be created by voluntary act of interested parties alone, by placing reliance on the decision of the Hon'ble Apex Court in the case of Moti Lal Chhadami Lal Jain vs. CIT 190 ITR 1 (SC). 8.2.4 The contention of the Senior Counsel of the assessee is that the learned CIT(A)'s finding is misplaced. According to the assessee, in the judicial pronouncements cited (supra), the Hon'ble Apex Court was referring to "voluntary" as without consideration and not as of one's own will. The assessee asserted that an overriding title can be created by the voluntary act of the parties, if that act of the parties leads to a charge being created on the income paid to any person. The assessee also referred to several instances in the learned CIT(A)'s order which show that the learned CIT(A) has given a finding that interest amounts paid to the assessee are diverted at source by an overriding title to the PTC holders (i.e. at pg 22 para 8; Pg 27 para 9.5; para 10, pg. 34 of the impugned order). It is argued that having accepted in substance the submission on "diversion", the learned CIT(A) did not take the matter to its logical conclusion; but instead held that diversion by overriding title cannot take place by voluntary act of parties. In support of the propositions/arguments put forth assessee relied on the following judicial pronouncements wherein it was held that overriding title can be created by voluntary act of parties: - (i) CIT vs. C. N. Patuck (71 ITR 713) (Bom.) (ii) Rajkot District Gopalak Co-operative Milk Producers Union Ltd. vs. CIT (204 ITR 590) at 594 (Guj.) (iii) CIT vs. Tollygunge Club Ltd. (107 ITR 776) (SC) (iv) CIT vs. A. Tosh & Sons (P.) Ltd. (Cal.) (166 ITR 867) (v) CIT vs. Raja Ram Jaiswal (All.) (195 ITR 834) 8.3 Per contra, the learned senior standing counsel for Revenue, relying on various judicial pronouncements, emphatically contested the assessee’s claim of diversion of income by overriding title. It was submitted that the interest income is received by the assessee and then the same is paid to the PTC holder and therefore the assessee's case is not one of diversion of income at source by overriding title, but one of application of the income

44 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust and therefore, the income cannot be said to be diverted at source. In support of this contention, the learned Senior Counsel of Revenue referred to the ‘Information Memorandum’ showing the inflow and outflow of funds and the bank statements reflecting the receipts credited in the accounts of the assessee and then given to the PTC holders. Reference was also made to the return of income for A.Y. 2009-10 to argue that the assessee had added distribution to beneficiaries as a line item and the full amount of Profit before Tax was shown as distribution. On this basis, it was argued by Revenue that the assessee got the income and thereafter applied the same by making it over to the PTC holders. If it was not the income of the assessee, then the assessee should not have shown it in its return of income at all. Revenue, therefore, contended that the above facts establish it to be a case of application of income by the assessee and not a case of diversion of income by overriding title. 8.4.1 In rejoinder to the above contentions of Revenue, learned Senior Counsel for the assessee argued that merely because the interest has come to the assessee or that the same has been credited to the Profit & Loss account, it cannot be a case of application of income. In this regard, the assessee relied on the decision of the Hon'ble Bombay High Court in the case of C. N. Patuck's case (supra), where, similar to the facts in the case on hand, the amount was credited in the assessee's account and still it was held that it is diverted at source by overriding title as the amount was held by the assessee, for and on behalf of the true owners. The assessee also submitted that the receipt of the amount of income or otherwise is completely irrelevant to determine the issue and relied on the decision of the Hon'ble Apex Court in the case of Moti Lal Chhadami Lal Jain vs. CIT 190 ITR 1 (SC), wherein the amount was not received by the Assessee but was directly paid over to the Trust, still the Supreme Court held that it was not a case of diversion of income, as no charge was created. It was also submitted that it is well established proposition that entries in the books of accounts are not determinative of taxability of income and reilied on the decision of the Hon'ble Supreme Court in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (SC) (supra).

45 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 8.4.2 The Learned Senior Counsel for the assessee sought to distinguish, as not applicable, the decisions cited by Revenue, as under: - (i) CIT vs. Sitaldas Tirathdas 41 ITR 367 (SC) – (Department’s paper book, Vol. II - Exhibit 22 - pg. 199) It is argued that in the cited case an overriding charge was not created whereas in the case on hand, a charge has been created on the property and income of the assessee and therefore the cited case is not applicable. (ii) Moti Lai Chhadami Jai lain vs. CIT 190 ITR 1 (SC) It was held that a charitable trust had been created and there was diversion of income unlike in the first transaction where a part of the rent payable to the lessor was to be paid to a trust. This case is factually different and accordingly not applicable. (iii) Provat Kumar Mitter vs. CIT 41 ITR 624 (SC) The facts in the case on hand are clearly different from the cited case, as the PTC holders have an undivided proportionate interest in the asset i.e. the receivable and have paid consideration for acquiring the same. (iv) K.A. Ramachar vs. CIT 42 ITR 25 (SC) The Hon'ble Apex Court had concluded that income was not diverted by overriding title on the specific wording of the document that the amount was to be paid by the assessee from the income of the assessee and therefore the cited decision is not applicable in the present case on hand. (v) CIT vs. Sunil J. Kinariwala 259 ITR 10 (SC) This decision turned on its peculiar facts and is not applicable to the case under consideration. (vi) Associated Power Co. Ltd. vs. CIT (218 ITR 195) (SC) In this case the Hon'ble Apex Court held that there was no diversion of income as the assessee is in control of the money and merely because restriction was put on use of the money could not make any difference. Since this case is factually different from that of the case on hand, it is not applicable. (vii) Vellore Electric Corpn. Ltd. vs. CIT (SC) 227 ITR 557 Follows Associated Power Co. Ltd.

46 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust (viii) Performing Right Society Ltd & Another vs. CIT (SC) 106 ITR 11 In this cited case the Hon'ble Apex Court held that this was a case of application of income and not diversion of income on the peculiar facts of the case and therefore the same would not be applicable to the case on hand. (ix) CIT vs. Madras Race Club (Mad.) 255 ITR 98 The facts of the cited case are different and therefore the same is not applicable on the facts of the case on hand. 8.5.1 We have heard rival contentions and perused and carefully considered the submissions made, the material on record and the judicial pronouncements cited by both parties. Evidently, the issue of whether or not it is a case of diversion of income at source by overriding title would depend upon the facts of each case. The facts of the case in hand are that the interest has come to the assessee and that the same has been credited to the Profit & Loss account. From the Books of the assessee, the money has travelled to the PTC holders. Therefore, the onus is on the assessee is to prove that there was a charge in favour of the PTC holders, notwithstanding the movement of money through the accounts of the assessee. In this regard, the assessee referred to the clauses in the various documents to press home the point that there was diversion by overriding title. It was submitted that the recitals in the recital “A” of the Deed of Assignment states clearly that the PTC’s represent undivided interest of the holder of the PTC in the receivables. The Deed of Assignment is the first document in the securitization process and since the undivided interest of the PTC holder is indicated in that document, we find that there is merit in the argument that the ultimate recipient was always intended to be the PTC holders and there was a charge in favour of them. Further, the PTC is defined in the trust deed as evidencing an undivided share in the right and the beneficial interest of the holder in the trust property; in this case, the loan and interest thereon (i.e. the receivables). 8.5.2 Even otherwise, the scheme of securitization is so devised that, by definition, the funds are to travel to the PTC holders. PTC is defined as an instrument issued by a SPV (the assessee in this case) which possessed

47 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust any receivable assigned to the assessee and acknowledging the beneficial interest of the investors in the receivables. In the context of exposure norms for investment in PTCs, the RBI Guidelines state that the counterparty for the investor in the securities would not be the SPV but the underlying assets (receivables in this case) thereby indicating a direct link between the PTC holders (investors) with the receivables. 8.5.3 The contentions of the Revenue are based on the fact that the moneys are received by the assessee trust and then passed on to the PTC holders. As held by the Hon'ble Apex Court in the case of CIT vs. Tollygunge Club Ltd. (supra) every receipt in the hands of the assessee need not be its income and it is only when it bears the character of income at the time when it reaches the hands of the assessee that it becomes exigible to tax. In the case on hand, even at the initial stage, even before the money flows to the assessee, it was always clearly intended to be passed on to and only to the beneficiaries, i.e., the PTC holders in proportion to their interest in the receivables (underlying assets). Therefore, merely because the moneys flow through the assessee, it cannot be automatically inferred that it is income in the hands of the assessee. The money was always intended to be passed on to the PTC holders and therefore, it can be said that only the PTC holders had a claim on the money, if not an absolute charge. Hence, in our considered view, the principle of diversion of income at the source by overriding title is attracted in this case. In view of the above finding of fact rendered by us, we are of the considered opinion that by the principle of diversion of income by overriding title, the receivables are the income of the PTC holders, in this case the beneficiaries of the assessee trust and therefore, whether the status of the trust is to be characterized as Trust or AOP, the income passes on to the beneficiaries. In this view of the matter, the ground of appeal at III raised by the assessee is allowed. 9. Ground IV: Treating the status of the assessee as "AOP" 9.1 In this regard the assessee’s grounds are as under: - “a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the status of the Appellant is that of an "Association of Person.

48 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust b. The CIT(A) failed to appreciate and ought to have held that: i. The beneficiaries have not joined in a common venture or a joint enterprise but have made investments in the Trust individually; and ii. The fact as to whether one Mutual Fund knows which other Mutual Funds are the beneficiaries under the Trust is not decisive of the legal relationship and a mere co-investor or co- beneficiaries cannot be regarded as having formed an Association of Persons in law. c. The Appellant prays that it be held that the Appellant is not an “AOP.” 9.2.1 Revenue’s main contention on this issue is that all the players in the securitization process have acted together and in unison and have carried out an adventure in the nature of trade to earn income, which is in the nature of “business”. Therefore, all the stake holders have to be assessed together as “AOP”. 9.2.2 According to the learned Senior Counsel, the assessee cannot be treated as an AOP, both on facts of the case and in view of the judicial pronouncements rendered in this regard. The gist of the assessee's submissions on the facts of the issue are as under: - (i) An AOP is constituted when people join in common purpose or common action, the object of which is to produce common income, profits and gains. On this issue itself, the assessee trust will not qualify for AOP, even if it is considered as an invalid trust. (ii) In the case on hand, the mutual funds have not joined in common action. All the mutual funds have independently applied for and subscribed to the PTCs and therefore, they do not form an AOP. Normally all the members have a share in the AOP's income. Here the income is to be received by different mutual funds as per each individual contract. (iii) The contributors wishing to subscribe to the PTCs have to make an application to the assessee and the allotment of PTC is at the discretion of the assessee. Therefore, there can be no question of mutual funds “coming together”, since even after making an

49 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust application there is no certainty of being allotted a PTC. (iv) The fact that the mutual funds can transfer the PTCs would show that they have not come together to join in common purpose, but each one has individually decided to invest and can transfer the PTC's of its own accord in so far as reference to other PTC holders. On the other hand, in case of an AOP, an AOP member cannot independently transfer its shares in the AOP. As the PTCs are purchased by the PTC holders, there can be no question of an AOP, as the transactions would be separate purchase transactions between each of the mutual funds and assessee trust and there is no coming together by the mutual funds. (v) Since Yes Bank and the beneficiary Mutual Funds have no common share in the income or interest in the PTCs of the alleged AOP, the question of their constituting an AOP does not arise. (vi) It was submitted that the burden is on the Revenue to show that the assessee constitute an AOP, as held by the Hon'ble Supreme Court in the case of CIT vs. Daulat Ram Rawatmull 87 ITR 349 (SC); which burden the Revenue has not been discharged. An AOP is not an entity which is authorized to do a securitization activity and hence to hold the assessee as AOP would amount to negating the action of the assessee. Only a juristic person can become a member of an AOP and Mutual Funds being trusts, i.e. a 'non-juristic person' cannot become a member to constitute an AOP. If there is no Trust, as claimed by the Revenue, then it can only be a joint ownership of the receivables by the Mutual Fund and not an AOP. (vii) An AOP is not an entity which is authorized to do securitization activity. In support of the arguments urged above, reliance was placed, inter alia, on the decision of the Bangalore Tribunal in the case of DCIT vs. India Advantage Fund VII (ITA No. 178/Bang/2012) (36 ITR (T) 304) and a few other judicial pronouncements.

50 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 9.2.3 Submissions were also put forth by the learned Senior Counsel on the implications of holding the assessee to be AOP and not a trust, to press home the point that it cannot be an AOP: - (i) The alleged AOP would not have any income as the Deed of Assignment has not been entered into by the AOP. The Deed of Assignment has been entered into by the ITCL as trustees of the assessee Trust, it cannot be regarded as having been entered into by the AOP. (ii) Interest has been received by the assessee Trust for being made over to the PTC holders and the same cannot be said to have been received by the AOP. (iii) There is no authorisation from the members of the AOP in favour of the Trustees to Act on their behalf and, therefore, there is no question of the alleged AOP having any taxable or even non-taxable income does not arise. 9.3 Per contra, the main contention advanced by learned Senior Standing Counsel of Revenue is that all the players knew things in advance and the very fact that they have completed all the actions and documentations in very few days show that they have all worked together, in a concerted manner, to earn income from a business adventure. . 9.4 In Rejoinder to Revenue’s contention the assessee's submission is that the stand of the Revenue is based on surmises and conjectures, without any basis. For making an investment decision, the mutual funds had only to decide whether the rate of interest of 9.18% was a reasonable rate of return for their investment or not. On the issue of the activity being in the nature of business, it was submitted that in the present case, none of the attributes of trade is present. The assessee (i) receives fixed income, akin to bank interest; (ii) the assessee is holding on to the asset till maturity, with no intention what so ever to resell the asset; (iii) the interest received is immediately paid over to the contributors (Mutual Funds) as mandated in the Assignment Deed and cannot be utilised for doing any

51 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust further activity. Therefore, the activity of the assessee is akin to holding debentures/bank fixed deposits and cannot be called business. 9.5 Both the parties relied on certain judicial pronouncements and tried to distinguish the judicial pronouncements relied on by the other party, on merits. 9.6.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. A common purpose or common action is a sine qua non for constitution of an AOP, to earn common income and profit. The assessee contends that the facts on record show that the beneficiary Mutual Funds have not joined together in common action. They have independently applied for and subscribed to the PTCs and derive income separately. All the PTC purchase transactions are separate and there is no coming together by the Mutual Funds. An AOP is not authorized to do securitization activity and hence holding the assessee trust as an AOP would negate the securitization activity itself. 9.6.2 Before us, Revenue has strenuously pointed out various activities and documents executed and lacunae therein to make out a case that all the stake holders have acted in tandem and that Yes Bank, the originator, has been the main person behind the securitization process and all others are only dummies who have only lent their names. In our view, based on the facts before us, all the Mutual Funds beneficiaries are shown to have purchased the PTCs separately and not together by a concerted action to earn income jointly. We find that the various averments made by the learned counsel for Revenue that there has been some concerted and coordinated action on the part of the beneficiaries in completing the securitization process, has not travelled beyond the stage of suspicion and surmise and therefore in our view Revenue has not discharged the onus of establishing the existence of an AOP in the case on hand. Even otherwise, since we have already held that the assessee trust is a valid trust, the controversy regarding treating the assessee as AOP does not arise. Consequently, this ground No. IV raised by the assessee is allowed.

52 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 10. Ground V: Invalidity of assessment and the confirmation by the CIT(A) 10.1 The assessee has raised the following detailed grounds: - “a. The CIT(A) having held that the AOP is constituted by Yes Bank Limited (originator), the Seven Mutual fund (PTC Holders) and IL&FS Trust Co. Ltd. ought to have quashed the assessment made by the AO on the AOP constituted by the Seven Mutual fund (PTC Holders) and IL&FS Trust Co. Ltd. b. The CIT(A) failed to appreciate that once he has come to the conclusion that the members of the AOP is not the same as what has been treated as the members of the AOP by the AO, the assessment made by the AO ought to be quashed as the said assessment is on a non existing entity.” 10.2.1 In this ground the assessee contends that the assessment order for A.Y. 2009-10 showing the status of the appellant as AOP is invalid. It is submitted that the assessment order holding the assessee to be an AOP is invalid, when the return of income filed by the assessee was not in the status of AOP. Assailing the action of the AO and learned CIT(A) in holding the assessee as "AOP" and assessing it in such status, the learned senior counsel of the assessee contended that the AO and learned CIT(A) do not have the jurisdiction and powers to change the characterization of the head of income of the assessee as "AOP" when the assessee has filed its return of income in the capacity of "Trust". It is submitted that the return of income for A.Y. 2009-10 was filed in Form ITR-5, which enables the following to file returns under: 1 – Firm, 2 - A local authority, 3 - co- operative bank, 4 - co-operative society, and 5 -Any other AOP / BOP, artificial juridical person (residual category). The PAN issued to the appellant and recorded in the return had the fourth letter as "T" indicating that the status was returned as "Trust". The return is signed by the Trustee ('ITCL') as "trustee of the trust". This shows that the return was filed as a 'trust' and the ticking of "No" in reply of the query whether the return was being filed as a representative was an inadvertent error. A document is always to be read as a whole. 10.2.2 According to the assessee, the computation of income filed along with return of income for A.Y. 2009-10 states the status of the assessee as

53 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust "Private Trust (Individual)" (pg. 103 of assessee’s paper book, Vol. I). The AO passed the assessment order showing status as “AOP (as per return of income)”; which description, as stated in bracket, is clearly wrong and factually incorrect as the return of income was certainly not filed as an AOP. 10.2.3 It is further submitted that while the AO has held that the trust should be characterized as AOP of eight members, consisting of seven Mutual Funds (Beneficiaries) and ITCL (Trustee), the learned CIT(A) upheld the decision of the AO that the assessee has to be characterized as AOP, but held that the AOP shall have nine members namely, seven Mutual Funds (Beneficiaries), ITCL (Trustee) and Yes Bank (seller). In this regard, the assessee contends that an AOP of eight members is different from an AOP of nine members. Since the original order made by the AO was on an AOP of eight members, the order passed by the AO becomes invalid and the CIT(A) ought to have cancelled/ struck down the original order made by the AO as invalid and bad in law. In this regard reliance is placed in the case of CIT vs. Ashok Kumar Bharati & Vijay Kumar Goel 282 Taxman 496 where a notice was issued to an AOP said to consist of three members the assessment made on an AOP of two members was held to be illegal by the Hon'ble Allahabad High Court. 10.2.4 The assessee further submits that having made the assessment on the AOP, the AO in the assessment order has stated that the assessee would be treated as a ‘Trust”, in the event the status as “AOP” was held to be wrong. It is the contention of the assessee that it is not permissible for the AO to pass an assessment order, characterizing the assessee under to different heads, i.e. as an AOP and also as a Trust since they would be two separate assessees and such dual classification is not tenable. The learned CIT(A) ought to have held that the assessment order is bad in law as the assessment has been made on the AOP and in the alternate as a Trust. 10.3.1 Per contra, on the change of status of the assessee by the AO, the learned standing counsel for Revenue contends that the return must be treated as filed, i.e. in the status of AOP. It was submitted that if there was

54 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust no ITR Form available for the status of Trust then the assessee should not have filed return of income. It was further contented that if the status of the trust is that of its beneficiary, then the Form applicable to beneficiary should have been filed. It was also submitted that the status of the assessee cannot be of individual, as the status of trust depends on status of beneficiary. 10.3.2 On the learned CIT(A) changing the constitution of AOP, Revenue contends that it is not open to the assessee to argue that the CIT(A) should have quashed the order. Power of CIT(A) is coterminous with that of AO. With respect to Ashok Kumar Bharati's (supra) decision, it was contended that the issue in that case was issue of jurisdiction under section 148 of the Act and has no relevance in this case". 10.4.1 In Rejoinder, the ld. Sr. Counsel for the assessee relied on the following decisions of the jurisdictional High Court wherein it has been held that a Trust is assessable in the status of an individual and not as an AOP/BOI: - (i) Shardaben Bhagubhai Mafatlal Public Charitable Trust No. 8 (Bom) 247 ITR 1 (ii) L.R. Patel Family Trust (Bom) 262 ITR 520 (iii) Marsons Beneficiary Trust (Bom) 188 ITR 224 10.4.2 It was submitted that the wide and co-terminus powers of the learned CIT(A) does not extend to treating an ‘AOP of eight members’ as ‘AOP of nine members’. The learned CIT(A) cannot change the assessee who has been assessed. An AOP of nine persons is different from an AOP of eight persons and the action of the learned CIT(A) is therefore, without jurisdiction and contrary to law. 10.5 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. In view of our holding in ground No. 1 of this appeal (supra) that the assessee, in the case on hand, is a valid Trust, the questions raised in this ground as to whether or not the assessee being assessed as an AOP comprising of eight or nine members is valid is now only of academic

55 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust interest. In these circumstances, as narrated above, we are of the view that since we have held the assessee to be a valid Trust, there is no question of the assessee being assessed in the capacity of an ‘AOP’, and therefore there is no requirement for adjudicating this ground No. V as the same has been rendered infructuous and is accordingly dismissed. 11. Ground VI: Enhancement of Income 11.1 Assessee has raised the following grounds in this connection: - “a. On the facts and in the circumstances of the case and in law, the CIT(A) erred in enhancing the income of the Appellant. b. The CIT(A) erred in holding that income by way of interest on receivables accrues on day to day and not as and when it becomes due. c. The CIT(A) failed to appreciate and ought to have held that: i. The Trust not being a corporate entity is free to accrue its income either under the cash or mercantile method and that mercantile method is not mandatory in law; and ii. Even under the mercantile method, the income by way of interest on receivables accrues as and when it is due and not on day to day basis. d. The Appellant prays that the gross interest as computed by the CIT(A) amounting to Rs. 238428493/- be reduced to a sum of Rs. 214972490/- as disclosed by the Appellant in its return and accordingly, the enhancement of Rs. 23456003/- be deleted.” 11.2.1 In the course of appellate proceedings, the learned CIT(A) observed that the interest receipts have not been accounted for as per the accrual concept, due to which the interest income accruing in March, 2009 has not been accounted for. The learned CIT(A) issued an enhancement notice and added the interest income pertaining to the period March 2 to March 31, 2009 amounting to `23,84,493/-. 11.2.2 Before us, the learned Senior Counsel for the assessee submitted that under the terms of the loan advanced by Yes Bank to HPCL, HPCL was liable to pay monthly interest on the first day of the succeeding month. Under the Deed of Assignment executed by Yes Bank in favour of the assessee, the assessee was entitled to received the inflows (interest) from Yes Bank on such 1st day of the next succeeding month. The assessee was accordingly entitled to receive relevant inflows (interest) on 1st April,

56 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 2009; being the interest for March 2009. The interest for March 2009 accrued on 1st April, 2009, as income accrues when there is a right to receive the same. The same was not treated as accrued in the relevant assessment year. However, the learned CIT(A) enhanced assessee’s income for A.Y. 2009-10 by an amount of `2,34,56,007/- by holding that interest income of loan accrues on day to day basis though it is receivable by the assessee on 1st April, 2009. 11.2.3 It is contended that income accrues only when the assessee has a right to receive the income. In the case on hand, the assessee had no right to receive the inflow of interest from Yes Bank until 1st April, 2009 and therefore, the interest for the month of March, 2009 cannot be said to have accrued in the financial year 2008-09 relevant to A.Y. 2009-10. In support of this proposition, reliance was placed in the case of DIT (International Taxation) vs. Credit Suisse First Boston (Cyprus) Ltd. 351 ITR 323 (Bom), wherein the Hon'ble Bombay High Court, relying on the decision of the Hon'ble Supreme Court, in the case of E.D. Sasson & Co. Ltd. 26 ITR 27, 52 (SC), held that when an instrument or an agreement stipulates interest to be payable on a specified date, interest does not accrue to the assessee on any date prior thereto. In view of the above, it is the contention of the assessee that the income accrued only when there was a right to receive the income, as mentioned in the Deed of Assignment, namely on 1st April, 2009 for the month of March, 2009. 11.3.1 Per contra, the learned senior standing counsel for Revenue countered the submissions of the assessee, by referring to para 3.5 of the Loan Agreement, wherein it is stated that interest has to be computed on number of day basis using 365 days as a year basis. He urged that this clause implies that the interest accrues on day to day basis. It was also submitted that interest on loan is not return on securities. In support thereof reliance was placed on the decisions of the Hon'ble Supreme Court in the cases of CIT vs. Shri Goverdhan Ltd. 69 ITR 675 (SC) and Morvi Industries Ltd. vs. CIT 82 ITR 835 (SC).

57 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust 11.3.2 Revenue further contended that the decision of the Hon'ble Bombay High Court relied by the appellant in the case of Credit Suisse (Department’s paper book Vol. II, pg. 227 to 234) was not applicable as the present case is not that of securities, as was the case before the Hon'ble High Court. According to Revenue, the decision of the Hon'ble High Court applies to interest on securities and would not be applicable to interest on loan. 11.4.1 In rejoinder to the averments by Revenue, the learned senior counsel for the assessee countered the claims of Revenue, stating that the concerned para 3.5 of the Loan Agreement has been misunderstood. It was submitted that this para only gives the basis to compute the interest and it does not say anywhere that interest would accrue on day to day basis. The import of para 3.5 which stipulated that interest was to be computed on the number of days basis using 365 days as a year basis was that interest for different months would be different depending on the number of days in month, i.e. interest for the month of January or March (31 days) will be higher than for February (28 days) or April (30 days) as opposed to equal for each month. The assessee also referred to the Deed of Assignment under which the assessee is entitled to receive the amount clearly provides that the assessee is entitled to receive the amounts on the 1st of the next month. 11.4.2 In rejoinder by the learned counsel of the assessee to the judicial pronouncements relied upon by the Revenue, submitted that the decisions in the case of Goverdhan Ltd. (supra) and Morvi Industries Ltd. (supra), relied by the Revenue have been referred to in the decision of Credit Suisse First Boston (Cyprus) Ltd. (supra) by the Hon'ble Bombay High Court, and can be distinguished on facts on the case. Revenue’s argument that the decision of the Hon'ble Bombay High Court in the case of Credit Suisse First Boston (Cyprus) Ltd. (supra) applied only to securities not to interest receivable under an instrument or an agreement is misplaced as such returns on PTCs is not interest on loan but on a tradable security. 11.5.1 While adjudicating the earlier grounds raised in this appeal by the assessee, we have already held that the assessee is a revocable Trust hence

58 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust the income is taxable in the hands of the beneficiaries. Further, we have also held that this is a case of diversion of income by overriding title and therefore interest received is not taxable in the hands of the assessee. Hence the issue relating to accrual of income and consequential enhancement of income made by the learned CIT(A) are only be academic in nature. 11.5.2 Even otherwise, after having heard the rival contentions and perused and carefully considered the submissions, including the judicial pronouncements cited we find that the dispute before us is essentially on the interpretation of the relevant paragraph 3.5 of the Loan Agreement. Para 3.5 of the Loan Agreement states that interest has to be computed on number of day basis using 365 days as a year basis. The above wordings cannot be stretched to mean that the interest has to be charged on day to day basis. Also, the Deed of Assignment under which the assessee is to receive the amount clearly provides that the assessee is entitled to receive the amounts on the 1st of the next month and to be passed on to the PTC holders in the proportion to the amount of their investments on the very next day. In view of the above clear provisions laid out in para 3.5 of the Loan Agreement and Deed of Assignment, we are of the considered view and hold that it is crystal clear that the interest for a particular month accrues on the first day of the next month as laid out in para 3.5 of the Loan Agreement and recital in the Deed of Assignment. Accordingly, ground No. VI of assessee’s appeal is allowed. 12. Ground No. VII: Disallowance of expenses on accrual basis (if enhancement is upheld) 12.1 In this regard assessee has raised the following grounds: - “a. CIT(A) erred in not allowing expense by way of interest / return on investment payable to the PTC holders on the same basis as applied by him for charging to tax the interest income on receivables. b. The CIT(A) failed to appreciate and ought to have held that: i. Whatever income is receivable by the Trust is all payable by the Trust to the beneficiaries; and ii. There cannot be double standards for charging of income and for allowance of expense.

59 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust c. The Appellant prays that if enhancement of income by way of interest on receivables is upheld, then the corresponding expense be also allowed as a deduction.” 12.2 In this ground, the assessee has raised an alternate ground that if the enhancement to the income is allowed, then the corresponding outgo (expenditure) for March, 2009 be allowed. Since we have already held that the enhancement of the assessee’s income on the interest income made by the learned CIT(A) is not tenable, the claim for disallowance of expenses on actual basis is now rendered infructuous, as it does not survive for consideration. The ground of appeal No. VII being infructuous is accordingly dismissed. 13. Ground No. VIII – Charge of interest under section 234B & 234C of the Act 13.1 In this ground the assessee denies its being liable to the charge of interest under section 234B and 234C of the Act. The charging of interest is consequential and mandatory and the AO has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala 252 ITR 1 (SC) and we therefore uphold the action of the AO in charging the said interest. The AO is, however, directed to re-compute the interest chargeable under section 234B and 234C of the Act, if any, while giving effect to this order. 14. Ground No. IX, being general in nature, no adjudication is called for thereon and the same is dismissed as infructuous. 15. In the result, the assessee’s appeal for A.Y. 2009-10 is partly allowed as indicated above. 16. Revenue’s appeal in ITA No. 4343/Mum/2013 for A.Y. 2009-10 16.1 In this appeal, Revenue, after raising and withdrawing of the grounds of appeal on a number of occasions have finally raised the following consolidated grounds of appeal: - “Consolidated grounds of appeal 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing deduction of Rs. 20,61,55,3101- in computing the taxable income ignoring the following facts:

60 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust a) When the assessee had not claimed deduction of any such expenditure either in the return filed u/s 139(1) of the Act or revised return it/s 139(4) of the Act but only in letter filed on 01.12.2011, after the assessment order was passed, the question of allowing any such expenses does not arise, as no valid claim was made by filing revised return as is required by the assessee as per provisions of Sec. 139 of the Act; this view has also been upheld by the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT [284 ITR 323 (SC)] wherein it was held that "After filing original return, further deduction was claimed through a letter - no revised return filed - Assessing Officer cannot entertain the claim”. b) The deduction has been allowed based on various additional submissions made during the course of appellate the proceedings which should have been remanded to the assessing officer for his verification as provided in Rule 4 of the IT Rules 1962. However, no such exercise has been carried out before entertaining the claim of the assessee made during appellate proceeding, which is not in consonance with rule 46A of the IT Rules. (2) Without prejudice to the above, the Ld. CIT(A) grossly erred in allowing deduction of Rs. 48,86,795/-, comprised in the sum of Rs.20,61,55,310/- on the ground that the same represented premium allowable as an expense even though it formed part of total consideration of Rs.300,55,82,700/- paid for purchasing loan of Rs. 300 crores from Yes Bank Ltd. as capital asset. (3) Without prejudice to the above, the Ld. CIT(A) grossly erred in allowing deduction of Rs.20,12,68,515/- comprised in the sum of Rs.20,61,55,310/- as allowable expenses as investor payouts even though the said sum represented distribution and application of accrued interest income of Rs.23,84,28,493/- and not a sum incurred in earning the said accrued interest income and also without noting that the expenses is also disallowable u/s 40(ba) of the Act, since the CIT(A) has held the assessee as an association of person. (4) Without prejudice to the above, on the facts and in the circumstances of the case and in law, even if the trust is held to be valid, as claimed by the assessee, whether, still, is the income liable to be taxed at the maximum marginal rate, in view of section 161(1A) of the IT Act, as the captioned income is evidently business income?” 16.2 Revenue vide letter dated 24.10.2016 has prayed for admission of additional grounds 2, 3 and 4 which is stated to arise from the impugned

61 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust order of the learned CIT(A) which was inadvertently omitted to be raised earlier. It was further submitted as under: - “6. It is humbly submitted that the failure to raise the above additional grounds of appeal at the time of filing of original appeal was neither deliberate nor contumacious but are arising out of the legal position which goes to the root of the matter. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. 229 ITR 383 held that the Tribunal has jurisdiction to examine the question of law which did not arise before the lower authorities but arose before it from the facts as found by the lower authorities and having a bearing on the tax liability of the assessee. The said decision of the Hon'ble Supreme Court was rendered in a case where the additional ground was filed by the assessee, however, the ratio of the judgement is equally applicable in a case where the department filed additional grounds. The Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. 187 ITR 688 held that the Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground of appeal. The Bombay High Court in the case of Pruthvi Brokers & share Holders, 349 ITR 336, held that the assessee is entitled to raise before the appellate authorities additional grounds in terms of additional claims not made in return filed by it. The Bombay High Court also in the case of Ahmedabad Electricity Co. Ltd. Vs. CIT 199 ITR 351(Bom) held that the Tribunal had jurisdiction to permit additional grounds to be raised before it even though these might not have arisen from AAC's order, so long as these grounds were in respect of subject matter of entire tax proceedings. The Courts have also upheld admission of additional grounds in the following cases: • CIT Vs. S. Nelliappan (66 ITR 722 (SC) • Ashok Vardhan Birla Vs. CWT (208 ITR 958 (Bom) 7. The Hon'ble ITAT Mumbai in the case of Pradeep G. Vora vide ITA No. 2187/Mum/2006 pronounced on 30.05.2014 examined the issue of admission of additional ground in detail vide para Nos. 3.1, 3.2 and 3.3 of the order. In paragraph No. 3.1, it is held that the power of the Tribunal to allow an additional plea/additional evidence originates from the principle that substantial justice should not suffer because of non consideration of an additional ground or an additional evidence. The Hon'ble Tribunal vide para 3.3 concluded as under: "We would like to sum up the discussion by holding that both on principle and on precedent, there is no reason why the Tribunal must be precluded from handling a point, whether of law or fact

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62 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust which relate to an assessment, which appertains to the assessee's assessment merely because nobody else had handled it before or because it had not occurred either to the assessee or to the Department to raise and urge that point at earlier stages of the proceedings. In the matter under appeal it is not the case of the DR that necessary facts for deciding the controversy involved in the additional plea are not available on record. It is also not a case where facts are to be investigated rather it/s a pure legal issue that has been raised before us. So, in our opinion, merely because the plea in the additional ground was not taken by the assessee before the FAA, it could not be a ground to refuse the application for permission to raise an additional ground. So, additional ground raised by the assessee, is admitted." 8. The above legal position makes it clear that additional grounds are admitted in a case where the queries raised are emanating out of the records and the objections raised in those grounds go to the root of the matter. It is prayed that the inadvertent mistake by not raising these grounds earlier may not result in loss of substantial justice. Therefore, the department seeks the permission of the tribunal to admit the above additional grounds raised.” 16.3.1 Per contra, the assessee has placed on record its objections to admission of the aforesaid additional grounds raised by Revenue. It has, inter alia, pointed out in tabular form the sequence of filing, withdrawing, modifying and re-filing of additional grounds as under: -

“Insofar as the Revenue’s appeal is concerned they have at different stages taken contradictory stands, withdrawn grounds and sought to re-insert the same, raised additional grounds raised and withdrawn, sought to modify additional grounds, etc. This shows complete non-application of mind and taking advantage of a judicial forum’s patience. The sequence of the sorry state of affairs of the Department is set out hereunder:

S.No. Date of filing Department Appeal 1 30th May, 2013 Filed original appeal with G. No. 1(a) and (b) 2 1st November, Additional G. No. 2 and Additional G. No. 3 2013 filed by the ITO 3 17th July, 2014 DPB Vol. III written submissions filed by the CIT-DR wherein at Para 4, Pg. 2 – Revenue submitted that Original G. No. 1 no to be pressed and it also mentioned that only G. No. 3 to be pressed which by implication means Additional grounds No. 2 is also not pressed. 4 14th January, RA handed over Additional G. No. 4 dated 14th 2016 January, 2016

63 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust

5 28th September, RA orally urged that G. No. 1 and Additional 2016 Ground No. 2 of the Department Appeal are not pressed by reading the written submissions dated 17th July, 2014. 6 29th September, RA orally requested to modify Additional G. No. 2016 3 7 3rd October, The Modified Additional G. No. 3 dated 30th 2016 September, 2016 was filed by the Department with further modifications made in ink after the verification by the Assessing Officer. RA also urged that he wants to press the G. No. 2 which he had submitted as not pressed on 28th September, 2016. 8 4th October, RA urged to press G. No. 1 of the Department 2016 appeal which he had submitted as not pressed on 28th September, 2016. 9 5th October, RA filed an application dated 5th October, 2016 2016 stating the series of different stands taken by the Revenue as set out at S. No. 1 to 8 above, annexing the consolidated grounds of department appeal. 10 25th October, RA filed a separate application dated 24th 2016 October, 2016 praying for admission of additional grounds of appeal. In the application, Department has sought admission of the Additional G. No. 3 as originally filed and not re-modified Additional G. No. 3.”

16.3. At the outset of the hearing the learned senior counsel for the assessee submitted that, even assuming that the additional grounds raised by Revenue are admitted, if grounds No. II, III or IV or the assessee’s appeal are decided in its favour, then the Departmental appeal will not survive for adjudication.

16.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. Following the ratio and guidelines laid out by the Hon'ble Apex Court in the case of National Thermal Power Corporation Ltd. (229 ITR 383) (SC), we, in the interest of justice, admit the additional/consolidated grounds of appeal raised by Revenue for consideration in this appeal, as a ruling thereon could have a mterial effect on this appeal.

16.5 Coming to the consolidated grounds raised by Revenue (supra), in view of the fact that we have decided in the assessee’s favour in its appeal at ground No. 1 – holding the assessee to be valid Trust; ground No. II -

64 ITA Nos. 3986 & 4343/Mum/2013 Indian Corporate Loan Securitisatoin Trust holding the assessee to be revocable Trust; ground No. III - holding that there was diversion of income by overriding title in the case on hand and ground No. VI -deleting enhancement of income by the learned CIT(A), we are of the view that the consolidated grounds raised in Revenue’s appeal (supra) would not now survive for consideration or adjudication as they are rendered infructuous. We, accordingly dismiss the consolidated grounds raised by Revenue at S. Nos. 1 to 4. 17. In the result, Revenue’s appeal for A.Y. 2009-10 is dismissed. 18. To sum up, assessee’s appeal for A.Y. 2009-10 is partly allowed and Revenue’s cross appeal is dismissed. Order pronounced in the open court on 17th February, 2017. Sd/- Sd/- (Sandeep Gosain) (Jason P. Boaz) Judicial Member Accountant Member

Mumbai, Dated: 17th February, 2017

Copy to:

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.