DCIT, Bangalore V. M/s India Advantage Fund VII, Bangalore

ITA 178/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7028 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 03-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S E DASTUR; KALPESH MAROO
• Keywords: Business income; Charitable institution; Maximum Marginal Rate; Advance ruling; Revocable transfer; Revised return
• Section: 6; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.178/BANG/2012 ASSESSMENT YEAR : 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 9(1), BANGALORE. VS. M/S. INDIA ADVANTAGE FUND-VII, 10 TH FLOOR, PRESTIGE OBELISK, NO.3, KASTURBA ROAD, BANGALORE 560 001. PAN : AAATI 5597C APPELLANT RESPONDENT APPELLANT BY : SHRI FARAHAT HUSSAIN QURESHI, CIT-II(DR) RESPONDENT BY : S/SHRI S.E. DASTUR, SR. ADVOCATE & KALPESH MAROO, C.A. DATE OF HEARING : 27.08.2014 DATE OF PRONOUNCEMENT : 17.10.2014 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NO.178/BANG/2012 IS AN APPEAL BY THE REVENUE A GAINST THE ORDER DATED 23.11.2011 OF CIT(APPEALS)-V, BENGALURU , RELATING TO ASSESSMENT YEAR 2008-09. ITA NO.178/BANG/2012 PAGE 2 OF 76 2. THE ASSESSEE IS A TRUST CONSTITUTED UNDER AN INS TRUMENT OF TRUST DATED 25/9/2006. M/S. ICICI VENTURE FUNDS MANAGEME NT COMPANY LIMITED (HEREINAFTER REFERRED TO AS SETTLOR OR A UTHOR OF TRUST) BY AN INDENTURE OF TRUST DATED 25.9.2006 TRANSFERRED A SU M OF RS.10,000/- TO M/S. THE WESTERN INDIA TRUSTEE AND EXECUTOR COMPANY LIMITED (HEREINAFTER REFERRED AS THE TRUSTEE) AS INITIAL CORPUS TO BE APPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THE INDENTU RE DATED 25.9.2006. THE TRUSTEE WAS EMPOWERED TO CALL FOR CONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE INVESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. THE OBJECTIVE OF CREATION OF THE TRUST WAS TO INVEST IN CERTAIN SECURITIES CALLED MEZZANINE INSTRUMENTS AND TO ACHI EVE COMMENSURATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FR OM THE CONTRIBUTORS TOGETHER WITH THE INITIAL CORPUS WAS TO BE HANDED O VER TO THE TRUSTEES UNDER THE PROVISIONS OF THE INDIAN TRUST ACT, 1882. THE TRUST WAS TO FACILITATE INVESTMENT BY THE CONTRIBUTORS WHO SHOULD BE RESIDE NT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE TRUST DEED PROVI DES THAT THE CONTRIBUTORS TO THE FUND WILL ALSO BE ITS BENEFICIARIES. 3. THE TRUSTEES HAD POWER TO APPOINT INVESTMENT MAN AGERS TO MANAGE THE TRUST FUND. THE SETTLOR WAS TO BE APPOINTED AS THE INVESTMENT MANAGER. THE TERMS OF THE APPOINTMENT OF THE SETTLOR AS INVE STMENT MANAGER ARE SET OUT IN AN INVESTMENT MANAGEMENT AGREEMENT DATED 25. 9.2006 BETWEEN THE ASSESSEE REPRESENTED BY THE TRUSTEE AND SETTLOR. ITA NO.178/BANG/2012 PAGE 3 OF 76 4. THE SETTLOR AS INVESTMENT MANAGER ISSUED MEMORAN DUM TO PROSPECTIVE INVESTORS ON A CONFIDENTIAL BASIS FOR T HEM TO CONSIDER AN INVESTMENT IN MEZZANINE FUND. AN INVESTOR WHO WISH ES TO CONTRIBUTE TO THE FUND ENTERS INTO A CONTRIBUTION AGREEMENT WITH THE TRUST, THE TRUSTEES ACTING ON BEHALF OF THE TRUST AND THE SETTLOR ACTING IN HI S CAPACITY AS INVESTMENT MANAGER. 5. THE FOLLOWING IS THE LIST OF BENEFICIARIES WHO C ONTRIBUTED TO THE FUND FOR INVESTMENT AND THE CAPITAL VALUE OF THEIR INVES TMENT AS ON 31.3.2008: NAME OF THE INVESTOR CAPITAL VALUE AS AT MARCH 31, 2008 ICICI VENTURE FUNDS MANAGEMENT CO. LTD. 52,825,500 LIFE INSURANCE CORPORATION OF INDIA 52,770,900 SIDBI 52,770,900 ORIENTAL BANK OF COMMERCE 52,770,900 CENTRAL BANK OF INDIA 27,300,000 S. GOPALAKRISHNAN 54,600,000 HEMENDRA KOTHARI 13,650,000 RIDAY PRADEEP NAKHATE 4,095,000 DEBASHIS CHATTERJEE 2,730,000 DEVASHISH CHOPRA 2,730,000 KAPILA MALHAN 2,730,000 LALITA D GUPTE 2,730,000 M M MOHAN 2,730,000 NAGARAJ SRINIVASA 2,730,000 RAHUL KUMAR N BALDOTA 2,730,000 RAJAGOPAL REDDY DEVI REDDY 2,730,000 RAJIV KUCHHAL 2,730,000 R SESHASAYEE 2,730,000 SHRENIK KUMAR N BALDOTA 2,730,000 VISVESWARAN GUPTA 2,730,000 CHANRAI CONSULTANTS PRIVATE LTD. 5,460,000 CHOWDRY ASSOCIATES 2,730,000 ITA NO.178/BANG/2012 PAGE 4 OF 76 NAME OF THE INVESTOR CAPITAL VALUE AS AT MARCH 31, 2008 NASA FINLEASE PRIVATE LTD. 5,460,000 SHAW WALLACE WELFARE & BENEFIT CO. 2,730,000 UNION BANK OF INDIA 52,770,900 THE ORIENTAL INSURANCE CO. LTD. 27,300,000 B.S. SONS 2,730,000 KEMPTY COTTAGES (P) LTD. 2,730,000 RADHA MADHAV INVESTMENTS LTD. 13,650,000 STONERA SYSTEMS (P) LTD. 2,730,000 SURYAPRAKASH 2,730,000 ANAND VITHAL BADVE & PENELOPE BADVE 2,730,000 C S VAIDYANATHAN 2,730,000 GANAPATHY NALLASIVAN 2,730,000 PRAVEEN K GANAPATHY 2,730,000 ICICI BANK 52,770,900 TOTAL 528,255,000 6. FOR AY 2008-09, THE ASSESSEE FILED RETURN OF INC OME DECLARING TOTAL INCOME OF RS.1,81,68,357/- AND CLAIMED REFUND OF RS .61,03,968 WHICH IS NOTHING BUT THE TDS MADE BY THE ASSESSEE ON THE INT EREST GIVEN TO THE BENEFICIARIES AS SET OUT IN THE LAST COLUMN OF THE CHART GIVEN IN THE EARLIER PARAGRAPH. A REVISED RETURN OF INCOME WAS FILED ON 26.6.2009 IN WHICH THE TOTAL INCOME DECLARED WAS THE SAME BUT THE REQUEST FOR REFUND OF TDS AS MADE IN THE ORIGINAL RETURN OF INCOME WAS NOT MADE IN THE REVISED RETURN OF INCOME. 7. THE REASON AS TO WHY THE REVISED RETURN OF INCOM E WAS FILED ARE SET OUT BY THE ASSESSEE IN A LETTER DATED 23.11.2010 AD DRESSED TO THE AO. THE SAME READS THUS:- ITA NO.178/BANG/2012 PAGE 5 OF 76 IN THIS REGARD, WE WISH TO SUBMIT THAT THE FUND HA S DECLARED AN INCOME OF RS.1,81,68,357 IN ITS REVISED RETURN OF I NCOME FOR THE AY 2008-09. WE WISH TO SUBMIT THAT THE AFORESAID D ECLARATION WAS MADE BY THE FUND OUT OF EXTREME PRECAUTION AND IN GOOD FAITH TO PROVIDE COMPLETE INFORMATION AND DETAILS A BOUT THE INCOME EARNED BY THE FUND AND OFFERED TO TAX BY THE BENEFICIARIES. AS STATED IN OUR EARLIER SUBMISSION S, WHILE THE FUND HAS DISCLOSED THE TOTAL INCOME IN ITS RETURN O F INCOME, PURSUANT TO THE PROVISIONS OF SECTION 61 TO SECTION 63 OF THE ACT, THE SAME HAS BEEN INCLUDED IN THE RETURN OF INCOME OF THE BENEFICIARIES AND OFFERED TO TAX DIRECTLY BY THEM. IN ORDER TO ENABLE THE BENEFICIARIES OF THE FUND TO INCLUDE THEIR SHARE OF INCOME AND TAX DEDUCTED AT SOURCE IN THE F UND, IN THEIR RETURN OF INCOME, THE FUND ON A PERIOD BASIS, PROVI DES THEM WITH THE ALLOCATION OF EACH BENEFICIARY SHARE OF TAXABLE INCOME VIDE AN ALLOCATION LETTER. IN THIS REGARD, WE HAVE PROVIDE D BELOW THE TABLE DETAILING THE TAXABLE INCOME ALLOCATED TO EACH BENE FICIARY FOR INCLUSION IN THEIR TOTAL INCOME. SL NO NAME OF THE INVESTOR STCG PROFIT ON SALE OF MUTUAL FUND UNITS INTEREST INCOME EXPENSES OF THE FUND TOTAL TDS ON INTEREST INCOME 1 ICICI VENTURE FUNDS MANAGEMENT CO. LTD. 530,838 3,120,922 (1,816,836) 1,816,836 610,397 2 LIFE INSURANCE CORPORATION OF INDIA 530,289 3,117,696 (1,833,028) 1,814,958 609,766 3 SIDBI 530,289 3,117,696 (1,833,028) 1,814,958 609,766 4 ORIENTAL BANK OF COMMERCE 530,289 3,117,696 (1,833,028) 1,814,958 609,766 5 CENTRAL BANK OF INDIA 274,335 1,612,880 (948,281) 938,933 315,451 6 S. GOPALAKRISHNAN 548,670 3,225,759 (1,896,562) 1,877,866 630,901 7 HEMENDRA KOTHARI 137,167 3,225,759 (474,141) 469,467 157,725 8 RIDAY PRADEEP NAKHATE 41,150 241,932 (142,242) 140,840 47,318 9 DEBASHIS CHATTERJEE 27,433 161,288 (94,828) 93,893 31,545 10 DEVASHISH CHOPRA 27,433 161,288 (94,828) 93,893 31,545 11 KAPILA MALHAN 27,433 161,288 (94,828) 93,893 31,545 12 LALITA D GUPTE 27,433 161,288 (94,828) 93,893 31,545 13 M M MOHAN 27,433 161,288 (94,828) 93,893 31,545 14 NAGARAJ SRINIVASA 27,433 161,288 (94,828) 93,893 31,545 ITA NO.178/BANG/2012 PAGE 6 OF 76 SL NO NAME OF THE INVESTOR STCG PROFIT ON SALE OF MUTUAL FUND UNITS INTEREST INCOME EXPENSES OF THE FUND TOTAL TDS ON INTEREST INCOME 15 RAHUL KUMAR N BALDOTA 27,433 161,288 (94,828) 93,893 31,545 16 RAJAGOPAL REDDY DEVI REDDY 27,433 161,288 (94,828) 93,893 31,545 17 RAJIV KUCHHAL 27,433 161,288 (94,828) 93,893 31,545 18 R SESHASAYEE 27,433 161,288 (94,828) 93,893 31,545 19 SHRENIK KUMAR N BALDOTA 27,433 161,288 (94,828) 93,893 31,545 20 VISVESWARAN GUPTA 27,433 161,288 (94,828) 93,893 31,545 21 CHANRAI CONSULTANTS PRIVATE LTD. 54,867 322,576 (189,656) 187,787 63,090 22 CHOWDRY ASSOCIATES 27,433 161,288 (94,828) 93,893 31,545 23 NASA FINLEASE PRIVATE LTD. 54,867 322,576 (189,656) 187,787 63,090 24 SHAW WALLACE WELFARE & BENEFIT CO. 27,433 161,288 (94,828) 93,893 31,545 25 UNION BANK OF INDIA 530,289 3,117,696 (1,833,028) 1,814,958 609,766 26 THE ORIENTAL INSURANCE CO. LTD. 274,335 1,612,880 (948,281) 938,933 315,451 27 B.S. SONS 27,433 161,288 (94,828) 93,893 31,545 28 KEMPTY COTTAGES (P) LTD. 27,433 161,288 (94,828) 93,893 31,545 29 RADHA MADHAV INVESTMENTS LTD. 137,167 806,440 (474,141) 469,467 157,725 30 STONERA SYSTEMS (P) LTD. 27,433 161,288 (94,828) 93,893 31,545 31 SURYAPRAKASH K 27,433 161,288 (94,828) 93,893 31,545 32 ANAND VITHAL BADVE & PENELOPE BADVE 27,433 161,288 (94,828) 93,893 31,545 33 C S VAIDYANATHAN 27,433 161,288 (94,828) 93,893 31,545 34 GANAPATHY NALLASIVAN 27,433 161,288 (94,828) 93,893 31,545 35 PRAVEEN K GANAPATHY 27,433 161,288 (94,828) 93,893 31,545 36 ICICI BANK 530,289 3,117,696 (1,833,028) 1,814,958 609,766 TOTAL 5,308,377 31,209,221 (18,349,241) 18,168,357 6,103,968 CONSEQUENTLY, THE EFFECTIVE INCOME TAXABLE IN THE H ANDS OF THE FUND IS TO BE CONSIDERED AS NIL. SINCE, THE PROVISI ONS OF THE ACT MANDATE THAT THE INCOME ARISING FROM REVOCABLE TRAN SFERS ARE TO BE TAXED IN THE HANDS OF THE TRANSFERORS (I.E., THE CONTRIBUTORS) THE FUND HAS NOT OFFERED THE SAME TO TAX AGAIN IN ITS H ANDS. ITA NO.178/BANG/2012 PAGE 7 OF 76 8. BEFORE WE SET OUT AS TO HOW THE AO PROCEEDED TO FRAME ASSESSMENT IN THE CASE OF THE ASSESSEE, THE SCHEME OF ASSESSME NT OF INCOME OF PRIVATE TRUST AS LAID DOWN IN THE VARIOUS PROVISION S OF THE INCOME TAX ACT, 1961 (ACT) NEEDS TO BE SET OUT. IN RESPECT OF ANY INCOME WHICH THE TRUSTEE RECEIVES OR IS ENTITLED TO RECEIVE ON BEHALF OR FOR THE BENEFIT OF ANY PERSON, THE TRUSTEE WOULD BE CONSIDERED AS A REPRESENTATIVE ASSESSEE IN TERMS OF THE PROVISIONS OF SEC.160 (1)(IV) OF THE ACT. THE INCOME RECEIVED BY THE ASSESSEE FROM THE INVESTMENT MANAGER PURSUANT TO TH E INVESTMENT MANAGEMENT AGREEMENT DATED 25.9.2006, WOULD BE INCO ME FALLING WITHIN THE AMBIT OF SEC.160(1)(IV) OF THE ACT. IN RESPE CT OF SUCH INCOME THE ASSESSEE WOULD BE CONSIDERED AS REPRESENTATIVE ASSE SSEE. 9. IN TERMS OF SEC.161(1) OF THE ACT, EVERY REPRESE NTATIVE ASSESSEE, AS REGARDS THE INCOME IN RESPECT OF WHICH HE IS A REPR ESENTATIVE ASSESSEE, SHALL BE SUBJECT TO THE SAME DUTIES, RESPONSIBILITI ES AND LIABILITIES AS IF THE INCOME WERE INCOME RECEIVED BY OR ACCRUING TO OR IN FAVOUR OF HIM BENEFICIALLY, AND SHALL BE LIABLE TO ASSESSMENT IN HIS OWN NAME IN RESPECT OF THAT INCOME; BUT ANY SUCH ASSESSMENT SHALL BE DE EMED TO BE MADE UPON HIM IN HIS REPRESENTATIVE CAPACITY ONLY, AND T HE TAX SHALL , SUBJECT TO THE OTHER PROVISIONS CONTAINED IN THIS CHAPTER, BE LEVIED UPON AND RECOVERED FROM HIM IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON RE PRESENTED BY ITA NO.178/BANG/2012 PAGE 8 OF 76 HIM. TO THE ABOVE RULE LAID DOWN IN SEC.161(1) OF THE AC T, THERE ARE THREE EXCEPTIONS. THEY ARE:- ( A) UNDER S. 161(1A), THIS RULE OF APPORTIONMENT AN D DETERMINATION OF PROPORTIONATE TAX ATTRIBUTABLE TO THE BENEFICIARY W ILL NOT APPLY TO ANY INCOME EARNED BY THE TRUSTEE AS PROFITS AND GAINS O F A BUSINESS. THE WHOLE OF SUCH INCOME SHALL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. A SIMILAR PROVISO OCCURS ALSO IN S. 164(1) R ESTRICTING BENEFITS WHERE BUSINESS INCOME IS INVOLVED. (B) UNDER S. 164(1), IF THE INDIVIDUAL SHARES OF T HE PERSONS ON WHOSE BEHALF AND FOR WHOSE BENEFIT THE INCOME IS RECEIVAB LE ARE INDETERMINATE OR UNKNOWN, SUCH INCOME, AGAIN, WILL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. (C) IN CERTAIN OTHER CIRCUMSTANCES, SET OUT IN THE PROVISO TO S. 164(1), THE RELEVANT INCOME WILL BE ASSESSABLE NOT AT THE MAXIM UM RATE BUT AT THE RATE APPLICABLE TO IT AS IF IT WERE THE TOTAL I NCOME OF AN AOP. 10. SEC.166 OF THE ACT PROVIDES THAT THE PROVISIONS RELATING TO MAKING ASSESSMENT IN THE HANDS OF A REPRESENTATIVE ASSESSE E, INCOME OF PERSON ON WHOSE BEHALF OR FOR WHOSE BENEFIT INCOME IS RECE IVED OR RECEIVABLE BY THE REPRESENTATIVE ASSESSEE, SHALL NOT PREVENT EITH ER THE DIRECT ASSESSMENT OF THE PERSON ON WHOSE BEHALF OR FOR WHOSE BENEFIT INCOME THEREIN REFERRED ITA NO.178/BANG/2012 PAGE 9 OF 76 TO IS RECEIVABLE, OR THE RECOVERY FROM SUCH PERSON OF THE TAX PAYABLE IN RESPECT OF SUCH INCOME. 11. UNDER SECTION 61 OF THE ACT ALL INCOME ARISING TO ANY PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE C HARGEABLE TO INCOME-TAX AS THE INCOME OF THE TRANSFEROR AND SHALL BE INCLUD ED IN HIS TOTAL INCOME. SEC.62 OF THE ACT PROVIDES THAT IF A TRANSFER IS IR REVOCABLE FOR A SPECIFIED PERIOD THAN SEC.61 WILL NOT APPLY. SECTION 63 DEFI NES AS TO WHAT IS TRANSFER AND REVOCABLE TRANSFER FOR THE PURPOSE OF SEC.61 & 62 OF THE ACT. IT PROVIDES THAT:- (A) A TRANSFER SHALL BE DE EMED TO BE REVOCABLE IF (I) IT CONTAINS ANY PROVISION FOR THE RE-TRANSFER D IRECTLY OR INDIRECTLY OF THE WHOLE OR ANY PART OF THE INCOME OR ASSETS TO THE TR ANSFEROR, OR (II) IT, IN ANY WAY, GIVES THE TRANSFEROR A RIGHT TO RE-ASSUME POWE R DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF THE INCOME OR ASSETS; (B) 'TRANSFER' INCLUDES ANY SETTLEMENT, TRUST, COVENANT, AGREEMENT OR ARRAN GEMENT. THE CONTENTION OF THE ASSESSEE AS CAN BE SEEN FROM THE REASONS FOR FILING REVISED RETURN WAS THAT THE MONIES GIVEN BY THE BEN EFICIARIES TO THE TRUST WAS A REVOCABLE TRANSFER AND THEREFORE ANY INCOME A RISING FROM SUCH REVOCABLE TRANSFER WILL HAVE TO BE NECESSARILY ASSE SSED ONLY IN THE HANDS OF THE TRANSFEREE I.E., THE BENEFICIARIES AND NOT THE TRANSFEROR, I.E., TRUSTEE. 12. WE WILL NOW REVERT TO THE MANNER IN WHICH THE A O FRAMED THE ORDER OF ASSESSMENT. THE AO WAS OF THE VIEW THAT THE IND IVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT INCOME IS RECEIVED OR ITA NO.178/BANG/2012 PAGE 10 OF 76 RECEIVABLE BY THE ASSESSEE OR PART THEREOF ARE INDE TERMINATE OR UNKNOWN. IN THIS REGARD THE AO REFERRED TO THE TRUST DEED DA TED 25.9.2006 AND OBSERVED THAT THE SHARES OF THE BENEFICIARIES ARE N OT MENTIONED THEREIN. HE WAS ALSO OF THE VIEW THAT THE FACT THAT THE DEED MENTIONS THAT SHARE OF THE BENEFICIARIES WOULD BE ALLOCATED ACCORDING TO T HEIR INVESTMENTS IN THE FUND DOES NOT MAKE THE SHARE DETERMINATE OR KNOWN. THE AO WAS THEREFORE OF THE VIEW THAT THE PROVISIONS OF SEC.16 4(1) OF THE ACT WOULD APPLY AND THE ASSESSEE WOULD BE LIABLE TO BE ASSESS ED AT THE MAXIMUM MARGINAL RATE WHICH WAS 30% PLUS SURCHARGE, IF ANY, AND EDUCATION CESS, IF ANY. THE BENEFICIARIES HAD HOWEVER DECLARED INTERE ST INCOME AT THE APPLICABLE RATES AND STCG ON SALE OF MUTUAL FUND UN ITS AT 10% WHICH IS THE RATE AS PER THE PROVISIONS OF SEC.111A OF THE ACT. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE BENEFICIARIES HAVE DECL ARED INCOME ALLOCATED BY THE TRUST TO THEM AND HAVE BEEN ASSESSED IN RESPECT OF THE SHARE OF THEIR INCOME. THE AO ALSO OBSERVED THAT THE SAME INCOME CANNOT TAXED TWICE ONCE IN THE HANDS OF THE TRUST AND AGAIN IN THE HAN DS OF THE BENEFICIARIES IN VIEW OF THE PROVISIONS OF SEC.86 OF THE ACT WHICH P ROVIDES THAT WHERE THE ASSESSEE IS A MEMBER OF AN ASSOCIATION OF PERSONS I NCOME-TAX SHALL NOT BE PAYABLE BY THE ASSESSEE IN RESPECT OF HIS SHARE IN THE INCOME OF THE ASSOCIATION, IF THE ASSOCIATION IS CHARGEABLE TO TA X ON ITS TOTAL INCOME AT THE MAXIMUM MARGINAL RATE OR ANY HIGHER RATE UNDER ANY OF THE PROVISIONS OF THIS ACT. THE AO ALSO HELD THAT THE ASSESSEE AND TH E BENEFICIARIES JOINED IN A COMMON PURPOSE OR COMMON ACTION, THE OBJECT OF WH ICH WAS TO PRODUCE ITA NO.178/BANG/2012 PAGE 11 OF 76 INCOME, PROFITS AND GAINS AND THEREFORE CONSTITUTED AN AOP. THE AO ALSO REFERRED TO THE FACT THAT THE ASSESSEE HAD OBTAINED PAN IN THE STATUS OF AN AOP (TRUST) AND FILED ITS E-RETURN OF INCOME BY QUO TING THE STATUS AS AOP/BOI. CONSEQUENTLY THE INCOME IN QUESTION HAS T O BE BROUGHT TO TAX IN THE HANDS OF AOP AT THE MAXIMUM MARGINAL RATE. IN THIS REGARD THE AO MADE REFERENCE TO THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF ITO VS. CH. ATCHAIAH 218 ITR 239 (SC) WHEREIN, IN THE CONTEXT OF ASSESSMENT OF INCOME OF AN AOP, IT WAS HELD BY THE HONBLE SUPREME COURT THAT INCOME HAS TO BE BROUGHT TO TAX IN THE H ANDS OF RIGHT PERSON. THE ASSESSEE HAD BEFORE THE AO RELIED ON THE FOLLOW ING JUDICIAL PRONOUNCEMENTS IN SUPPORT OF ITS STAND THAT THERE W AS NO AOP IN EXISTENCE AND THEREFORE THE ASSESSEE SHOULD NOT BE TAXED AT T HE MAXIMUM MARGINAL RATE. (1) GOPALA PILLAI A.K. VS. ITO 75 ITR 120 (MAD); (2) CWT VS. TRUSTEES OF HEH NIZAMS FAMILY (REMAIN DER WEALTH) TRUST 107 ITR 555 (SC); (3) CIT VS. SHAMARAJU TRUSTEES 56 TAXMAN 175 (KARN .); (4) LAKSHMIPAT SINGHANIA VS. CIT 72 ITR 291 (SC). THE AO WITHOUT DISCUSSING THE FACTS OF THOSE CASES AND THE RATIO LAID DOWN IN THOSE DECISIONS AND AS TO HOW THE FACTS OF THE A SSESSEES CASE ARE DIFFERENT FROM THOSE CASES, HELD THAT THE CASES CIT ED ARE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. ITA NO.178/BANG/2012 PAGE 12 OF 76 13. THE AO ALSO OBSERVED AS FOLLOWS:- IT IS NOT DENIED THAT THE BUSINESS WAS CARRIED ON BY THE FUND ON BEHALF OF THE BENEFICIARIES OF THE TRUST (AOP) AND THAT CONSIDERABLE PROFITS WERE EARNED FROM THE BUSINESS. THE CONTROL AND MANAGEMENT OF THE BUSINESS WAS IN THE HANDS OF THE FUND. THE CONTROL AND MANAGEMENT WAS A UNIFIED ONE. THE BENEFICIARIES HAD JOINED IN A COMMON PURPOSE AND TH EY ACTED JOINTLY. WHEN THEY DID SO, THEY ACTED ON BEHALF OF THE PERSONS WHO ARE THE OWNERS OF THE BUSINESS. THE FUND DID N OT AND COULD NOT HAVE REPRESENTED THE INDIVIDUAL INTEREST OF THE VARIOUS BENEFICIARIES. IF THEY HAD DONE SO, THERE WOULD HA VE BEEN CHAOS IN THE BUSINESS. THE PROFITS TO WHICH THOSE OWNERS LAY CLAIM AND WHICH THEY WERE NOT AVERSE TO POCKED, WERE EARNED O N BEHALF OF AN AOP. RELIANCE IS PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF N.V. SHANMUGAM & CO. VS. CIT 81 ITR 310 (SC) AND CIT VS. MANAGING TRUSTEES NAGORE DURGAH 57 ITR 321 (SC). 14. THE AO FOR THE ABOVE REASONS BROUGHT TO TAX THE ENTIRE INCOME IN THE HANDS OF THE ASSESSEE AT THE MAXIMUM MARGINAL R ATE. 15. BEFORE CIT(A) THE ASSESSEE CHALLENGED (I) THE C ONCLUSION OF THE AO THAT THE ASSESSEE IS AN AOP; (II) INCOME OR ANY PART OF IN RESPECT OF WHICH THE ASSESSEE IS LIABLE AS REPRESENTATIVE ASSE SSEE IS SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BENEFIT OF ANY ONE PERSON; OR THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE ARE INDETERMINATE O R UNKNOWN. ITA NO.178/BANG/2012 PAGE 13 OF 76 16. ARGUMENTS ADVANCED BY THE ASSESSEE BEFORE CIT(A) AS TO WHY IT SHOULD NOT BE REGARDED AS AOP: 16.1 UNDER SECTION 161 OF THE ACT THE LIABILITY O F A REPRESENTATIVE ASSESSEE IN RESPECT OF INCOME FOR WHICH HE IS SO AS SESSABLE, THE STATUS OF THE ASSESSEE CANNOT BE DIFFERENT FROM THAT OF THE B ENEFICIARIES. FOR THE ABOVE PROPOSITION RELIANCE WAS PLACED ON THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. FOOD CORPORATION OF INDIA CONTRIBUTORY PROVIDENT FUND 318 ITR 318 (DEL) WHEREIN THE QUESTION FOR CONSIDERATION WAS AS TO WHETHER ASSESS EE WHICH WAS A TRUST AND WHOSE BENEFICIARIES WERE INDIVIDUALS IS LIABLE TO DEDUCT TAX AT SOURCE U/S.194A OF THE ACT, WHICH DID NOT APPLY TO INDIVID UALS. THE HONBLE DELHI HIGH COURT UPHELD THE PLEA OF THE TRUST THAT ITS BE NEFICIARIES WERE INDIVIDUALS AND THEREFORE IT SHOULD ALSO BE REGARDED AS INDIVID UAL AND THE PROVISIONS OF SEC.194A OF THE ACT SHOULD BE HELD TO BE NOT APPLIC ABLE TO THE ASSESSEE TRUST. 16.2 SEC.2(31) OF THE ACT DEFINES THE TERM PERS ON. THE DEFINITION INCLUDES ASSOCIATION OF PERSONS(AOP). THERE IS NO DEFINITION OF THE EXPRESSION AOP OCCURRING IN THE 1922 ACT. BY A SER IES OF DECISIONS, THE MEANING OF THIS EXPRESSION WAS PRECISELY DEFINED AN D TESTS WERE LAID DOWN IN ORDER TO FIND OUT WHEN A CONGLOMERATE OF PERSONS COULD BE HELD TO BE AN AOP FOR THE PURPOSES OF SECTION 3 OF THE 1922 ACT. WHILE INTERPRETING THIS EXPRESSION OCCURRING IN SECTION 3 OF THE INDIAN IT ACT, 1922, THE SUPREME ITA NO.178/BANG/2012 PAGE 14 OF 76 COURT IN CIT VS. INDIRA BALKRISHNA (1960) 39 ITR 546 (SC) APPROVED THE VIEW EXPRESSED EARLIER BY BEAUMONT, C. J., IN CIT VS. LAKSHMIDAS DEVIDAS (1937) 5 ITR 584 (BOM) AND ALSO DWARKANATH HARISHCHANDRA PITALE (1937) 5 ITR 716 (B OM) , THAT 'AN AOP MUST BE ONE IN WHICH TWO OR MORE PERSONS JO IN IN A COMMON PURPOSE OR COMMON ACTION, AND AS THE WORDS OCCUR IN A SECTION WHICH IMPOSES A TAX ON INCOME, THE ASSOCIATION MUST BE ON E THE OBJECT OF WHICH IS TO PRODUCE INCOME, PROFITS OR GAINS' . SO ALSO IS THE VIEW EXPRESSED BY COSTELLO, J., IN B.N. ELIAS (1935) 3 ITR 408 (CAL) : TC10R.155 , IN THE FOLLOWING WORDS: IT MAY WELL BE THAT THE INTENTION OF THE LEGISLAT URE WAS TO HIT COMBINATIONS OF INDIVIDUALS WHO WERE ENGAGED TOGETHER IN SOME JOINT ENTERPRISE BUT DID NOT IN LAW CONSTITUTE PARTNERSHI PS. ... WE FIND THAT .... THERE IS A COMBINATION OF PERSONS FORMED FOR THE PROMOTIO N OF A JOINT ENTERPRISE ... THEN I THINK NO DIFFICULTY ARISES WHATEVER IN THE W AY OF SAYING THAT... THESE PERSONS DID CONSTITUTE AN ASSOCIATION.'' THE SUPREME COURT, HOWEVER, ADMINISTERED THE FOLLOWING CAUTION : THERE IS NO FORMULA OF UNIVERSAL APPLICATION AS TO WHAT FACTS, HOW MANY OF THEM AND OF WHAT NATURE, ARE NECESSARY TO COME TO A CONCLUSION THAT THERE IS AN AOP WITHIN THE MEANING OF SECTION 3; IT MUST DEPEND ON THE PARTICULAR FACT S AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER THE CONCLUSION CAN BE DRAWN OR NOT''. TO THE ABOVE JUDICIAL EXPOSITION OF WHAT CONSTITUTES AOP, THERE HAS BEEN A STATUTORY RIDER ITA NO.178/BANG/2012 PAGE 15 OF 76 ADDED. THE FINANCE ACT, 2002 HAS INSERTED W.E.F. 1ST APRIL, 2003 AN EXPLANATION TO CLARIFY THAT OBJECT OF DERIVING INCO ME IS NOT NECESSARY FOR AOP, BOI, LOCAL AUTHORITY OR AN ARTIFICIAL JURIDICA L PERSON IN ORDER THAT SUCH ENTITY MAY COME WITHIN THE DEFINITION OF 'PERSON' I N SECTION 2(31). IF INCOME RESULTS THAN THEY ARE LIABLE TO BE TAXED AS AOP IF THE OTHER CONDITIONS LAID DOWN BY JUDICIAL DECISIONS ARE SATISFIED. 16.3 IN THE LIGHT OF THE ABOVE DEFINITION OF AO P, THE ASSESSEE POINTED OUT BEFORE CIT(A) THAT :- (I) THE ASSESSEE IS A TRUST CONSTITUTED UNDER AN IN STRUMENT OF TRUST DATED 25/9/2006. M/S.ICICI VENTURE FUNDS MANAGEMENT COMP ANY LIMITED (HEREINAFTER REFERRED TO AS SETTLOR) BY AN INDE NTURE OF TRUST DATED 25.9.2006 TRANSFERRED A SUM OF RS.10,000/- TO M/S. THE WESTERN INDIA TRUSTEE AND EXECUTOR COMPANY LIMITED (HEREINAFTER R EFERRED AS THE TRUSTEE) AS INITIAL CORPUS TO BE APPLIED AND GOVE RNED BY THE TERMS AND CONDITIONS OF THE INDENTURE DATED 25.9.2006. T HE TRUSTEE WAS EMPOWERED TO CALL FOR CONTRIBUTIONS FROM THE CONTRI BUTORS WHICH WILL BE INVESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJE CTS OF THE TRUST. THE OBJECTIVE OF CREATION OF THE TRUST WAS TO INVES T IN CERTAIN SECURITIES CALLED MEZZANINE INSTRUMENTS AND TO ACHIEVE COMMENS URATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FROM THE C ONTRIBUTORS TOGETHER WITH THE INITIAL CORPUS WAS TO BE HANDED OVER TO TH E TRUSTEES UNDER THE PROVISIONS OF THE INDIAN TRUST ACT, 1882. THE TRUS T WAS TO FACILITATE ITA NO.178/BANG/2012 PAGE 16 OF 76 INVESTMENT BY THE CONTRIBUTORS WHO SHOULD BE RESIDE NT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE CONTRIBU TORS TO THE FUND ARE ITS BENEFICIARIES; (II) THE TRUSTEES HAD POWER TO APPOINT INVESTMENT M ANAGERS TO MANAGE THE TRUST FUND. THE SETTLOR WAS TO BE APPOINTED AS THE INVESTMENT MANAGER. THE TERMS OF THE APPOINTMENT OF THE SETTL OR AS INVESTMENT MANAGER ARE SET OUT IN AN INVESTMENT MANAGEMENT AGR EEMENT DATED 25.9.2006 BETWEEN THE ASSESSEE REPRESENTED BY THE T RUSTEE AND SETTLOR; & (III) THE SETTLOR AS INVESTMENT MANAGER ISSUED MEMO RANDUM TO PROSPECTIVE INVESTORS ON A CONFIDENTIAL BASIS FOR T HEM TO CONSIDER AN INVESTMENT IN MEZZANINE FUND. AN INVESTOR WHO WISH ES TO CONTRIBUTE TO THE FUND ENTERS INTO A CONTRIBUTION AGREEMENT WI TH THE TRUST, THE TRUSTEES ACTING ON BEHALF OF THE TRUST AND THE SETT LOR ACTING IN HIS CAPACITY AS INVESTMENT MANAGER. THE ASSESSEE PLEADED THAT THE AFORESAID MANNER IN W HICH THE TRUST WAS CREATED AND CONTRIBUTIONS OBTAINED WOULD SHOW THAT THE BENEFICIARIES CONTRIBUTE THEIR MONEY TO THE ASSESSEE AND ENTER IN TO SEPARATE ARRANGEMENTS WITH EACH BENEFICIARY. THERE IS NO IN TER SE ARRANGEMENT BETWEEN ONE CONTRIBUTORY/ BENEFICIARY AND THE OTHER CONTRIBUTORY/BENEFICIARY AS EACH OF THEM ENTER INTO SEPARATE CONTRIBUTION AR RANGEMENT WITH THE ASSESSEE. THEREFORE THERE IT CANNOT BE SAID THAT T WO OR MORE BENEFICIARIES ITA NO.178/BANG/2012 PAGE 17 OF 76 JOIN IN A COMMON PURPOSE OR COMMON ACTION AND THERE FORE THE TESTS FOR CONSIDERING THE ASSESSEE AS AOP IS NOT SATISFIED. THE BENEFICIARIES HAVE NOT SET UP THE TRUST. THE ASSESSEE RELIED ON THE D ECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SHYAMARAJU (TRUSTEES) 189 ITR 392 (KARN.) AND THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MARSONS BENEFICIARY TRUST 188 ITR 224 (BOM.) . THE PRINCIPLE LAID DOWN IN THE AFORESAID TWO DEC ISIONS IS THAT FOR A VALID TRUST TO BE CREATED THE BENEFICIARIES CONSENT IS NOT NECESSARY. THE AUTHORITY TO CARRY ON ACTIVITIES OF THE TRUST IS DE RIVED BY VIRTUE OF THE POWER CONFERRED ON THE TRUSTEES BY THE TRUST DEED. THERE FORE IT CANNOT BE SAID THAT THE BENEFICIARIES HAVE COME TOGETHER WITH THE OBJECT OF CARRYING ON INVESTMENT IN MEZZANINE FUNDS WHICH IS THE OBJECT O F THE TRUST. THE BENEFICIARIES ARE MERE RECIPIENTS OF THE INCOME EAR NED BY THE TRUST. THEY CANNOT THEREFORE BE REGARDED AS AN AOP. (IV) WITH REGARD TO THE CONTENTION OF THE AO THAT T HE ASSESSEE HAS OBTAINED PAN IN THE STATUS OF AN AOP (TRUST) AND FI LED ITS ROI BY QUOTING THE STATUS AS AOP/BOI, THE ASSESSEE POINTED OUT THA T THE PAN APPLICATION REQUIRES THAT AN APPLICANT HAS TO MANDATORILY STATE THE STATUS. FORM NO 49A, BEING THE APPLICATION FOR OBTAINING A PAN PERM ITS THE APPLICANT TO TICK ONLY ANY ONE OF TILE FOLLOWING OPTIONS: I. INDIVIDUAL II. HUF III. COMPANY ITA NO.178/BANG/2012 PAGE 18 OF 76 IV. FIRM V. ASSOCIATION OF PERSONS VI. ASSOCIATION OF PERSONS (TRUSTS) VII. BODY OF INDIVIDUALS VIII. LOCAL AUTHORITY IX. ARTIFICIAL JURIDICAL PERSON THE ASSESSEE POINTED OUT THAT FROM THE ABOVE LIST, THE ASSESSEE IS LEFT WITH NO OTHER OPTION BUT TO CHOOSE THE OPTION OF AO P (TRUSTS) TO OBTAIN THE PAN. (V) WITH REGARD TO THE STATUS MENTIONED IN THE R OI, THE ASSESSEE POINTED OUT THAT THE PROVISIONS OF RULE 12 OF THE I NCOME- TAX RULES, 1962 PROVIDES DIFFERENT FORMS FOR FILING THE ROI BA SED ON THE STATUS AND NATURE OF INCOME OF THE PERSONS. THE CBDT HAS NOTIF IED THE FOLLOWING FORMS: ITR FORM 1 - 4 IS APPLICABLE TO INDIVIDUALS / HUFS ; ITR 6 IS APPLICABLE TO COMPANIES; ITR 7 IS APPLICABLE TO PERSONS BEING A COMPANY UNDE R SECTION 25 OF THE COMPANIES ACT, 1956, CHARITABLE OR RELIGIOUS TRUSTS, POLITICAL PARTIES, ETC.; ITR 5 IS APPLICABLE IN THE CASE OF A PERSON NOT BEI NG AN INDIVIDUAL OR A HUF OR A COMPANY OR A PERSON TO WHOM ITR 7 APP LIES. THE ASSESSEE POINTED OUT THAT ITR 5 IS A RESIDUAL F ORM AND USED BY ANY CATEGORY OF PERSONS OTHER THAN AN INDIVIDUAL, HUF, COMPANY ETC. SINCE, THERE IS NO SPECIFIC FORM PRESCRIBED IN THE CASE OF TRUSTS / REPRESENTATIVE ASSESSEE, THE ASSESSEE HAD USED ITR 5. FURTHER, THE ASSESSEE HAD ELECTRONICALLY FILED THE RETURN FOR THE SUBJECT ASS ESSMENT YEAR. IN THE ITA NO.178/BANG/2012 PAGE 19 OF 76 SECTION WHERE THE STATUS OF THE PERSON FILING THE R ETURN HAS TO BE MENTIONED, THE FORM FOR THE SUBJECT ASSESSMENT YEAR CONTAINED ONLY THE FOLLOWING OPTIONS: 1 FIRM 2 LOCAL AUTHORITY 3 COOPERATIVE BANK 4 COOPERATIVE SOCIETY 5 ANY OTHER AOP/BOI THEREFORE, THE ASSESSEE WAS LEFT WITH NO CHOICE BUT TO CHOOSE THE STATUS AS ANY OTHER AOP/BOI IN THE ROI FILED ELECTRONICA LLY. CONSIDERING THE ABOVE, THE MERE FACT THAT THE STATUS OF THE TRU ST IN THE ROI HAD BEEN MENTIONED AS ANY OTHER AOP / BOI, THE ASSESSEE CA NNOT BE HELD TO CONSTITUTE AN AOP. THE ASSESSEE ALSO RELIED ON CIR CULAR: NO. 14(XL- 35), DATED 11-4-1955 ISSUED BY THE CBDT WHEREIN IT HAS BEEN CLARIFIED THAT (A) ANY RELIEF WHICH THE ASSESSEE IS ENTITLED TO, W HETHER CLAIMED IN THE ROI OR NOT, HAS TO BE GRANTED TO THE ASSESSE E. (B) ONLY LEGITIMATE TAX MUST BE ASSESSED AND MUST B E COLLECTED. THE AO SHOULD NOT TAKE ADVANTAGE OF AN ASSESSEES M ISTAKE TO COLLECT MORE TAX OUT OF THE ASSESSEE THAT IS LEGITI MATELY DUE FROM HIM. 17. ARGUMENTS ADVANCED BY THE ASSESSEE BEFORE CIT(A) AS TO WHY PROVISIONS OF SECTION 164(1) OF THE ACT A RE NOT ATTRACTED: 17.1 SEC.164(1) OF THE ACT WILL NOT GET ATTRACTED FOR THE REASON THAT THE BENEFICIARIES ARE NOT IDENTIFIABLE. SO LONG AS THE TRUST DEED GIVES THE ITA NO.178/BANG/2012 PAGE 20 OF 76 DETAILS OF THE BENEFICIARIES AND THE DESCRIPTION OF THE PERSON WHO IS TO BE BENEFITED, THE BENEFICIARIES CANNOT BE SAID TO BE U NCERTAIN. IF IN A TRUST DEED THERE IS A REFERENCE TO WIFE OR CHILDREN AS BE NEFICIARIES BUT AS ON THE DATE OF CREATION OF THE TRUST THE MARRIAGE HAS NOT TAKEN PLACE, MERELY BECAUSE WIFE/CHILDREN CANNOT BE KNOWN UNTIL THE MAR RIAGE AND BEGETTING OF CHILDREN BY THE STATED BENEFICIARIES, IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT PRESCRIBE THE BENEFICIARIES AND S. 164 IS NOT ATTRACTED. RELIANCE WAS ALSO PLACED ON THE CBDT CIRCULAR NO.281 DATED 2 2.9.1980 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 IDENTIFICA TION OF BENEFICIARIES HAS BEEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATIO N OF BENEFICIARIES IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE RELEVANT PREV IOUS YEAR SHOULD BE ACTUALLY NAMED IN THE ORDER OF THE COURT OR THE INS TRUMENT 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 INSTRUME NT OF TRUST OR WAKF DEED ON THE DATE OF SUCH ORDER, INSTRUMENT OR DEED. 17.2 WITH REGARD TO ASCERTAINMENT OF SHARE OF T HE BENEFICIARIES, IT WAS CONTENDED THAT ARTICLE 6.5 OF THE TRUST DEED CLEARL Y SPECIFIES THE MANNER IN WHICH THE INCOME OF THE ASSESSEE IS TO BE DISTRIBUT ED. THE SAID CLAUSE DETAILS FORMULA WITH RESPECT TO THE SHARE OF EACH B ENEFICIARY. IT IS NOT THE REQUIREMENT OF LAW THAT TRUST DEED SHOULD ACTUALLY PRESCRIBE THE PERCENTAGE SHARE OF THE BENEFICIARY IN ORDER FOR THE TRUST TO BE DETERMINATE. IT IS ITA NO.178/BANG/2012 PAGE 21 OF 76 ENOUGH IF THE SHARES ARE CAPABLE OF BEING DETERMINE D BASED ON THE PROVISIONS OF THE TRUST DEED. IN THE CASE OF THE A SSESSEE THE TRUSTEE HAVE NO DISCRETION TO DECIDE THE SHARE OF EACH BENEFICIA RY AND ARE BOUND BY THE PROVISIONS OF THE TRUST DEED AND IS DUTY BOUND TO F OLLOW THE DISTRIBUTION MECHANISM SPECIFIED IN THE TRUST DEED. 17.3 SEC. 161(1) LAYS DOWN THAT INCOME RECEIVED BY A TRUSTEE ON BEHALF OF THE BENEFICIARY SHALL BE ASSESSED IN THE HANDS O F THE TRUSTEE AS REPRESENTATIVE ASSESSEE AND SUCH ASSESSMENT SHALL B E MADE AND THE TAX THEREON SHALL BE LEVIED UPON AND BE RECOVERED FROM THE REPRESENTATIVE ASSESSEE 'IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON THE RECOVERABLE FROM THE PERSON REPRESENTED BY HIM'. IN OTHER WORDS, IN A CASE TO WHICH S. 161(1) APPLIES, THE TRUSTEE C ANNOT BE ASSESSED ON THE AGGREGATE INCOME RECEIVED BY IT. THE ASSESSMENT IN THE NAME OF THE TRUSTEE IN TERMS OF THE SUB-SECTION CAN BE MADE IN TWO WAYS. THE AO MAY MAKE AS MANY ASSESSMENTS, IN THE NAME OF THE TRUSTE E, AS THERE ARE BENEFICIARIES AND LEVY THE TAX APPROPRIATE TO SUCH INCOME AT THE RATE OF TAX APPLICABLE TO THE TOTAL INCOME OF EACH BENEFICIARY. OR, HE MAY MAKE A SINGLE ASSESSMENT ON THE TRUSTEE BUT INDICATE THERE IN THE SHARE INCOME OF EACH BENEFICIARY AND THE TAX ATTRIBUTABLE TO IT. TO THE ABOVE RULE, HOWEVER, THREE EXCEPTIONS HAVE BEEN INCORPORATED IN THE ACT : (A) UNDER S. 161(1A), THIS RULE OF APPORTIONMENT AN D DETERMINATION OF PROPORTIONATE TAX ATTRIBUTABLE TO THE BENEFICIARY W ILL NOT APPLY TO ANY INCOME EARNED BY THE TRUSTEE AS PROFITS AND GAINS O F A BUSINESS. THE WHOLE OF SUCH INCOME SHALL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. ITA NO.178/BANG/2012 PAGE 22 OF 76 A SIMILAR PROVISO OCCURS ALSO IN S. 164(1) RESTRICT ING BENEFITS WHERE BUSINESS INCOME IS INVOLVED. (B) UNDER S. 164(1), IF THE INDIVIDUAL SHARES OF T HE PERSONS ON WHOSE BEHALF AND FOR WHOSE BENEFIT THE INCOME IS RECEIVAB LE ARE INDETERMINATE OR UNKNOWN, SUCH INCOME, AGAIN, WILL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. (C) IN CERTAIN OTHER CIRCUMSTANCES, SET OUT IN THE PROVISO TO S. 164(1), THE RELEVANT INCOME WILL BE ASSESSABLE NOT AT THE MAXIM UM RATE BUT AT THE RATE APPLICABLE TO IT AS IF IT WERE THE TOTAL INCOM E OF AN AOP. ON APPLICATION OF CLAUSE (B) ABOVE, IT WAS SUBMITTE D THAT SEC. 164(1) WILL NOT COME INTO OPERATION IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND A LSO THE SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGUITY. 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 LEAVIN G 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. THE W HOLE OBJECT AND INTENT OF S. 164, AS AMENDED IN 1980, IS TO PREVENT THE SHARE S OF BENEFICIARIES BEING MANIPULATED AT THE DISCRETION OF THE TRUSTEES. IF I T IS READ AS REQUIRING THE SPECIFICATION OF THE BENEFICIARIES AND THEIR SHARES IN THE DEED ITSELF, IT MAY LEAD TO ABSURDITIES. WHEN THE TRUST DEED AUTHORISE S ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME IN ADDITION TO INITIAL CONTRIBUTORS, IT IS NOT POSSIBLE TO SAY THAT THE SH ARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FROM TH E TRUST DEED. ITA NO.178/BANG/2012 PAGE 23 OF 76 18. OTHER GENERAL ARGUMENTS: 18.1 THE ASSESSEE CONTENDED BEFORE CIT(A) THAT THE ASSESSEE WAS SET UP AS A REVOCABLE TRUST AND THE SCHEME OF THE ACT C LEARLY INDICATES THAT INCOME OF THE FUND HAS TO BE ASSESSED IN THE HANDS OF THE BENEFICIARIES BEING THE CONTRIBUTORS/TRANSFERORS. REFERENCE IN TH IS REGARD WAS MADE TO SECTION 61 OF THE ACT WHICH PROVIDES THAT ALL INCO ME ARISING TO ANY PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL B E CHARGEABLE TO INCOME- TAX AS THE INCOME OF THE TRANSFEROR AND SHALL BE IN CLUDED IN HIS TOTAL INCOME. SEC.62 OF THE ACT PROVIDES THAT IF A TRAN SFER IS IRREVOCABLE FOR A SPECIFIED PERIOD THAN SEC.61 WILL NOT APPLY. SECTI ON 63 DEFINES AS TO WHAT IS TRANSFER AND REVOCABLE TRANSFER FOR THE PURP OSE OF SEC.61 & 62 OF THE ACT. IT PROVIDES THAT:-(A) A TRANSFER SHALL BE DEEM ED 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 TRANSFER OR, OR (II) IT, IN ANY WAY, GIVES THE TRANSFEROR A RIGHT TO RE-ASSUME POWER DIR ECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF THE INCOME OR ASSETS; (B) 'TRANSFER' INCLUDES ANY SETTLEMENT, TRUST, COVENANT, AGREEMENT OR ARRANGEME NT. IT WAS ARGUED THAT UNDER CLAUSE 13.3.1 OF THE TRUST DEED THE TRUSTEES MAY AT ANY TIME BEFORE THE EXPIRY OF THE TERM TERMINATE THE TRUST SUBJECT TO SATISFYING CERTAIN PROCEDURES/CONDITIONS. IT WAS POINTED OUT THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAHBIR SINGH AIR (1966) 18 (SC) HAS HELD THAT A SETTLEMENT OF DISPOSITION WAS DEEMED TO BE S TATUTORILY REVOCABLE IF THERE WAS A PROVISION THEREIN FOR THE RETRANSFER OF THE INCOME OR ASSETS OR ITA NO.178/BANG/2012 PAGE 24 OF 76 WHICH CONFERRED A RIGHT TO REASSUME POWER OVER THE INCOME OR ASSETS. IT WAS CONTENDED THAT IT WAS NOT THE REQUIREMENT OF TH E ACT THAT THE TRUST DEED SHOULD STATE SPECIFICALLY THAT THE TRUST IS REVOCAB LE IN NATURE AND A CLAUSE WHICH PROVIDES FOR RE-ASSUMPTION/RETRANSFER OF THE ASSETS IS SUFFICIENT TO TREAT THE TRUST AS REVOCABLE TRUST. CONSEQUENTLY, IT WAS ARGUED THAT THE INCOME OF THE ASSESSEE WAS CHARGEABLE TO TAX ONLY I N THE HANDS OF THE BENEFICIARIES/CONTRIBUTORS IN ACCORDANCE WITH THE P ROVISIONS OF SEC.61 OF THE ACT. 18.2 INCOME OF THE ASSESSEE HAD ALREADY BEEN O FFERED TO TAX BY THE BENEFICIARIES AND CONSEQUENTLY, THE SAME INCOME CAN NOT BE TAXED AGAIN IN THE HANDS OF THE APPELLANT. ARGUMENTS ON BEHALF OF THE ASSESSING OFFICER BEFORE THE CIT(A) 19. THE AO IN THE FORM OF REMAND REPORT DATED 20.10 .2011 MAINLY REITERATED THE STAND OF THE REVENUE AS CONTAINED IN THE ORDER OF ASSESSMENT AS FOLLOWS:- 1. THE AO DREW ATTENTION TO CLAUSE 6 OF THE TRUST D EED REGARDING DISTRIBUTION OF TRUST FUND AND INCOME AND POINTED O UT THAT UNDER CLAUSE 6.6.3 DISTRIBUTION WILL BE AT THE DISCRETION OF THE TRUSTEE IN CONSULTATION WITH THE INVESTMENT MANAGER. ACCORDIN G TO THE AO THE ABOVE PROVISION IN THE TRUST DEED WOULD SHOW THAT D ISTRIBUTION OF INCOME IS AT THE DISCRETION OF THE TRUSTEES. ITA NO.178/BANG/2012 PAGE 25 OF 76 2. THE TRUST DEED DOES NOT SAY IT IS A REVOCABLE TR UST. 3. THE BENEFICIARIES OF THE TRUST ARE ASSESSED AT V ARIOUS PLACES OF INDIA. IT IS VERY DIFFICULT TO MONITOR ALL THESE B ENEFICIARIES AS TO WHETHER THEY HAVE FILED THEIR RETURNS AND EVEN IF F ILED, WHETHER CORRECT SHARE OF INCOME RECEIVED/RECEIVABLE FROM TH E ASSESSEE ARE ADMITTED. THE AO OF THE TRUSTEE WILL HAVE NO CONTR OL TO SCRUTINIZE AS TO WHETHER ANY EXPENDITURE OR SET OFF OF LOSS IS CL AIMED BY THE BENEFICIARIES IN THEIR RETURNS AGAINST THE SHARE IN COME. TO AVOID ALL THESE THINGS, THE RIGHT AND CORRECT PERSON TO BE TA XED IS THE TRUSTEE AS REPRESENTATIVE ASSESSEE ON THE WHOLE OF INCOME C ONSISTING OF PROFITS AND GAINS OF BUSINESS. THE AO IN THIS REGA RD PLACED RELIANCE ON THE DECISION OF THE ITAT MADRAS BENCH IN THE CAS E OF DCIT VS. MANILAL BAPALAL FAMILY BENEFIT TRUST 66 ITD 179 (MA D) WHEREIN THE PROVISIONS OF SEC.161(1A) OF THE ACT WE RE APPLIED. DECISION OF THE CIT(A): 20. THE CIT(A) IN THE IMPUGNED ORDER HAS NARRATED T HE WHOLE OF THE WRITTEN SUBMISSION OF THE ASSESSEE, THE REMAND REPO RT OF THE AO AND REJOINDER OF THE ASSESSEE TO THE REMAND REPORT AND FINALLY GAVE HIS CONCLUSION AS FOLLOWS: 24. IN VIEW OF THE ABOVE DISCUSSION, AFTER CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM CO NVINCED THAT THE APPELLANT TRUST IS A REVOCABLE TRUST. IT NEED N OT BE SUBJECTED TO ITA NO.178/BANG/2012 PAGE 26 OF 76 TAX AS THE TAX OBLIGATIONS HAVE BEEN FULLY DISCHARG ED BY THE BENEFICIARIES OF THE APPELLANT TRUST. THEREFORE TH E AO IS DIRECTED TO TREAT THE INCOME OF THE APPELLANT TRUST AS NIL A S AGAINST RS.3,54,10,591 DETERMINED BY THE AO. AS THE INCOME OF THE APPELLANT TRUST IS DETERMINED AS NIL THE ISSUE OF D ISALLOWANCE OF EXPENDITURE MADE BY THE AO IS NOT CONSIDERED AND TH E APPEAL IS ALLOWED. 21. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ THUS: 1. THE ORDER OF THE CIT (A) IS OPPOSED TO FACTS O F THE CASE. 2. THE CIT (A) SHOULD HAVE APPRECIATED THE FACT TH AT THE ASSESSEE, AN ASSET MANAGEMENT ENTITY CAME INTO EXIS TENCE BY VIRTUE OF A TRUST DEED. 3. THE CIT(A) HAS ERRED IN HOLDING THAT THE ASSESS EE TRUST , IS A REVOCABLE TRUST AND IT NEED NOT BE SUBJECTED TO T AX, AS THE TAX OBLIGATION HAVE BEEN FULLY DISCHARGED BY THE BENEFI CIARIES OF THE ASSESSEE TRUST. 4. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT, THAT THE NAMES OF THE BENEFICIARIES ARE NOT IDENTIFIABLE IN THE ORIGINAL TRUST DEED. 5. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT, THAT THE BENEFICIARIES AND THE SHARES OF THE BENEFICIARIES A RE NOT MENTIONED IN THE TRUST DEED. 6. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT, THE SHARES OF THE BENEFICIARIES ARE NOT DETERMINATE ON THE BASIS OF THE TRUST DEED. HENCE, THE INCOME OF THE TRUST HAS TO B E ASSESSED IN THE HANDS OF THE TRUST AND NOT IN THE HANDS OF THE BENEFICIARIES. 7. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE SHARES OF THE BENEFICIARIES ARE NOT DISTRIBUTED EXA CTLY AS PER THE FORMULA DETERMINABLE FROM THE TRUST DEED RATHER THE SHARES VARY ITA NO.178/BANG/2012 PAGE 27 OF 76 DEPENDING UPON THE AMOUNT CONTRIBUTED BY THE BENEFI CIARIES FOR ASSET MANAGEMENT. 8. THE CIT (A) ERRED IN HOLDING THAT THE ASSESSEE, TRUST CANNOT BE ASSESSED AS AN AOP. 9. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT SECTION 2(31) OF THE I. T. ACT GIVES AN INCLUSIVE D EFINITION FOR THE WORD PERSON. THERE IS NO SEPARATE STATUS OF TRUST ENVISAGED IN THE DEFINITION OF PERSON. ALL THE TRUSTS ARE ASSESS ED ON THE STATUS OF AOP. THIS BEING THE CASE, THE ASSESSMENT OF THE ASSESSEE IN THE STATUS OF AOP IS IN ORDER. ACCORDINGLY, WHATEVER PROVISIONS OF THE ACT APPLIES TO AOPS WILL APPLY TO THE ASSESSEE ALSO. HENCE IT IS NOT RELEVANT WHETHER THE NECESSARY INGREDIENTS F OR FORMATION OF AN AOP ARE FULFILLED BY THE ASSESSEE OR NOT. THE AS SESSEE WHO IS A TRUST IS RIGHTLY ASSESSED IN THE STATUS OF AOP SINC E THERE IS NO SPECIFIC STATUS OF TRUST IS AVAILABLE IN SECTION 2( 31). 10. THE CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT INCOME TAX ACT ENVISAGES THAT THE INCOME OF A PERSO N HAS TO BE ASSESSED IN THE CORRECT AND APPROPRIATE STATUS. MER ELY, BECAUSE SOMEONE ELSE HAS BEEN ASSESSED AND HAS PAID TAX, TH OUGH BY MISTAKE ON THE SAME INCOME, THE ENTITY IN WHOSE HAN DS THE INCOME IS ACTUALLY ASSESSABLE CANNOT BE EXCLUDED FR OM ASSESSMENT. 11. THE APPELLANT CRAVES FOR PERMISSION TO ADD OR DELETE THE GROUNDS OF APPEAL AT THE TIME OF HEARING THE CASE. 22. THE LEARNED DR REITERATED THE STAND OF THE REVE NUE AS CONTAINED IN THE ORDER OF ASSESSMENT AND AS SET OUT IN THE REMAN D REPORT OF THE AO FILED BEFORE CIT(A). BESIDES THE ABOVE, THE LEARNED DR B ROUGHT TO OUR NOTICE CBDT CIRCULAR NO.13/2014 WHEREBY THE CBDT HAD CLARI FIED THAT ALTERNATIVE INVESTMENT FUNDS WHICH ARE SUBJECT TO THE SEBI (ALT ERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012 WHICH ARE NOT VENTURE CAPI TAL FUNDS AND WHICH ARE NON-CHARITABLE TRUSTS WHERE THE INVESTORS NAME AND BENEFICIAL INTEREST ITA NO.178/BANG/2012 PAGE 28 OF 76 ARE NOT EXPLICITLY KNOWN ON THE DATE OF ITS CREATIO N- SUCH INFORMATION BECOMING AVAILABLE ONLY WHEN THE FUNDS STARTS ACCEP TING CONTRIBUTION FROM THE INVESTORS, HAVE TO BE TREATED AS FALLING WITHIN SEC.164(1) OF THE ACT AND THE FUND SHOULD BE TAXED IN RESPECT OF THE INCOME R ECEIVED ON BEHALF OF THE BENEFICIARIES AT THE MAXIMUM MARGINAL RATE. ACCORD ING TO HIM THE CASE OF THE ASSESSEE WOULD FALL WITHIN THE ABOVE DIRECTIONS OF THE CBDT AND THEREFORE THE ACTION OF THE AO WAS CORRECT AND HAD TO BE RESTORED. IT WAS ALSO THE SUBMISSION OF THE LEARNED DR THAT THE ORDE R OF THE CIT(A) IS A NON- SPEAKING ORDER AND DOES NOT DISCUSS THE BASIS ON WH ICH HE HAS COME TO CONCLUSIONS FOR ALLOWING THE APPEAL OF THE ASSESSEE . 23. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVENUE SHOULD NOT RAISE DISPUTES OF THE NATURE SOUGHT TO B E RAISED IN THIS APPEAL, WHEN THE TAX DUE ON THE INCOME WHICH THE TRUSTEE RE CEIVED ON BEHALF OF THE BENEFICIARIES HAVE BEEN OFFERED BY THE BENEFICIARIE S TO TAX AND TAXED IN THE HANDS OF THE BENEFICIARIES. IN THIS REGARD HE DREW OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. NAGRI MILLS CO. LTD. 33 ITR 681 (BOM) WHEREIN THE HONBLE BOMBAY HIGH COURT, IN THE CONTEXT OF YEAR OF ALLOWING DEDUCTION ON ACCOUNT OF BONUS TO WORKMEN, OBSERVED AS FOLLOWS:- 3. WE HAVE OFTEN WONDERED WHY THE IT AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSL Y A PERMISSIBLE DEDUCTION UNDER THE IT ACT, RAISE DISPU TES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY B E MATERIAL ITA NO.178/BANG/2012 PAGE 29 OF 76 WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCT ION IN RESPECT OF BONUS WAS GRANTED IN THE ASST. YR. 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THA T IS IN THE ASST. YR. 1953-54, SHOULD BE A MATTER OF NO CONSEQU ENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DE PARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MAT TERS OF THIS KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT CO ME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIG HT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TA XABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY T O COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER. 24. WITH THE AFORESAID PRELUDE, HE MADE SUBMISSION ON THE GROUNDS RAISED BY THE REVENUE BEFORE THE TRIBUNAL IN THE GR OUNDS OF APPEAL. ON GROUND NO.3 RAISED BY THE REVENUE IN WHICH THE REVE NUE HAS 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 HAV E BEEN FULLY DISCHARGED BY THE BENEFICIARIES OF THE ASSESSEE TRUST, THE LEA RNED 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 H IS 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 TH E TRANSFEROR, OR ITA NO.178/BANG/2012 PAGE 30 OF 76 (II) IT, IN ANY WAY, GIVES THE TRANSFEROR A RIGHT T O RE-ASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART O F THE INCOME OR ASSETS; (B) 'TRANSFER' INCLUDES ANY SETTLEMENT, TRUST, COV ENANT, AGREEMENT OR ARRANGEMENT. THE FIRST ASPECT POINTED OUT BY HIM WAS THAT THE BE NEFICIARIES TRANSFER FUNDS TO THE TRUST IN ACCORDANCE WITH THE TERMS OF THE TR UST 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 POWE R OF REVOCATION CONFERRED UNDER THE INSTRUMENT OF TRANSFER AND SEC.63 DEFININ G 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 (SEV EN) YEARS FROM THE DATE OF THE INITIAL CLOSING (HEREINAFTER R EFERRED 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 PR IOR RECOMMENDATION OF THE INVESTMENT MANAGER AND THE APPROVAL OF 75% OF THE CONTRIBUTORS. ITA NO.178/BANG/2012 PAGE 31 OF 76 13.3 PREMATURE TERMINATION OF THE TRUST AND REVOCAT ION OF CONTRIBUTIONS: 13.3.1 THE TRUSTEE MAY AT ANYTIME BEFORE THE EXPIR Y OF THE TERM, TERMINATE THIS INDENTURE WITH THE PRIOR WRITT EN 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 OF FIRST CONTRIBUTI ON, 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, TH E TRUSTEE SHALL AS SOON AS PRACTICABLE THEREAFTER. 13.4.1 TAKE ALL PRACTICAL STEPS TO SELL ALL THE NO N-CASH ASSETS OF THE TRUST FUND IN THE MANNER THE TRUSTEE DEEMS FIT OR ADVISABLE; L3.4.2 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 T HERETO TO THE SETTLOR 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 CON STRUING THE TRANSFER IN THE PRESENT CASE AS A REVOCABLE TRANSFER. ACCORDING TO HIM IT IS NOT NECESSARY ITA NO.178/BANG/2012 PAGE 32 OF 76 THAT THE POWER OF REVOCATION SHOULD BE AT THE INSTA NCE OF THE CONTRIBUTORS/BENEFICIARIES AND IT CAN BE AT THE INS TANCE OF ANY PERSON EITHER THE SETTLOR, TRUSTEE OR THE BENEFICIARIES. ACCORDI NG TO HIM THE PROVISIONS OF SEC.61 OF THE ACT DOES NOT CONTEMPLATE A POWER OF R EVOCATION ONLY AT THE INSTANCE OF THE TRANSFEROR. IN SUPPORT OF THE ABOV E CONTENTION THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF ADDL.CIT VS. SURAT ART SILK CLOTH MFRS. ASSOCIATION 121 ITR 1 (SC) AT PAGE-17, WHEREIN THE HONBLE SUPREME COURT HAD TO EXAMINE THE QUESTION AS TO WHETHER THE EXPRESSION ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC U TILITY 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 INV OLVING THE CARRYING ON OF ANY ACTIVITY FOR PROFIT' GO WITH 'OB JECT OF GENERAL PUBLIC UTILITY' AND NOT WITH 'ADVANCEMENT'. IT IS T HE OBJECT OF GENERAL PUBLIC UTILITY WHICH MUST NOT INVOLVE THE C ARRYING ON OF ANY ACTIVITY FOR PROFIT AND NOT ITS ADVANCEMENT OR ATTAINMENT. WHAT IS INHIBITED BY THESE LAST TEN WORDS IS THE LI NKING OF ACTIVITY FOR PROFIT WITH THE OBJECT OF GENERAL PUBLIC UTILIT Y AND NOT ITS LINKING WITH THE ACCOMPLISHMENT OR CARRYING OUT OF THE OBJECT. IT IS NOT NECESSARY THAT THE ACCOMPLISHMENT OF THE OBJ ECT 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 I NVOLVE THE CARRYING ON OF ANY ACTIVITY FOR PROFIT. THE EMPHASI S IS ON THE OBJECT OF GENERAL PUBLIC UTILITY AND NOT ON ITS ACC OMPLISHMENT OR ATTAINMENT. THE DECISIONS OF THE KERALA AND A.P. HI GH COURTS IN CIT VS. COCHIN CHAMBER OF COMMERCE AND INDUSTRY (19 73) 87 ITA NO.178/BANG/2012 PAGE 33 OF 76 ITR 83 (KER) : TC23R.239 AND A.P. STATE ROAD TRANSP ORT CORPORATION VS. CIT 1975 CTR (AP) 43 : (1975) 100 I TR 392 (AP) : TC23R.248, IN OUR OPINION, LAY DOWN THE CORR ECT INTERPRETATION OF THE LAST TEN WORDS IN S. 2, CL. ( 15). THE TRUE MEANING OF THESE LAST TEN WORDS IS THAT WHEN THE PU RPOSE OF A TRUST OR INSTITUTION IS THE ADVANCEMENT OF AN OBJECT OF G ENERAL PUBLIC UTILITY, IT IS THAT OBJECT OF GENERAL PUBLIC UTILIT Y AND NOT ITS ACCOMPLISHMENT OR CARRYING OUT WHICH MUST NOT INVOL VE 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 INTERPRETA TION OF THE PROVISIONS OF SEC.61 CAN ONLY MEAN THAT IT IS THE EXISTENCE OF TH E 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 TR ANSFEROR, IS EXISTENCE OF A POWER BY WHICH THE TRANSFEROR CAN DERIVE THE BENEFI T OF INCOME ARISING BY VIRTUE OF THE TRANSFER. THE SOURCE OF SUCH POWER N EED 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 REV OCATION CONFERRED UNDER THE INSTRUMENT OF TRANSFER AND THEREFORE SEC.61 WOU LD APPLY AND THERE IS NO NEED TO RESORT TO THE PROVISIONS OF SEC.63 OF THE A CT. 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. ITA NO.178/BANG/2012 PAGE 34 OF 76 28. HIS NEXT SUBMISSION WAS THAT EVEN IF IT IS ASSU MED 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 I N THE HANDS OF THE BENEFICIARY/TRANSFEROR. IN THIS REGARD OUR ATTENTI ON WAS DRAWN TO THE DOCUMENT IN THE FORM OF PROSPECTUS INVITING CONTRIB UTION 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 EV ENT THAT THE INVESTMENTS IN THE PORTFOLIO COMPANIES ARE NOT REAL ISED AT THE END OF SEVEN YEARS FROM THE DATE OF THE INDENTURE OF TR UST, ITS TERM MAY BE EXTENDED FOR TWO ADDITIONAL PERIODS OF ONE Y EAR EACH, UPON THE RECOMMENDATION OF THE INVESTMENT MANAGER A ND THE APPROVAL OF 75% OF THE CONTRIBUTORS. IN ADDITION, 75% OF THE CONTRIBUTORS, IF UNSATISFIE D WITH THE PERFORMANCE OF THE FUND, BY A WRITTEN NOTICE CAN RE VOKE THEIR CONTRIBUTION TO THE FUND AT ANY POINT OF TIME AND T HE TRUSTEE SHALL THEN TERMINATE THE FUND SUBJECT TO THE FOLLOW ING: (I) CAPITAL COMMITMENTS WILL NOT BE TERMINATED TO THE EXTENT NECESSARY TO PAY FUND EXPENSES OR HONOR INVESTMENT COMMITMENTS PREVIOUSLY MADE BY THE FUND; (II) THE FUND WILL CONTINUE FOR SUCH PERIOD OF TIM E AS MAY BE NECESSARY TO LIQUIDATE EXISTING INVESTMENTS IN AN O RDERLY MANNER; AND (III) THE MANAGEMENT FEE WILL CONTINUE TO BE PAYAB LE UNTIL THE FUND TERMINATES BASED UPON THE TOTAL CAPITAL COMMITMENTS WITHOUT REGARD TO ANY TERMINATION THERE OF. ITA NO.178/BANG/2012 PAGE 35 OF 76 29. THE ABOVE POWER OF THE TRANSFEROR/BENEFICIARY T O REVOKE THE TRANSFER THOUGH NOT IN THE INSTRUMENT OF TRANSFER BUT BY VIR TUE OF THE POWER CONFERRED IN A DOCUMENT BY WHICH THE INVESTMENT MANAGER APPOI NTED BY THE TRUST BY VIRTUE OF POWERS CONFERRED UNDER THE TRUST DEED, WO ULD BE SUFFICIENT TO CONCLUDE THAT THE TRANSFEROR/BENEFICIARY HAD DEEMED POWERS OF REVOCATION. 30. OUR ATTENTION WAS DRAWN TO THE DECISION OF THE HONBLE 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 DO ES NOT SAY THAT THE DEED OF TRANSFER MUST CONFER OR VEST AN UN CONDITIONAL OR AN EXCLUSIVE POWER OF REVOCATION IN THE TRANSFEROR. T HE 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 AC T. 31. OUR ATTENTION WAS DRAWN TO CLAUSE-6 OF THE TRUS T DEED WHICH PROVIDES FOR DISTRIBUTION OF THE TRUST FUND AND INCOME. CLAU SE 6.3 OF THE TRUST DEED PROVIDES AS FOLLOWS: 6. VALIDITY OF DECISIONS MADE BY THE TRUSTEE .. 6.3 FREQUENCY OF DISTRIBUTION: SUBJECT TO OBTAINI NG ANY REGULATORY CLEARANCE FOR ANY DISTRIBUTION AND SUBJE CT TO THE ITA NO.178/BANG/2012 PAGE 36 OF 76 INVESTMENT MANAGER DETERMINING IN ITS REASONABLE OP INION THAT THE AMOUNTS TO BE DISTRIBUTED ARE NOT DEMINIMIS, IN COME, GAINS AND ANY OTHER RECEIPTS THAT ARE REALIZED AND RECEIV ED IN CASH BY THE FUND AND WHICH THE FUND DOES NOT HAVE A RIGHT T O RETAIN PURSUANT TO THE TERMS OF THIS INDENTURE, THE PRIVAT E PLACEMENT MEMORANDUM OR THE CONTRIBUTION AGREEMENTS WILL BE D ISTRIBUTED AS SOON AS PRACTICABLE AFTER SUCH GAINS ARE REALIZE D. THE TRUSTEE MAY RETAIN INCOME, GAINS AND/OR OTHER RECEIPTS OF T HE FUND TO SATISFY CURRENT OR ANTICIPATED LIABILITIES OF THE F UND. HOWEVER THERE MAY BE TIMES WHEN THE TRUST MAY NOT DISTRIBUT E ANY INCOME. THE TRUST MAY ALSO DECLARE SPECIAL DISTRIBU TIONS, IF ANY, ON AS-NEEDED BASIS. FURTHER, TO THE EXTENT OF ANY U N-DRAWN CAPITAL COMMITMENTS, THE FUND MAY, AT THE DISCRETION OF THE INVESTMENT MANAGER, APPLY ANY DISTRIBUTION PROCEEDS (AS DEFINE D BELOW) TOWARDS ANY PURPOSE, WHICH COULD OTHERWISE HAVE BEE N FUNDED BY A DRAWDOWN FROM CONTRIBUTORS. HOWEVER THE DISTRIBUT ION WILL BE AT THE DISCRETION OF THE TRUSTEE IN CONSULTATION WI TH 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 EXTR ACTED IN THE ORDER OF THE CIT(A). IN PARA-17.5 OF THE CIT(A)S ORDER THE REM AND REPORT OF THE AO ON THE ASPECT OF THE TRUST BEING REVOCABLE HAS BEEN SE T 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 R EVOCABLE 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 TRU STEE/REPRESENTATIVE ASSESSEE. IT WAS HIS SUBMISSION THAT ONCE THE TRUS T IS ACCEPTED TO BE ITA NO.178/BANG/2012 PAGE 37 OF 76 REVOCABLE THEN THERE IS NO QUESTION OF ASSESSING TH E TRANSFEREE AND IT IS ONLY THE TRANSFEROR WHO CAN BE ASSESSED. IT WAS HI S SUBMISSION THAT SEC.61 MANDATES THAT INCOME ARISING TO ANY PERSON B Y VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE CHARGEABLE TO INCOME TA X AS INCOME OF THE TRANSFEROR AND THEREFORE THE ASSESSMENT IN THE HAND S 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 R EVENUE HAS CONTENDED THAT :- (A) THE NAMES OF THE BENEFICIARIES ARE NOT IDENTIFI ABLE IN THE ORIGINAL TRUST DEED; (B) THE SHARES OF THE BENEFICIARIES ARE NOT MENTION ED IN THE TRUST DEED; (C) THE SHARES OF THE BENEFICIARIES ARE NOT DETERM INATE ON THE BASIS OF THE TRUST DEED; & (D) EVEN THE DISTRIBUTION OF SHARES OF THE BENEFIC IARIES 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 C ONTRIBUTION AGREEMENT. ITA NO.178/BANG/2012 PAGE 38 OF 76 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 CBDT CIRCULAR NO.281 DATED 22.9.1980 WHEREIN THE CBDT HA S 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 B EEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATION OF BENEFICIARIES IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE RELEVANT PREVIOUS YEAR SHOULD BE ACTUALLY NA MED 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 REFEREN CE TO THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED ON TH E DATE OF SUCH ORDER, INSTRUMENT OR DEED. HE ALSO DREW OUR ATTENTION TO T HE FOLLOWING DECISIONS:- (1) CIT VS. P.SEKAR TRUST 321 ITR 305 (MAD) WHEREIN THE HONBLE MADRAS HIGH COURT HELD THAT SO LONG AS THE TRUST DE ED GIVES THE DETAILS OF THE BENEFICIARIES AND THE DESCRIPTION OF THE PERSON WHO IS TO BE BENEFITED, THE BENEFICIARIES CANNOT BE SAID T O BE UNCERTAIN, MERELY BECAUSE WIFE/CHILDREN CANNOT BE KNOWN UNTIL THE MARRIAGE AND BEGETTING OF CHILDREN BY THE STATED BENEFICIARI ES. THE HONBLE COURT NOTICED IN THE ABOVE CASE THAT THE BENEFICIAR IES WERE FIVE IN NUMBER FOR THE PERIOD FROM 1ST APRIL, 1986 TO 31ST MARCH, 1989 AND THE RESPECTIVE SHARE OF EACH BENEFICIARY WAS IN DIF FERENT PERCENTAGE AS STATED IN THE DEED ITSELF. FROM 1ST APRIL, 1989 ONWARDS THE ITA NO.178/BANG/2012 PAGE 39 OF 76 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 BENEFICIAR IES ALONG WITH THE OTHER CONTINUING BENEFICIARIES IN THE SAID ACCO UNTING 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 CONT INUING BENEFICIARIES IN THE SAID ACCOUNTING YEAR AND SUBSE QUENT ACCOUNTING YEARS AND EQUALLY DIVIDE THE BENEFICIAL INTEREST IN INCOME OF THE AFORESAID BENEFICIARIES. DEED ALSO PROVIDED THAT I N THE EVENT OF DEATH OF A BENEFICIARY WHAT SHOULD BE DONE. THE HO NBLE 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 INTERES T IN THE CORPUS ON DETERMINATION OR TERMINATION OF THE TRUST AND THERE FORE SEC.164 WAS NOT ATTRACTED. (2) CIT VS. MANILAL BAPALAL 321 ITR 322(MAD) WHEREIN THE HONBLE HIGH COURT HAD TO DEAL WITH A CASE WHERE THE CIT IN EXERCISE OF POWERS U/S.263 REVISED AN ORDER OF THE ASSESSMENT A S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AS T HE TRUST HAD NOT BEEN TREATED AS AN AOP AND TAXED ON THAT BASIS, AS IN HIS VIEW THE ITA NO.178/BANG/2012 PAGE 40 OF 76 TRUST DEED DID NOT IDENTIFY ALL THE BENEFICIARIES A ND THE SHARES WERE ALSO NOT DETERMINATE. THAT VIEW OF THE CIT WAS FOUN D TO BE ERRONEOUS BY THE TRIBUNAL AND QUASHED. ON FURTHER A PPEAL BY THE REVENUE, THE HONBLE HIGH COURT FOUND THAT THE BENE FICIARIES OF THE TRUST INCLUDED THE PROSPECTIVE SPOUSES OF SOME OF T HE BENEFICIARIES. THE TRUST DEED ALSO PROVIDED THAT IN THE EVENT OF A BENEFICIARY DYING BEFORE MARRIAGE OR NOT MARRYING BEFORE THE TRUST CA ME TO AN END, THAT PART OF THE BENEFIT WHICH WAS TO BE GIVEN TO T HE SPOUSE WOULD BE GIVEN TO THE HEIR OF THE BENEFICIARY OR TO THE BENE FICIARY HIMSELF OR HERSELF. THE HONBLE 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 BEI NG 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) XYZ., IN RE 224 ITR 473 (AAR) : THE AUTHORITY FOR ADVANCE RULING (AAR) HELD THAT IF THE TRUST DEED SETS OUT EXPRESSL Y THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND A LSO THE SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGU ITY, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME TH E BENEFICIARIES OR THAT THEIR SHARES ARE INDETERMINATE. THE PERSON S AS WELL AS THE SHARES MUST BE CAPABLE OF BEING DEFINITELY PIN-POIN TED AND ASCERTAINED ON THE DATE OF THE TRUST DEED ITSELF WI THOUT LEAVING THESE ITA NO.178/BANG/2012 PAGE 41 OF 76 TO BE DECIDED UPON AT A FUTURE DATE BY A PERSON OTH ER THAN THE AUTHOR EITHER AT HIS DISCRETION OR IN A MANNER NOT ENVISAGED IN THE TRUST DEED. EVEN IF THE TRUST DEED AUTHORISES ADDI TION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME IN ADDITION TO INITIAL CONTRIBUTORS, THAN THE SAME WOULD NOT MAKE THE BENE FICIARIES UNKNOWN OR THEIR SHARE INDETERMINATE. EVEN IF THE SCHEME OF COMPUTATION OF INCOME OF BENEFICIARIES IS COMPLICAT ED, IT IS NOT POSSIBLE TO SAY THAT THE SHARE INCOME OF THE BENEFI CIARIES CANNOT BE DETERMINED OR KNOWN FROM THE TRUST DEED 36. THE LEARNED COUNSEL FOR THE ASSESSEE THEN ADDRE SSED ARGUMENTS ON GROUNDS 8 & 9 RAISED BY THE REVENUE IN ITS GROUNDS OF APPEAL IN WHICH THE REVENUE HAS QUESTIONED THE ORDER OF THE CIT(A) WHER EBY THE CIT(A) HELD THAT :- (A) THAT THE ASSESSEE CANNOT BE ASSESSED AS AOP AN D (B) THERE IS NO SEPARATE STATUS OF TRUST FOR MAKIN G ASSESSMENT ENVISAGED UNDER THE ACT. IN THIS REGARD THE DEFINITION OF PERSON U/S. 2(31) OF THE ACT WHICH DOES NOT SPECIFICALLY REFER TO TRUST IS BEING HIGHLIGHTED IN THE GROUNDS RAISED BY THE REVENUE. 37. ON THE ABOVE GROUNDS OF APPEAL, THE LEARNED COU NSEL FOR THE ASSESSEE FIRSTLY POINTED OUT THAT THE DEFINITION OF PERSON IN SEC.2(31) OF ITA NO.178/BANG/2012 PAGE 42 OF 76 THE ACT IS AN INCLUSIVE DEFINITION AND NOT AN EXHAU STIVE DEFINITION AND THEREFORE ABSENCE OF TRUST IN THE DEFINITION OF PERSON IN SEC.2(31) OF THE ACT IS NOT CONCLUSIVE IN THE MATTER. IT WAS SUBMIT TED BY HIM THAT THE FORM OF RETURN OF INCOME AS IT EXISTED FOR THE RELEVANT ASS ESSMENT YEAR DID NOT CONTAIN A CLAUSE FOR FILING RETURN OF INCOME BY A TRUST IN THE STATUS OTHER THAN AOP. IN THIS REGARD OUR ATTENTION WAS DRAWN B Y HIM TO CBDT CIRCULAR NO.6/2012 DATED 3.8.2012 WHEREIN THE CBDT HAS REALI SED THIS DIFFICULTY IT HAS 'PRIVATE DISCRETIONARY TRUSTS' HAVING TOTAL INC OME EXCEEDING TEN LAKH RUPEES ARE FACING PROBLEMS IN FILING THEIR RETURN O F INCOME ELECTRONICALLY IN CASES WHERE THEY ARE FILING THEIR RETURN IN THE STA TUS OF AN INDIVIDUAL. THIS WAS BECAUSE STATUS OF A PRIVATE DISCRETIONARY TRUST HAS BEEN HELD IN LAW AS THAT OF AN 'INDIVIDUAL'. THE EXISTING E-FILING SOFT WARE DID NOT ACCEPT THE RETURN OF A PRIVATE DISCRETIONARY TRUST IN THE STATUS OF A N 'INDIVIDUAL'. ACCORDINGLY THE CBDT GAVE DIRECTIONS THAT IT WILL NOT BE MANDAT ORY FOR 'PRIVATE DISCRETIONARY TRUSTS', IF ITS TOTAL INCOME EXCEEDS TEN LAKH RUPEES, TO ELECTRONICALLY FURNISH THE RETURN OF INCOME FOR ASS ESSMENT YEAR 2012-13. IT WAS ALSO HIGHLIGHTED THAT FORM NO.49A WHICH WAS THE PRESCRIBED FORM OF APPLICATION FOR ALLOTMENT OF PERMANENT ACCOUNT NUMB ER (PAN) ALSO DID NOT CONTAIN A SEPARATE STATUS TRUST BUT CONTAINED A C OLUMN AOP (TRUST). THE REVISED FORM NO.49A LATER NOTIFIED CONTAINS A C OLUMN FOR STATUS AS TRUST. ACCORDING TO HIM THEREFORE THE ARGUMENT O F THE REVENUE THAT ALL TRUSTS ARE AOPS IS NOT CORRECT. ITA NO.178/BANG/2012 PAGE 43 OF 76 38. OUR ATTENTION WAS DRAWN TO THE FOLLOWING DECISI ONS TO HIGHLIGHT THE CHARACTERISTICS OF AN AOP AND AS TO HOW THOSE CHARA CTERISTICS WERE COMPLETELY ABSENT IN THE CASE OF THE ASSESSEE:- (1) CIT VS. MARSONS BENEFICIARY TRUST 188 ITR 224 (BOM) WHEREIN IT WAS HELD THAT COMING TOGETHER OF PERSONS IS NECESSA RY FOR COMING INTO EXISTENCE OF AOP. (2) STATE OF MADRAS VS. SUBRAMANIA IYER 61 ITR 613 (MAD ) WHEREIN IT WAS HELD THAT TO CONSTITUTE AN ASSOCIATION OF INDIV IDUALS, IT IS NECESSARY TO PROVE THAT AS BETWEEN THEMSELVES, THE INDIVIDUALS H AD ASSOCIATED TOGETHER AND DECIDED UPON THE COMMON EXPLOITATION OF THEIR L ANDS FOR COMMON BENEFIT AND THAT IT WAS ONLY IN PURSUANCE OF THAT A GREEMENT A SINGLE PERSON WAS SELECTED TO CARRY OUT THE COMMON PURPOSE OF JOI NT CULTIVATION. THE MERE FACTUM OF COMMON CULTIVATION BY A SINGLE MANAG ER OF DIFFERENT PARCELS OF LAND OWNED BY DIFFERENT PERSONS COULD NOT BY ITS ELF BE HELD TO BE SUFFICIENT TO CONSTITUTE THE OWNERS AS ASSOCIATION OF INDIVIDUALS. (3) CIT VS. INDIRA BALAKRISHNAN 39 ITR 546 (SC) . 39. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER TOOK UP GROUND NO.10 RAISED BY THE REVENUE FOR CONSIDERATION. THE REVENUE THEREIN HAS RAISED ISSUE THAT INCOME HAS TO BE BROUGHT TO TAX I N THE HANDS OF THE RIGHT PERSON IN THE RIGHT STATUS. IN THIS REGARD OUR ATT ENTION WAS DRAWN TO THE FOLLOWING DECISIONS:- ITA NO.178/BANG/2012 PAGE 44 OF 76 (1) CIT VS. DAVID JOSEPH 214 ITR 658 (KER) WHEREIN THE HONBLE KERALA HIGH COURT FOUND THAT THE TRIBUNAL IN THE IM PUGNED ORDER BEFORE THE HONBLE HIGH COURT HAS REFERRED TO THREE CIRCULARS DT. 24TH FEB., 1967, 26TH DEC., 1974 AND 24TH AUG., 1966. THESE CIRCULARS ARE TO THE EFFECT THAT ONCE THE CHOICE IS MADE BY THE DEPARTMENT TO TAX EITHER THE TRUST OR THE BENEFICIARY, IT IS NO MORE OPEN TO THE DEPARTMENT T O GO BEHIND IT AND ASSESS THE OTHER AT THE SAME TIME. THE POSITION THA T EMERGES WOULD BE A POSITION FOR THE APPLICATION OF THE PRINCIPLE OF FI NALITY. ONCE A BENEFICIARY IS ASSESSED AND HIS ASSESSMENT IS COMPLETED PRIOR IN P OINT OF TIME, AND HIS ASSESSMENT IS AN ELEMENT OF FINALITY, IT IS A NATUR AL CONSEQUENCE FLOWING THEREFROM THAT THE DEPARTMENT DOES NOT GET ANY PERM ISSION TO GO BEHIND IT FOR THE PURPOSE OF SCRUTINISING THE PROCEDURE, FOR FINDING OUT FAULTS IN REGARD THERETO, THE SOLE OBJECT OF WHICH IS TO JUSTIFY THE SUBSEQUENT ACTION TAKEN BY THE DEPARTMENT. THESE ARE IN FACT THE NORMAL CONSEQ UENCES THAT FLOW FROM THE PRINCIPLE OF FINALITY. THIS PRINCIPLE ESPECIALL Y EMERGES FROM THREE CIRCULARS AND HAS ESTABLISHED INTO A SETTLED PRACTI CE, ANY TIME A DEVIATION THEREFROM CANNOT BE PERMITTED, EVEN ON THE GROUND O F A MISTAKE WITH REGARD TO THE MERITS OF THE SITUATION THAT RECEIVED FINALITY. THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE ASSESSEE-TRUST CANNOT BE TAXED IN VIEW OF THE FACT THAT ONE OF THE BENEFICIARIES OF THE TRUST HAD EARL IER BEEN ASSESSED BY THE COMPLETION OF THE ASSESSMENT PROCEEDINGS ON 31ST DE C., 1980 IN HIS CAPACITY AS BENEFICIARY OF THE TRUST. ITA NO.178/BANG/2012 PAGE 45 OF 76 (2) RAI SAHE SETH GHISALAL MODI FAMILY TRUST V. CIT, 1 49 ITR 724 (MP) WHEREIN THE HONBLE M.P.HIGH COURT HELD THAT IF I TO MAKING ASSESSMENT ON BENEFICIARIES, KNEW FULLY WELL THAT S . 164(1) APPLIED, YET EXERCISED HIS DISCRETION TO ASSESS THE BENEFICIARIE S AND NOT THE TRUST AND THE MERE FACT THAT HE STATED IN THE ASSESSMENT ORDE R THAT THE ASSESSMENTS WERE SUBJECT TO RECTIFICATION WAS OF NO AVAIL. (3) TRUSTEES OF CHATURBHUJ RAGHAVJI TRUST VS. CIT, 50 ITR 693 (BOM) WHEREIN THE HONBLE BOMBAY HIGH COURT HELD THAT UN DER SUB-S. (2) OF S. 41, IT IS PERMISSIBLE FOR THE IT AUTHORITIES TO MAKE DIRECT ASSESSMENT ON THE PERSON ON WHOSE BEHALF INCOME, PROFITS AND GAIN S FROM A TRUST ARE RECEIVABLE. SEC. 41 HAVING PROVIDED FOR TWO ALTERN ATIVE METHODS, NAMELY, EITHER TO TAX THE INCOME IN THE HANDS OF THE TRUSTE ES OR DIRECTLY IN THE HANDS OF THE PERSON ON WHOSE BEHALF THE INCOME WAS RECEIV ABLE UNDER THE TRUST, AND ONE OF THEM HAVING BEEN AVAILED OF BY THE IT DE PARTMENT IN DIRECTLY ASSESSING BENEFICIARY IN RESPECT OF THE INCOME, TH E OTHER WAS NO LONGER AVAILABLE TO THE DEPARTMENT. IT WAS CONTENDED ON BE HALF OF THE REVENUE THAT THE OPTION WAS OF THE ITO WHO WAS ASSESSING TH E TRUST TO DECIDE WHETHER HE WOULD ASSESS THE INCOME IN THE HANDS OF THE TRUSTEES OR DIRECTLY IN THE HANDS OF THE BENEFICIARY. THIS CONTENTION WA S REJECTED BY THE HONBLE HIGH COURT WHICH HELD THAT SEC. 41 WAS A SPECIAL EN ABLING PROVISION WHICH PERMITTED THE ASSESSMENT IN THE HANDS OF THE TRUSTE ES BUT DID NOT PRECLUDE THE DIRECT ASSESSMENT IN THE HANDS OF THE BENEFICIA RIES. THERE IS NOTHING IN S. 41 WHICH WOULD INDICATE THAT THE CHOICE BETWEEN THE ALTERNATIVE METHODS ITA NO.178/BANG/2012 PAGE 46 OF 76 PROVIDED THEREIN HAS TO BE MADE ONLY AT THE TIME OF THE ASSESSMENT OF THE TRUSTEES OR THAT THE CHOICE ONLY BELONGS TO THE ITO WHO IS ASSESSING THE TRUST. 40. OUR ATTENTION WAS ALSO DRAWN TO CIRCULAR NO.157 DATED 26.12.1974 OF CBDT WHEREIN THE CBDT HAS CLARIFIED ON ASSESSMEN T OF TRUST WHERE SHARE OF BENEFICIARIES UNKNOWN. IT HAS BEEN CLARIF IED THEREIN AS FOLLOWS: ACCORDING TO THE SCHEME OF THE IT ACT OF 1961, EVE N AS IT WAS UNDER THE IT ACT OF 1922, THE GENERAL PRINCIPLE IS TO CHARGE ALL INCOME ONLY ONCE. THE BOARD DESIRE TO REITERATE THE EARLIER INSTRUCTIONS IN THIS REGARD. IN ORDER THAT THERE IS NO LOSS OF REVENUE, THE ITO SHOULD KEEP THIS POINT IN VIEW AT THE TIME OF RAISING THE INITIAL ASSESSMENT EITHER OF THE TRUST OR THE BENEFICIARIES AND ADOPT A COURSE BENEFICIAL TO THE REVENUE. HAVING EXERCISED HIS OPTION ONCE, WILL IT NOT BE OP EN TO THE ITO TO ASSESS THE SAME INCOME FOR THAT ASSESSMENT YEAR IN THE HANDS OF THE OTHER PERSON (I.E., THE BENEFICIARY OR THE T RUSTEE). 41. THE LEARNED COUNSEL SUBMITTED THAT CBDT CIRCULA R NO.13/2014 DATED 28.7.2014 REFERRED TO BY THE LEARNED DR IN SU PPORT OF THE CASE OF THE REVENUE IS FIRSTLY NOT APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR IN THE PRESENT APPEAL. FOR THE PROPOSITION THAT CIRCULARS NOT IN FORCE IN THE RELEVANT ASSESSMENT YEAR CANNOT BE APPLIED THE HE R ELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BASF (INDIA) LTD. & ANR V.. W. HASAN, CIT & ORS., 280 ITR 136 (BOM) . HE ALSO HIGHLIGHTED THE UNREASONABLE STAND TAKEN BY THE AO IN ASSESSING INCOME BUT NOT GIVING CREDIT FOR TAX PAID. IN THIS REGARD OUR ATTENTION WAS DRAWN TO ITA NO.178/BANG/2012 PAGE 47 OF 76 THE FOLLOWING OBSERVATIONS OF THE HONBLE SUPREME C OURT IN INCOME TAX OFFICER V. BACHU LAL KAPOOR, 60 ITR 74 (SC) :- IT WAS THEN FORCIBLY BROUGHT TO OUR NOTICE THAT TH E SAID VIEW WOULD BE SUBVERSIVE OF THE DOCTRINE OF 'DOUBLE TAXA TION'. IT WAS SAID THAT AS THE ORDERS OF ASSESSMENT ON THE INDIVI DUAL MEMBERS OF THE SAID FAMILY HAD BECOME FINAL, IF THE ITO WAS PERMITTED TO ASSESS THE HUF FOR THE SAME ASSESSMENT YEAR, TAX WO ULD BE IMPOSED ON THE SAME INCOME TWICE OVER. IT IS TRUE T HAT THE ACT DOES NOT ENVISAGE TAXATION OF THE SAME INCOME TWICE OVER 'ON ONE PASSAGE OF MONEY IN THE FORM OF ONE SORT OF INC OME'. IT IS EQUALLY TRUE THAT S. 14(1) OF THE ACT EXPRESSLY DEB ARS THE IMPOSITION OF TAX ON ANY PART OF THE INCOME OF AN H UF RECEIVED BY ITS MEMBERS. THE FACT THAT THERE IS NO PROVISION IN THE ACT DEALING WITH A CONVERSE POSITION DOES NOT AFFECT TH E QUESTION, FOR THE EXISTENCE OF SUCH A CONVERSE POSITION IS LEGALL Y IMPOSSIBLE UNDER THE ACT. SO LONG AS THE HUF EXISTS, THE INDIV IDUAL THEREOF CANNOT SEPARATELY BE ASSESSED IN RESPECT OF ITS INC OME. NONETHELESS, IF, UNDER SOME MISTAKE, SUCH INCOME WA S ASSESSED TO TAX IN THE HANDS OF THE INDIVIDUAL MEMBERS, WHIC H SHOULD NOT HAVE BEEN DONE, WHEN A PROPER ASSESSMENT MADE ON TH E HUF IN RESPECT OF THAT INCOME, THE REVENUE HAD TO MAKE APP ROPRIATE ADJUSTMENTS; OTHERWISE, THE ASSESSMENT MADE IN RESP ECT OF THAT INCOME ON THE HUF WOULD BE CONTRARY TO THE PROVISIO NS OF THE ACT, PARTICULARLY S. 14(1) OF THE ACT. WE, THEREFOR E, HOLD THAT IF THE ASSESSMENT PROCEEDINGS INITIATED UNDER S. 34 OF THE ACT CULMINATED IN THE ASSESSMENT OF THE HUF, APPROPRIAT E ADJUSTMENTS HAVE TO BE MADE BY THE ITO IN RESPECT O F THE TAX REALISED BY THE REVENUE IN RESPECT OF THAT PART OF THE INCOME OF THE FAMILY ASSESSED ON THE INDIVIDUALS OF THE SAID FAMILY. TO DO SO IS NOT TO RE-OPEN THE FINAL ORDERS OF ASSESSMENT, B UT IN REALITY TO ARRIVE AT THE CORRECT FIGURE OF TAX PAYABLE BY THE HUF. 42. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. THE ASSESSEE, AS WE HAVE ALREADY SEEN, IS THE ASSES SEE IS A TRUST CONSTITUTED UNDER AN INSTRUMENT OF TRUST DATED 25/9 /2006. M/S. ICICI ITA NO.178/BANG/2012 PAGE 48 OF 76 VENTURE FUNDS MANAGEMENT COMPANY LIMITED (HEREINAFT ER REFERRED TO AS SETTLOR) BY AN INDENTURE OF TRUST DATED 25.9.200 6 TRANSFERRED A SUM OF RS.10,000/- TO M/S. THE WESTERN INDIA TRUSTEE AND E XECUTOR COMPANY LIMITED (HEREINAFTER REFERRED AS THE TRUSTEE) AS INITIAL CORPUS TO BE APPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THE IND ENTURE DATED 25.9.2006. THE TRUSTEE WAS EMPOWERED TO CALL FOR C ONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE INVESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. THE OBJECTIVE OF CREATION OF THE TRUST WAS TO INVEST IN CERTAIN SECURITIES CALLED MEZZANINE INSTRUMENTS AND TO ACHIEVE COMMENSURATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FROM THE CONTRIBUTORS TOGETHER WITH THE INITIAL CORPUS WAS T O BE HANDED OVER TO THE TRUSTEES UNDER THE PROVISIONS OF THE INDIAN TRUST A CT, 1882. THE TRUST WAS TO FACILITATE INVESTMENT BY THE CONTRIBUTORS WHO SH OULD BE RESIDENT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE CONT RIBUTORS TO THE FUND ARE ITS BENEFICIARIES. IT IS A PRIVATE TRUST TO WHICH THE PROVISIONS OF INDIAN TRUST ACT, 1882 WOULD APPLY. 43. SEC.3 OF THE INDIAN TRUST ACT, 1882 DEFINES TR UST AS AN OBLIGATION ANNEXED TO THE OWNERSHIP OF PROPERTY, AND ARISING O UT A CONFIDENCE REPOSED IN AND ACCEPTED BY THE OWNER, OR DECLARED A ND ACCEPTED BY HIM, FOR THE BENEFIT OF ANOTHER, OR OF ANOTHER AND THE O WNER; THE PERSON WHO REPOSES OR DECLARES THE CONFIDENCE IS CALLED THE A UTHOR OF THE TRUST; THE PERSON WHO ACCEPTS THE CONFIDENCE IS CALLED THE TR USTEE; THE PERSON FOR WHOSE BENEFIT THE CONFIDENCE IS ACCEPTED IS CALLED THE BENEFICIARY; THE ITA NO.178/BANG/2012 PAGE 49 OF 76 SUBJECT-MATTER OF THE TRUST IS CALLED TRUST PROPER TY OR TRUST-MONEY; THE BENEFICIAL INTEREST OR INTEREST OF THE BENEFICI ARY IS HIS RIGHT AGAINST THE TRUSTEE AS OWNER OF THE TRUST-PROPERTY; AND THE INS TRUMENT, IF ANY, BY WHICH THE TRUST IS DECLARED IS CALLED THE INSTRUMENT OF TRUST. 44. WE WERE INITIALLY DOUBTFUL, WHETHER A PERSON WH O CONTRIBUTES TO THE TRUST IN ACCORDANCE WITH THE TERMS OF A CONTRIBUTIO N AGREEMENT COULD BE SAID TO BE BENEFICIARY OF THE TRUST. IT IS NO DO UBT TRUE THAT THE BENEFICIARIES ARE IDENTIFIABLE IN TERMS OF THE TRUST DEED AS PERS ONS WHO CONTRIBUTE UNDER THE CONTRIBUTION AGREEMENT. BUT CAN THE BENEFICIAR IES BE MADE TO CONTRIBUTE TO THE TRUST? BENEFICIARIES ARE GENERAL LY RECIPIENTS OF BENEFITS UNDER THE DEED OF TRUST. CAN THE TRUST HOLD THE M ONEY SO CONTRIBUTED IN TRUST FOR THE CONTRIBUTORS AND CAN SUCH CONTRIBUTOR S BE CALLED BENEFICIARIES? IT APPEARED TO US TO BE A VENTURE UNDERTAKEN BY THE TRUST, AUTHOR OF THE TRUST AND THE IDENTIFIED BENEFICIARY AT THE TIME OF CREATION OF THE TRUST WHO HAPPENS TO BE THE BENEFICIARY AND THE INVESTMENT MANAGER TO WHOM WITHOUT ANY OPTION THE MANAGEMENT OF THE TRUST FUND HAD TO BE ENTRUSTED. IT IS LIKE ANY OTHER FORM OF BUSINESS O RGANIZATION MOBILIZING FUNDS FOR INVESTMENTS AND PROMISING RETURNS TO THE CONTRIBUTORS. CAN SUCH OBJECTIVE BE ACHIEVED BY FORMING A TRUST? 45. SIMILAR QUESTIONS AROSE FOR CONSIDERATION BEFOR E THE AUTHORITY FOR ADVANCE RULING IN THE CASE OF XYZ, IN RE 224 ITR 473 (AAR) . WE NEED TO LOOK AT THE FACTS OF THE SAID CASE BEFORE W E SET OUT THE RULING GIVEN ITA NO.178/BANG/2012 PAGE 50 OF 76 BY THE AAR. AN AMERICAN COMPANY IN COLLABORATION W ITH AN INDIAN FINANCIAL SERVICES COMPANY PROPOSED TO SET UP ANOTHER FUND. F OR THIS PURPOSE A TRUST WAS CREATED WHEREBY THE INDIAN FINANCIAL SERVICES C OMPANY WAS THE AUTHOR OF THE TRUST AND ANOTHER INDIAN TRUST COMPAN Y WAS APPOINTED AS TRUSTEE. THE FUNDS OF THE TRUST WERE TO BE INVESTE D IN INDIAN COMPANIES AND PROJECTS IN INDIA. THE INDIAN FINANCIAL SERVICE COMPANY WAS TO ACT AS THE PRINCIPAL INVESTMENT ADVISER IN INDIA TO THE TR UST UNDER AN ADVISORY AGREEMENT. BY AN INDENTURE OF TRUST, THE INDIAN FI NANCIAL SERVICE COMPANY MADE AN INITIAL SETTLEMENT OF RS. 1 LAKH ON THE TRU STEES ON TRUST. THIS ALONG WITH CONTRIBUTIONS THAT MAY BE MADE TO THE TRUST FU ND BY OTHERS IS REFERRED TO AS `CONTRIBUTION FUND'. THE INDIAN FINANCIAL SER VICES COMPANY WAS THE ONLY CONTRIBUTOR AND ALSO THE ONLY BENEFICIARY UNDE R THE TRUST DEED. CLAUSE 7 OF THE TRUST DEED CONTAINS A PROVISION TO THE FOL LOWING EFFECT :- 'POWER OF ADDITION 7. (A) THE TRUSTEE SHALL HAVE THE POWER AT ANY TIM E OR TIMES DURING THE TRUST PERIOD TO ADD AS BENEFICIARIES SUC H ONE OR MORE PERSONS OR CLASS OF PERSONS AS THE TRUSTEE SHALL IN THEIR ABSOLUTE DISCRETION DETERMINE. (B) ANY SUCH ADDITION SHALL BE MADE BY DEED SIGNED BY THE TRUSTEE AND : (I) NAMING OR DESCRIBING THE PERSON OR PERSONS OR CLASS OF PERSONS TO BE ADDED AS BENEFICIARIES; (II) SPECIFYING THE DATE (NOT BEING EARLIER THAN T HE DATE OF THE DEED BUT DURING THE TRUST PERIOD) FROM WHICH SU CH PERSON OR PERSONS TO BE THEREBY ADDED AS BENEFICIARIES; AND ITA NO.178/BANG/2012 PAGE 51 OF 76 (C) IT IS HEREBY CLARIFIED THAT SUCH BENEFICIARIES WILL BE ENTITLED TO ONLY SUCH SHARE THAT IS IN PROPORTION TO THE CON TRIBUTION MADE BY THEM AND IN ACCORDANCE WITH THE CONTRIBUTION AGR EEMENT.' 46. ON THE ABOVE FACTS, WHICH ARE ON PAR WITH THE F ACTS OF THE PRESENT CASE BEFORE US, THE AAR HELD AS FOLLOWS:- AT THE TIME OF HEARING, A DOUBT WAS EXPRESSED BY T HE AUTHORITY AS TO HOW FAR A PROVISION CONFERRING AN ABSOLUTE DI SCRETION ON THE TRUSTEES TO ADD NAMES OF BENEFICIARIES TO THE TRUST WOULD BE JUSTIFIED IN LAW. THOUGH THE AUTHORISED REPRESENTAT IVE OF THE APPLICANT (AR) CONTENDED THAT THIS CLAUSE WAS PERFE CTLY IN ORDER (CITING O.P. AGARWALLA ON TRUST, P. 220-2), HE ALSO EXPRESSED HIS WILLINGNESS TO MODIFY CL. 7(A) AS FOLLOWS IN ORDER TO OBVIATE ANY KIND OF OBJECTION :- '7.(A) THE TRUSTEE SHALL DURING THE TRUST PERIOD, HAVE THE POWER AT THEIR DISCRETION TO ADMIT AS BENEFICIA RY ANY INSTITUTIONAL INVESTOR WHICH AGREES TO ENTER INTO A CONTRIBUTION AGREEMENT.' AND, CONSEQUENT ON THE ABOVE, TO INSERT A DEFINITI ON OF THE EXPRESSION 'INSTITUTIONAL INVESTOR' IN CL. 1 TO THE FOLLOWING EFFECT : '(1) `INSTITUTIONAL INVESTOR' MEANS ANY ENTITY OTHE R THAN AN INDIVIDUAL, BEING A NATURAL PERSON INCLUDING BUT NOT LIMITED TO FINANCIAL INSTITUTION, COMPANY OR CORPOR ATION, GOVERNMENT, STATE OR POLITICAL SUB-DIVISION OR LOCA L AUTHORITY, THAT TRUSTEES MAY CONSIDER A REPUTABLE INVESTOR.' AFTER A LITTLE DISCUSSION HE WAS WILLING ALSO TO DR OP THE LAST SEVEN WORDS WHICH WERE CONSIDERED TO BE SOMEWHAT VAGUE. 9. ONE MAY PAUSE HERE TO CONSIDER WHETHER THERE CO ULD BE ANY VALID OBJECTIONS TO THE CONSTITUTION OF A TRUST IN THIS MANNER. THE AUTHORS OF THE TRUST ARE THE IC, THE INDIAN FIN ANCIAL SERVICE COMPANY AND OTHERS CONTRIBUTING TO THE TRUST BY THE DATE OF THE TRUST DEED. INDEED EVEN INSTITUTIONAL INVESTORS CON TRIBUTING TO THE TRUST, IN HELPING THE CT ACHIEVE ITS TARGET OF 50 M ILLION DOLLARS CAN BE CONSIDERED AS SUPPLEMENTAL AUTHORS OF THE TRUST, THE CA ITA NO.178/BANG/2012 PAGE 52 OF 76 CONSTITUTING R/W THE TRUST DEED, THE INSTRUMENTS CO NSTITUTING THE TRUST IN THEIR CASES. THE PURPOSES OF THE TRUST ARE, AS STATED IN THE TD, TO INVEST THE TRUST FUNDS AND DISTRIBUTING THE PROCEEDS TO THE BENEFICIARIES. THIS IS, IN A SENSE, NOTHING MORE THAN AN ARRANGEMENT BY WHICH CERTAIN PARTIES AGREED TO CONT RIBUTE FUNDS FOR A COMMON PURPOSE AND DIVIDE THE PROFITS A MONGST THEMSELVES. NO DOUBT THE SAME OBJECTIVE COULD BE AC HIEVED BY THE CONSTITUTION OF A FIRM OR A COMPANY BUT, EQUALL Y, THERE SEEMS TO BE NO VALID OBJECTION IF THE PARTIES WISH TO DO IT IN THE FORM OF A TRUST WHICH, UNDER THE TRUST ACT, MER ELY REPRESENTS CERTAIN OBLIGATIONS ANNEXED TO THE OWNER SHIP OF PROPERTY IN THE FORM OF THE CONTRIBUTED FUNDS. THE PURPOSES OF THE TRUST CANNOT BE SAID TO BE FORBIDDEN BY LAW OR LIKELY TO DEFEAT THE PROVISIONS OF ANY LAW OR FRAUDULENT OR I NVOLVING INJURY TO ANY PERSON OR PROPERTY OR OPPOSED TO PUBL IC POLICY : VIDE S. 4 OF THE INDIAN TRUSTS ACT (IV OF 1882). IT WILL APPEAR LATER THAT, IN ENTERING INTO THE PRESENT TRANSACTIO NS, THE PARTIES TOOK INTO ACCOUNT CERTAIN DIFFICULTIES IF T HE SAME TRANSACTIONS HAD BEEN PUT THROUGH THE FORMAT OF A C OMPANY AND ALSO TOOK INTO ACCOUNT CERTAIN FINANCIAL AND TA X IMPLICATIONS. BUT THESE CANNOT RENDER THE PURPOSES OF THE TRUST UNLAWFUL WITHIN THE MEANING OF THE INDIAN STA TUTE. THE CLAUSE WHICH ENABLED THE TRUSTEES TO ADMIT ANY ONE AS A BENEFICIARY, THE AUTHORITY FELT, MIGHT INTRODUCE A DEGREE OF UNCERTAINTY REGARDING THE ELEMENT OF BENEFICIARIES UNDER THE TRUST. THE PARTIES HAVE AGREED TO MODIFY THE CLAUSE AS IND ICATED ABOVE. THE RESULT IS THAT NOW THE TRUSTEE'S CHOICE OF BENE FICIARIES IS RESTRICTED (A) BY THE OVERALL LIMIT OF THE FUND; (B ) ONLY TO INSTITUTIONAL INVESTORS; AND (C) TO PERSONS WHO AGR EE TO SUBSCRIBE TO THE CA. THE CRITERIA FOR PERSONS TO BECOME BENEF ICIARIES AND THE SHARES OF INCOME THEY ARE ENTITLED TO ARE CLEAR LY DEFINED IN THE DEED. THE AUTHORITY IS OF OPINION, THAT WITH THE IN TRODUCTION OF THE MODIFICATIONS REFERRED TO ABOVE AND IN THE LIGH T OF THE STATEMENT ON LAW CONTAINED IN THE PASSAGES FROM AGA RWALLA'S TRUST ACT CITED BY LEARNED COUNSEL, THERE CAN BE NO OBJECTION TO THE VALIDITY OF THE MODIFIED TRUST DEED. [PARENTHET ICALLY, HOWEVER, IT MAY BE OBSERVED THAT, IN THE DEFINITION IN CL. ( A) PROPOSED TO BE INSERTED, THE WORDS 'BEING A NATURAL PERSON' APPEAR S TO BE A SURPLUSAGE AND MAY BE OMITTED WITHOUT DETRACTING FR OM THE MEANING OF THE CLAUSE. BUT THIS HAS NO IMPACT ON TH E VALIDITY OF THE TRUST DEED. (EMPHASIS SUPPLIED) ITA NO.178/BANG/2012 PAGE 53 OF 76 47. WE AGREE WITH THE AFORESAID OBSERVATIONS OF THE AAR AND WE PROCEED FURTHER TO DECIDE THE VARIOUS ISSUES RAISED BY THE REVENUE IN ITS APPEAL. 48. PRIVATE TRUSTS COULD BE FIXED OR DISCRETIONARY TRUSTS. A FIXED TRUST IS A TRUST IN WHICH THE BENEFICIARIES HAVE A CURRENT F IXED ENTITLEMENT TO SUCH INCOME AS REMAINS AFTER PROPER EXERCISE OF THE TRUS TEES POWERS. ON THE OTHER HAND, A DISCRETIONARY TRUST IS ONE IN WHICH T HE BENEFICIARIES HAVE NO SUCH CURRENT FIXED ENTITLEMENT, BUT ONLY A HOPE ( SPES ) THAT THE TRUSTEES IN CARRYING OUT THEIR DUTY TO CONSIDER HOW MUCH INCOME MIGHT BE PAID TO SUCH BENEFICIARIES WILL IN THEIR DISCRETION PAY THAT INC OME TO A PARTICULAR BENEFICIARY OR BENEFICIARIES. THE BENEFICIARIES HA VE NO INTEREST IN POSSESSION UNDER THE TRUST. THERE ARE VARIOUS REAS ONS WHY A SETTLOR PREFERS TO ESTABLISH A DISCRETIONARY TRUST RATHER T HAN A FIXED TRUST. SOME OF THE IMPORTANT ONES BEING TO PROTECT THE BENEFICI ARY AGAINST CREDITORS; TO CONTINUE TO EXERCISE CONTROL OVER YOUNG OR IMPROVID ENT BENEFICIARIES; TO MAKE ADJUSTMENT ACCORDING TO CIRCUMSTANCES. WHEN A TRUST IS SET UP, THERE IS NO WAY OF KNOWING HOW THE BENEFICIARIES WI LL FARE IN THE FUTURE; WHICH OF THEM WILL BE MOST IN NEED, WHICH WILL BE D ESERVING, WHICH SPENDTHRIFT, WHICH INEBRIATE, WHICH WILL MARRY MILL IONAIRES AND WHICH MISSIONARIES. THE TRUSTEE CAN TAKE ALL THESE FACTO RS INTO CONSIDERATION IN MAKING THEIR DECISIONS. ITA NO.178/BANG/2012 PAGE 54 OF 76 49. WHEN IT COMES TO TAX ON INCOME RECEIVED BY THE TRUST ON BEHALF OF THE BENEFICIARIES, THERE ARE SOME IMPLICATIONS DEPE NDING ON WHETHER THE TRUST IS A DISCRETIONARY TRUST OR A NON-DISCRETIONA RY TRUST. AS WE HAVE ALREADY SEEN IN TERMS OF SEC.164(1) A TRUST IS ASSE SSED AS A REPRESENTATIVE ASSESSEE IN RESPECT OF INCOME WHICH IT RECEIVES ON BEHALF OF ITS BENEFICIARIES AND IF THE BENEFICIARIES ARE NOT CERT AIN OR SHARES OF BENEFICIARIES ARE INDETERMINATE, TAX SHALL BE CHARG ED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE MAXIMUM MA RGINAL RATE. EXPLANATION 1 TO SEC.164 DEEMS THAT IN CERTAIN SITU ATIONS BENEFICIARIES SHALL BE DEEMED TO BE NOT IDENTIFIABLE OR THEIR SHARES AR E UNASCERTAINED OR INDETERMINATE OR UNKNOWN. THESE PROVISIONS HAVE AL READY BEEN SET OUT IN THE EARLIER PART OF THIS ORDER AND ARE NOT BEING RE PEATED. THE LEGISLATIVE HISTORY OF THE ABOVE PROVISIONS NEEDS TO BE EXAMINE D TO FIND OUT THE OBJECT OF INTRODUCTION OF THE EXPLANATION. SEC. 164(1) WAS IN THE ACT WHEN IT WAS ENACTED IN 1962 BUT ITS WORDING UNDERWENT A CHANGE, INTRODUCING A CONCEPT OF TAXATION AT MARGINAL RATE IN 1970 BY THE FINANCE ACT OF 1970 W.E.F. 1ST APRIL, 1970. THE OBJECT AND SCOPE OF THIS AMENDMENT WERE ELABORATED IN A CIRCULAR OF THE CBDT (CIRCULAR NO. 45 DT. 2ND SEPT. , 1970) AS UNDER :- 'PRIVATE DISCRETIONARY TRUSTS. UNDER THE PROVISIO NS OF S. 164 OF THE IT ACT BEFORE THE AMENDMENT MADE BY THE FINANCE ACT, 1970, INCOME OF A TRUST IN WHICH THE SHARES OF THE BENEFI CIARIES ARE INDETERMINATE OR UNKNOWN, IS CHARGEABLE TO TAX AS A SINGLE UNIT TREATING IT AS THE TOTAL INCOME OF AN AOP. THIS PRO VISION AFFORDS SCOPE FOR REDUCTION OF TAX LIABILITY BY TRANSFERRIN G PROPERTY TO TRUSTEES AND VESTING DISCRETION IN THEM TO ACCUMULA TE THE INCOME OR APPLY IT FOR THE BENEFIT OF ANY ONE OR MORE OF T HE BENEFICIARIES, ITA NO.178/BANG/2012 PAGE 55 OF 76 AT THEIR CHOICE. BY CREATING A MULTIPLICITY OF SUCH TRUSTS, EACH ONE OF WHICH DERIVES A COMPARATIVELY LOW INCOME, THE IN CIDENCE OF TAX ON THE INCOME FROM PROPERTY TRANSFERRED TO THE SEVERAL TRUSTS IS MAINTAINED AT A LOW LEVEL. IN SUCH ARRANGEMENTS, IT IS OFTEN FOUND THAT ONE OR MORE OF THE BENEFICIARIES OF THE TRUST ARE PERSONS HAVING HIGH PERSONAL INCOMES, BUT NO PART O F THE TRUST INCOME BEING SPECIFICALLY ALLOCABLE TO SUCH BENEFIC IARIES UNDER THE TERMS OF THE TRUST, SUCH INCOME CANNOT BE SUBJE CT TO TAX AT A HIGH PERSONAL RATE WHICH WOULD HAVE BEEN APPLICABLE IF THEIR SHARES HAD BEEN DETERMINATE. 50. IN ORDER TO PUT AN EFFECTIVE CURB ON THE PROLIF ERATION OF SUCH TRUSTS, AND TO REDUCE THE SCOPE OF TAX AVOIDANCE THROUGH SU CH MEANS, THE FINANCE ACT, 1970, HAS REPLACED S. 164 OF THE IT ACT BY A N EW SECTION. UNDER S. 164 AS SO REPLACED, A `REPRESENTATIVE ASSESSEE' WHO REC EIVES INCOME FOR THE BENEFIT OF MORE THAN ONE PERSON WHOSE SHARES IN SUC H INCOME ARE INDETERMINATE OR UNKNOWN, WILL BE CHARGEABLE TO INC OME-TAX ON SUCH INCOME AT THE FLAT RATE OF 65% OR THE RATE WHICH WO ULD BE APPLICABLE IF SUCH INCOME WERE THE TOTAL INCOME OF AN AOP, WHICHEVER C OURSE WOULD BE MORE BENEFICIAL TO THE REVENUE. 51. WHEN THE EXPLANATION WAS ADDED IN 1980, THE CBD T ISSUED THE FOLLOWING CIRCULAR [SEE (1980) 123 ITR (ST) 159] [T HE QUOTATION HAS BEEN TAKEN FROM THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE (NO. 2) BILL, 1980 AND NOT FROM THE RELEVANT CIRCULAR, W HICH IS CIRCULAR NO. 281 DT. 22ND SEPT., 1980 REPORTED IN (1981) 131 ITR (ST) 4, THOUGH THE CIRCULAR USES SIMILAR LANGUAGEED.] : ITA NO.178/BANG/2012 PAGE 56 OF 76 '49. XXX XXX XXX (IV) UNDER THE EXISTING PROVISIONS, THE FLAT RATE O F 65% IS NOT APPLICABLE WHERE THE BENEFICIARIES AND THEIR SHARES ARE KNOWN IN THE PREVIOUS YEAR, ALTHOUGH SUCH BENEFICIARIES OR T HEIR SHARES HAVE NOT BEEN SPECIFIED IN THE RELEVANT INSTRUMENT OF TR UST, ORDER OF THE COURT OR WAKF DEED. THIS PROVISION HAS BEEN MISUSED IN SOME CASES BY GIVING DISCRETION TO THE TRUSTEES TO DECID E THE ALLOCATION OF THE INCOME EVERY YEAR AND IN OTHER WAYS. IN SUCH A SITUATION, THE TRUSTEES AND BENEFICIARIES ARE ABLE TO MANIPULA TE THE ARRANGEMENTS IN SUCH A MANNER THAT A DISCRETIONARY TRUST IS CONVERTED TO A SPECIFIC TRUST WHENEVER IT SUITS THE M TAX-WISE. IN ORDER TO PREVENT SUCH MANIPULATION, IT IS PROPOSED TO PROVIDE THAT UNLESS THE BENEFICIARIES AND THEIR SHARES ARE EXPRE SSLY STATED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST O R WAKF DEED, AS THE CASE MAY BE, AND ARE ASCERTAINABLE AS SUCH ON T HE DATE OF SUCH ORDER, INSTRUMENT OR DEED, THE TRUST WILL BE REGARD ED AS A DISCRETIONARY TRUST AND ASSESSED ACCORDINGLY.' 52. FROM THE ABOVE EXTRACTS IT CAN BE SEEN THAT THE OBJECT OF THE AMENDMENTS TO THE PROVISION WAS ONLY THAT THE DISTR IBUTION OF THE INCOME SHOULD NOT BE ENTIRELY AT THE DISCRETION OF THE TRU STEES AND THAT THE TRUST DEED SHOULD REGULATE THE SHARES. 53. HAVING NOTICED THE TAX IMPLICATIONS OF DISCRETI ONARY TRUSTS, WE MAY NOW REVERT TO THE VARIOUS ISSUES RAISED BY THE REVE NUE IN THE GROUNDS OF APPEAL AND THE FACTS OF THE PRESENT CASE. THE ISSU E RAISED IN GROUNDS NO.1 IS GENERAL, CALLING FOR NO SPECIFIC ADJUDICATION. THE ISSUE RAISED BY THE REVENUE IN GROUND NO.2 IS WITH REGARD TO THE APPLIC ABILITY OF THE PROVISIONS OF SEC.60, 61 AND 63 OF THE ACT TO THE FACTS AND CI RCUMSTANCES OF THE PRESENT CASE. IN THIS REGARD IT NEEDS TO BE CLARIF IED THAT THE ASSESSEE IN ITS REPLY DATED 15.12.2010 TO THE AO IN THE COURSE OF A SSESSMENT PROCEEDINGS ITA NO.178/BANG/2012 PAGE 57 OF 76 POINTED OUT THE ABOVE PROVISIONS AND SUBMITTED THAT IT IS ONLY THE BENEFICIARIES WHO HAVE TO BE ASSESSED TO TAX IN RES PECT OF INCOME ARISING FROM A REVOCABLE TRANSFER. THE AO IN THE ORDER OF ASSESSMENT DID NOT CONSIDER THE ABOVE ARGUMENT NOR HAS HE GIVEN ANY RE ASONS WHY THE SAME ARE REJECTED. THE SUBMISSION MADE BY THE ASSESSEE BEFORE CIT(A) ON THIS ASPECT HAVE BEEN ACCEPTED BY THE CIT(A) BUT HE HAS NOT DISCUSSED OR GIVEN ANY REASONS AS TO HOW THE SUBMISSIONS ARE BEI NG ACCEPTED. THE BASIC SCHEME OF SECTION 61 R/W SECTION 62 AND SECTI ON 63 IS AS FOLLOWS : WHERE UNDER A SETTLEMENT ANY INCOME ARISES TO THE S ETTLOR, IT HAS TO BE ASSESSED IN THE HANDS OF SETTLOR, WHETHER THE SETTL EMENT IS REVOCABLE OR IRREVOCABLE. IF UNDER A SETTLEMENT ANY INCOME ARISE S TO ANY OTHER PERSON APART FROM THE SETTLOR SUCH INCOME CAN STILL BE ASS ESSED IN THE HANDS OF THE SETTLOR PROVIDED THE SETTLEMENT IS REVOCABLE. EVEN IF A SETTLEMENT ON THE FACE OF IT IS STATED TO BE IRREVOCABLE, IF THE SAME PROVIDES FOR DIRECT OR INDIRECT RETRANSFER OF INCOME OR ASSETS OF THE SETT LEMENT TO THE SETTLOR OR GIVES THE SETTLOR A RIGHT TO RESUME POWER DIRECTLY OR INDIRECTLY OVER SUCH INCOME OR ASSET, THE SETTLEMENT SHOULD BE DEEMED TO BE REVOCABLE. 54. IN CHAPTER X OF THE PRIVATE PLACEMENT MEMORANDU M ISSUED BY THE INVESTMENT MANAGER INVITING CONTRIBUTION FROM INVES TORS, THE TAX CONSIDERATIONS IN MAKING INVESTMENTS AS UNDERSTOOD BY THEM HAVE BEEN SET OUT. THE CONTENTS THEREOF IN BRIEF ARE THAT TH E CONTRIBUTION BY THE CONTRIBUTORS ARE AKIN TO REVOCABLE TRANSFER U/S.6 1 OF THE ACT READ WITH SEC.63 OF THE ACT AND THEREFORE INCOME ARISING FROM THE TRANSFER ARE ITA NO.178/BANG/2012 PAGE 58 OF 76 ASSESSABLE IN THE HANDS OF THE CONTRIBUTORS. THE C ONTRIBUTORS ARE THEREFORE INFORMED THAT IN RESPECT OF THEIR PRO-RATA SHARE OF INCOME RECEIVED BY THE FUND IT IS THE CONTRIBUTORS WHO WILL BE LIABLE TO T AX AND NOT THE TRUST/FUND. THE NATURE OF INCOME THAT IS LIKELY TO ARISE FROM T HE REVOCABLE TRANSFER HAS ALSO BEEN SET OUT THEREIN AND THE SAME IS REFERRED TO AS (1) DIVIDEND DECLARED BY COMPANIES WHOSE SHARES ARE HELD BY THE TRUST, ARE EXEMPT IN THE HANDS OF THE SHAREHOLDERS AND THEREFORE THE DIV IDEND EARNED BY THE TRUST FROM INVESTMENT WOULD BE EXEMPT FROM TAX AND THEREFORE THERE WOULD BE NO TAX IMPLICATIONS IN THE HANDS OF THE BENEFICI ARY. (2) INTEREST ON LOANS GIVEN BY THE TRUST/FUND TO COMPANIES WOULD SUFFER T AX DEDUCTION AT SOURCE. NEVERTHELESS THE BENEFICIARIES HAVE TO DECLARE INTE REST INCOME AND PAY TAX THEREON BUT CLAIM REFUND OF TAX PAID OR CREDIT FOR TAXES ALREADY PAID. (3) GAIN ON SALE OF PORTFOLIO INVESTMENTS WOULD BE SUBJ ECTED TO TAX EITHER AS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. THERE IS ALSO A REFERENCE TO THE FACT THAT IN CASE THE GAIN ON SALE OF SECURITIES OF COMPANIES HELD/INVESTED BY THE TRUST/FUND ARE HELD TO BE IN THE NATURE OF BUSINESS INCOME THEN SUCH BUSINESS INCOME WOULD BE TAXABLE IN THE HANDS OF THE BENEFICIARIES AT THE RELEVANT APPLICABLE RAT ES. (4) GAIN ON REDEMPTION PREMIUM OF DEBENTURES/BONDS WILL ALSO SUFFER TAX EI THER AS LONG TERM OR SHORT TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING. 55. UNDER CLAUSE-2 OF THE CONTRIBUTION AGREEMENT, T HE CONTRIBUTOR/BENEFICIARY/INVESTOR AGREES TO CONTRIBU TE A SPECIFIED SUM TO THE TRUST/FUND. CLAUSE-2.6 OF THE CONTRIBUTION AGREEME NT SPECIFIES THAT THE ITA NO.178/BANG/2012 PAGE 59 OF 76 CONTRIBUTOR/INVESTOR/BENEFICIARY SHALL NOT HAVE ANY RIGHT TO DEMAND THE RETURN OF HIS/HER/ITS FUND CONTRIBUTOR, OTHER THAN UPON DISSOLUTION OF THE FUND. CLAUSE-2.6.2 PROVIDES THAT THE TRUSTEE MAY REFUND T HE FUND CONTRIBUTOR TO THE CONTRIBUTOR, WITHOUT INTEREST, WITHIN A PERIOD OF 3 MONTHS FROM THE DATE HEREOF, IN THE EVENT THE MINIMUM FUND COMMITMENT IS NOT RECEIVED. CLAUSE2.9 OF THE CONTRIBUTOR AGREEMENT ALSO LAYS DO WN THAT THE REDEMPTION OF UNITS BY THE BENEFICIARY SHALL BE AT THE SOLE DI SCRETION OF THE TRUSTEES IN CONSULTATION WITH THE INVESTMENT MANAGER. 56. IN THE LIGHT OF THE AFORESAID CLAUSES IN THE CO NTRIBUTION AGREEMENT, CAN IT BE SAID THAT TRANSFER OF FUNDS BY THE BENEFI CIARY TO THE TRUST/FUND IS A REVOCABLE TRANSFER? 57. THE ANSWER TO THE ABOVE QUESTION CANNOT BE GIVE N BY MERELY READING THE CLAUSES IN THE CONTRIBUTION AGREEMENT A LONE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US WAS THAT THE CONTRIBUTION AGREEMENT HAS TO BE READ ALONG WITH THE TRUST DEED AS WELL AS THE INVESTMENT MANAGEMENT AGREEMENT AND OFFER DOCUMENT FOR PRIVATE PLACEMENT ISSUED BY THE INVESTMENT MANAGER. ARTICL E-13 OF THE TRUST DEED PROVIDES FOR TERMINATION OF THE TRUST. THOUGH SUCH A POWER IS NOT WITH THE BENEFICIARY/TRANSFEROR, IT IS NOT THE REQUIREMENT O F SEC.61 THAT THE POWER OF REVOCATION MUST BE AT THE INSTANCE OF THE BENEFICIA RY/TRANSFEROR. THE POWER OF REVOCATION UNDER CLAUSE13 OF THE DEED OF TRUST I S A GENERAL POWER OF REVOCATION AND THE SAME WOULD BE SUFFICIENT FOR CON STRUING THE TRANSFER IN ITA NO.178/BANG/2012 PAGE 60 OF 76 THE PRESENT CASE AS A REVOCABLE TRANSFER. AS RIGHT LY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE IT IS NOT NECESSAR Y THAT THE POWER OF REVOCATION SHOULD BE AT THE INSTANCE OF THE CONTRIB UTORS/BENEFICIARIES/ TRANSFEROR AND IT CAN BE AT THE INSTANCE OF ANY PER SON EITHER SETTLOR, TRUSTEE, TRANSFEREE OR THE BENEFICIARIES. PROVISIONS OF SEC .61 OF THE ACT DO NOT CONTEMPLATE A POWER OF REVOCATION ONLY AT THE INSTA NCE OF THE TRANSFEROR. IN THIS REGARD THE RELIANCE PLACED BY THE LEARNED COUN SEL FOR THE ASSESSEE ON THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN TH E CASE OF SURAT ART SILK CLOTH MFRS. ASSOCIATION (SUPRA) SUPPORT THE PLEA TAKEN BY HIM. AS RIGHTLY CONTENDED BY HIM THE EXISTENCE OF A POWER T O REVOKE THE TRANSFER THAT HAS TO BE SEEN AND NOT THE MANNER IN WHICH/ OR AT WHOSE INSTANCE SUCH REVOCATION IS BROUGHT ABOUT. 58. THE ALTERNATIVE SUBMISSION OF THE LEARNED COUNS EL FOR THE ASSESSEE THAT THE PROVISIONS OF SEC.63(A) OF THE ACT, WHICH DEEMS EXISTENCE OF POWER OF REVOCATION IN CERTAIN CIRCUMSTANCES, ARE ALSO AC CEPTABLE. IN THIS REGARD PROSPECTUS INVITING CONTRIBUTION FROM CONTRIBUTORS CLEARLY LAY DOWN IN CERTAIN CIRCUMSTANCES 75% OF THE CONTRIBUTORS CAN REVOKE TH EIR CONTRIBUTION TO THE FUND AT ANY POINT OF TIME AND THE TRUSTEES SHALL TH EN TERMINATE THE FUND. THOUGH THE ABOVE POWER OF THE TRANSFEROR/BENEFICIAR Y TO REVOKE THE TRANSFER IS NOT IN THE INSTRUMENT OF TRANSFER BUT BY VIRTUE OF THE POWER CONFERRED IN A DOCUMENT BY WHICH THE INVESTMENT MANAGER APPOINTED BY THE TRUST BY VIRTUE OF POWERS CONFERRED UNDER THE TRUST DEED, WO ULD BE SUFFICIENT TO ITA NO.178/BANG/2012 PAGE 61 OF 76 CONCLUDE THAT THE TRANSFEROR/BENEFICIARY HAD DEEMED POWERS OF REVOCATION. IN THIS REGARD THE RELIANCE PLACED BY THE LEARNED C OUNSEL FOR THE ASSESSEE ON THE RATION LAID DOWN IN THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF JYOTHENDRASINHJI (SUPRA) IS SQUARELY APPLICABLE TO THE PRESENT CASE. IN THE AFORESAID DECISION THE HONBLE SUPREM E COURT HELD THAT SEC. 63(1) OF THE ACT DOES NOT SAY THAT THE DEED OF TRAN SFER MUST CONFER OR VEST AN UNCONDITIONAL OR AN EXCLUSIVE POWER OF REVOCATIO N IN THE TRANSFEROR. IT WAS FURTHER HELD THAT THE FACT THAT CONCURRENCE OF THE TRUSTEE HAD TO BE OBTAINED BY THE TRANSFEROR/SETTLER FOR REVOCATION W ILL 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 O F INCOME OR ASSETS WITHIN THE MEANING OF S. 63(A)(II) OF THE ACT. 59. FOR THE REASONS GIVEN ABOVE WE HOLD THAT SEC.61 READ WITH SEC.63 OF THE ACT WHICH MANDATES THAT INCOME ARISING TO AN Y PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE CHARGEABLE TO INCOME TAX AS INCOME OF THE TRANSFEROR WILL APPLY TO THE FACTS AND CIRCUMST ANCES OF THE PRESENT CASE AND THEREFORE THE ASSESSMENT IN THE HANDS OF THE TR ANSFEREE/REPRESENTATIVE ASSESSEE WAS NOT PROPER. 60. THE ISSUES RAISED BY THE REVENUE IN GROUNDS 4 T O 7 OF THE GROUNDS OF APPEAL IS WITH REGARD TO APPLICABILITY OF PROVIS IONS OF SEC.164(1) OF THE ACT. IN VIEW OF THE CONCLUSION ON GROUND NO.3 THE ADJUDICATION OF OTHER ITA NO.178/BANG/2012 PAGE 62 OF 76 GROUNDS MAY NOT BE NECESSARY. SINCE THE ORDER OF T HE AO IS BASED ON THE APPLICABILITY OF THE PROVISIONS OF SEC.164(1) OF TH E ACT, WE DEEM IT APPROPRIATE TO ADJUDICATE ON THE ISSUES RAISED IN G ROUND NO.4 TO 7 AS WELL. THE PROVISIONS OF SEC.164(1) OF THE ACT AND EXPLN.- 1 TO SEC.164 ARE RELEVANT IN THIS REGARD. SEC.164(1) LAYS DOWN THAT WHERE ANY INCOME OR ANY PART THEREOF IN RESPECT OF WHICH THE PERSONS MENTIONED IN CL. (I V) OF SUB- SECTION (1) OF SECTION 160 IS LIABLE AS REPRESENTAT IVE ASSESSEE OR ANY PART THEREOF (I) IS NOT SPECIFICALLY RECEIVABLE ON BEHALF OR F OR THE BENEFIT OF ANY ONE PERSON; OR (II) WHERE THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THERE OF IS RECEIVABLE ARE INDETERMINATE OR UNKNOWN (SUCH INCOM E, SUCH PART OF THE INCOME AND SUCH PERSONS BEING HEREAFTER IN THIS SECTION REFERRED TO AS 'RELEVANT INCOME', 'PART OF RELEVANT INCOME' AND 'BENEFICIARIES', RESPECTIVELY), TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. EXPLANATION 1 TO SEC.164 LAYS DOWN THAT ANY INCOME OR PART THEREOF TO WHICH SECTION 164(1) APPLIES SHALL BE DE EMED AS BEING NOT SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BE NEFIT OF ANY ONE PERSON UNLESS THE PERSON ON WHOSE BEHALF OR FOR WHO SE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE DURI NG THE PREVIOUS YEAR IS EXPRESSLY STATED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED, AS THE CASE MAY BE, AND IS I DENTIFIABLE AS SUCH ON THE DATE OF SUCH ORDER, INSTRUMENT OR DEED; (II) THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVE D SHALL BE DEEMED TO BE INDETERMINATE OR UNKNOWN UNLESS THE IN DIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE, ARE EXPR ESSLY STATED IN ITA NO.178/BANG/2012 PAGE 63 OF 76 THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST O R WAKF DEED, AS THE CASE MAY BE, AND ARE ASCERTAINABLE AS SUCH ON T HE DATE OF SUCH ORDER, INSTRUMENT OR DEED. 61. THE GENERAL RULE AS LAID DOWN IN SEC. 161(1) IS THAT INCOME RECEIVED BY A TRUSTEE ON BEHALF OF THE BENEFICIARY SHALL BE ASSESSED IN THE HANDS OF THE TRUSTEE AS REPRESENTATIVE ASSESSEE AND SUCH ASS ESSMENT SHALL BE MADE AND THE TAX THEREON SHALL BE LEVIED UPON AND B E RECOVERED FROM THE REPRESENTATIVE ASSESSEE 'IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON THE RECOVERABLE FROM THE PERSON RE PRESENTED BY HIM'. TO THE ABOVE RULE, HOWEVER, THREE EXCEPTIONS HAVE BEEN INCORPORATED IN THE ACT :- (A) UNDER S. 161(1A), THIS RULE OF APPORTIONMENT A ND DETERMINATION OF PROPORTIONATE TAX ATTRIBUTABLE TO THE BENEFICIARY W ILL NOT APPLY TO ANY INCOME EARNED BY THE TRUSTEE AS PROFITS AND GAINS O F A BUSINESS. THE WHOLE OF SUCH INCOME SHALL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. A SIMILAR PROVISO OCCURS ALSO IN S. 164(1) RESTRICT ING BENEFITS WHERE BUSINESS INCOME IS INVOLVED. (B) UNDER S. 164(1), IF THE BENEFICIARIES ARE NOT IDENTIFIABLE OR THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF AN D FOR WHOSE BENEFIT THE INCOME IS RECEIVABLE ARE INDETERMINATE OR UNKNOWN, SUCH INCOME, AGAIN, WILL BE TAXED AT THE 'MAXIMUM MARGIN AL RATE'. (C) IN CERTAIN OTHER CIRCUMSTANCES, SET OUT IN THE PROVISO TO S. 164(1), THE RELEVANT INCOME WILL BE ASSESSABLE NOT AT THE MAXIM UM RATE BUT AT THE RATE APPLICABLE TO IT AS IF IT WERE THE TOTAL INCOM E OF AN AOP. 62. IN THE PRESENT CASE THE AO HAS NOT INVOKED THE PROVISIONS OF SEC.161(1A) OF THE ACT OR THE PROVISO TO SEC.164(1) OF THE ACT AND THEREFORE, WE NEED NOT EXAMINE THOSE PROVISIONS. A S FAR AS IDENTIFICATION OF ITA NO.178/BANG/2012 PAGE 64 OF 76 INDIVIDUAL SHARES OF THE SEC.164(1) OF THE ACT WILL NOT GET ATTRACTED FOR THE REASON THAT THE BENEFICIARIES ARE NOT IDENTIFIABLE. 63. THE QUESTION FOR OUR CONSIDERATION THEREFORE IS REGARDING APPLICABILITY OF SEC.164(1) OF THE ACT. THERE ARE TWO ASPECTS TO BE NOTICED IN THE ABOVE PROVISIONS. THE FIRST ASPECT IS THE IDENTIFICATION OF THE BENEFICIARIES. THE SECOND ASPECT IS WITH REGARD TO ASCERTAINMENT OF TH E SHARE OF THE BENEFICIARIES. 64. ON THE ASPECT OF IDENTIFICATION OF THE BENEFICI ARIES, IT IS THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SO LONG A S THE TRUST DEED GIVES THE DETAILS OF THE BENEFICIARIES AND THE DESCRIPTIO N OF THE PERSON WHO IS TO BE BENEFITED, THE BENEFICIARIES CANNOT BE SAID TO B E UNCERTAIN. CBDT CIRCULAR NO.281 DATED 22.9.1980 WHEREIN THE CBDT HA S 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 B EEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATION OF BENEFICIARIES IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE RELEVANT PREVIOUS YEAR SHOULD BE ACTUALLY NA MED 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 REFEREN CE TO THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED ON TH E DATE OF SUCH ORDER, INSTRUMENT OR DEED. WE FIND THAT CLAUSE 1.1.13 OF THE TRUST DEED CLEARLY LAYS DOWN THAT BENEFICIARIES MEANS THE PERSONS, EAC H OF WHOM HAVE MADE ITA NO.178/BANG/2012 PAGE 65 OF 76 OR AGREED TO MAKE CONTRIBUTIONS TO THE TRUST IN ACC ORDANCE WITH THE CONTRIBUTION AGREEMENT. WE ARE OF THE VIEW THAT TH E ABOVE CLAUSE IS SUFFICIENT TO IDENTIFY THE BENEFICIARIES. 65. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BENEFICIARIES, WE FIND THAT ARTICLE 6.5 OF THE TRUST DEED CLEARLY SPECIFIE S THE MANNER IN WHICH THE INCOME OF THE ASSESSEE IS TO BE DISTRIBUTED. THE S AID CLAUSE DETAILS FORMULA WITH RESPECT TO THE SHARE OF EACH BENEFICIA RY. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IT IS NOT THE REQUIREMENT OF LAW THAT TRUST DEED SHOULD ACTUALLY PRESCRIBE THE PERCENTAGE SHARE OF T HE BENEFICIARY IN ORDER FOR THE TRUST TO BE DETERMINATE. IT IS ENOUGH IF T HE SHARES ARE CAPABLE OF BEING DETERMINED BASED ON THE PROVISIONS OF THE TRU ST DEED. IN THE CASE OF THE ASSESSEE THE TRUSTEE HAVE NO DISCRETION TO DECI DE THE SHARE OF EACH BENEFICIARY AND ARE BOUND BY THE PROVISIONS OF THE TRUST DEED AND IS DUTY BOUND TO FOLLOW THE DISTRIBUTION MECHANISM SPECIFIE D IN THE TRUST DEED. THE FURTHER ASPECT THAT MAY REQUIRE CONSIDERATION IN TH E PRESENT CASE IS WITH REGARD TO THE CLAUSE IN THE TRUST DEED WHICH AUTHOR ISES ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME IN ADDITION TO INITIAL CONTRIBUTORS. FROM THIS CLAUSE CAN IT BE SAID THAT SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FROM TH E TRUST DEED. ON THE ABOVE ASPECT, WE FIND THE AAR IN THE CASE OF XYZ IN RE (SUPRA) HAS CONSIDERED SIMILAR CLAUSE IN A TRUST DEED WITH SPEC IFIC REFERENCE TO THE PROVISIONS OF SEC.164(1) OF THE ACT AND HAS HELD TH AT IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED ITA NO.178/BANG/2012 PAGE 66 OF 76 AND ALSO THE SHARE TO WHICH EACH OF THEM WOULD BE E NTITLED WITHOUT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DE ED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE INDETERMINAT E. 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 LEAVIN G 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 COMPLICAT ED, IT IS NOT POSSIBLE TO SAY THAT THE SHARE INCOME OF THE BENEFICIARIES CANN OT BE DETERMINED OR KNOWN FROM THE TRUST DEED. IN VIEW OF THE AFORESAI D DECISION OF THE AAR, WITH WHICH WE RESPECTFULLY AGREE, WE HOLD THAT THE PROVISIONS OF SEC.164(1) OF THE ACT WOULD NOT BE ATTRACTED IN THE PRESENT CA SE. WE ALSO FIND THAT THE HONBLE MADRAS HIGH COURT IN THE CASE OF P.SEKAR TRUST (SUPRA) AND MANILAL BAPALAL (SUPRA) HAS TAKEN A VIEW THAT IDENTITY BY REFERENCE TO THE TERMS OF THE TRUST DEED IS SUFFICIENT AND IT IS NOT NECESSARY THAT THE BENEFICIARIES SHOULD BE SPECIFICALLY NAMED IN THE D EED OF TRUST. CONSEQUENTLY GROUNDS 4 TO 7 RAISED BY THE REVENUE A RE HELD TO BE WITHOUT MERIT. ITA NO.178/BANG/2012 PAGE 67 OF 76 66. IN GROUND NO.8, THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) HELD THAT THE ASSESSEE CANNOT BE ASSESSED AS AN AOP. IN GROUND NO.9 THE REVENUE HAS CONTENDED TH AT THERE IS NO SEPARATE STATUS OF TRUST FOR MAKING ASSESSMENT ENVI SAGED UNDER THE ACT. IN THIS REGARD THE DEFINITION OF PERSON U/S. 2(31) OF THE ACT WHICH DOES NOT SPECIFICALLY REFER TO TRUST IS BEING HIGHLIGHTED IN THE GROUNDS RAISED BY THE REVENUE. THESE GROUNDS CAN BE CONVENIENTLY DEALT W ITH TOGETHER. 67. SEC.2(31) OF THE ACT DEFINES THE TERM PERSON. THE DEFINITION INCLUDES ASSOCIATION OF PERSONS(AOP). THERE IS NO DEFINITION OF THE EXPRESSION AOP OCCURRING IN THE 1922 ACT. BY A SER IES OF DECISIONS, THE MEANING OF THIS EXPRESSION WAS PRECISELY DEFINED AN D TESTS WERE LAID DOWN IN ORDER TO FIND OUT WHEN A CONGLOMERATE OF PERSONS COULD BE HELD TO BE AN AOP FOR THE PURPOSES OF SECTION 3 OF THE 1922 ACT. WHILE INTERPRETING THIS EXPRESSION OCCURRING IN SECTION 3 OF THE INDIAN IT ACT, 1922, THE SUPREME COURT IN CIT VS. INDIRA BALKRISHNA (SUPRA) HELD 'AN AOP MUST BE ONE IN WHICH TWO OR MORE PERSONS JOIN IN A COMMON PURPO SE OR COMMON ACTION, AND AS THE WORDS OCCUR IN A SECTION WHICH IMPOSES A TAX ON INCOME, THE ASSOCIATION MUST BE ONE THE OBJECT OF WHICH IS TO P RODUCE INCOME, PROFITS OR GAINS'. THE SUPREME COURT, HOWEVER, ADMINISTERED TH E FOLLOWING CAUTION : THERE IS NO FORMULA OF UNIVERSAL APPLICATION AS T O WHAT FACTS, HOW MANY OF THEM AND OF WHAT NATURE, ARE NECESSARY TO COME TO A CONCLUSION THAT THERE IS AN AOP WITHIN THE MEANING OF SECTION 3; IT MUST DEP END ON THE PARTICULAR ITA NO.178/BANG/2012 PAGE 68 OF 76 FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER THE CONCLUSION CAN BE DRAWN OR NOT''. TO THE ABOVE JUDICIAL EXPOSITION OF WHAT CONSTITUT ES AOP, THERE HAS BEEN A STATUTORY RIDER ADDED. THE FINAN CE ACT, 2002 HAS INSERTED W.E.F. 1ST APRIL, 2003 AN EXPLANATION TO C LARIFY THAT OBJECT OF DERIVING INCOME IS NOT NECESSARY FOR AOP, BOI, LOCA L AUTHORITY OR AN ARTIFICIAL JURIDICAL PERSON IN ORDER THAT SUCH ENTI TY MAY COME WITHIN THE DEFINITION OF 'PERSON' IN SECTION 2(31). IF INCOME RESULTS THAN THEY ARE LIABLE TO BE TAXED AS AOP IF THE OTHER CONDITIONS LAID DOW N BY JUDICIAL DECISIONS ARE SATISFIED. IN THE LIGHT OF THE ABOVE DEFINITIO N OF AOP, LET US EXAMINE THE FACTS OF THE PRESENT CASE. (I) THE ASSESSEE IS A TRUST CONSTITUTED UNDER AN IN STRUMENT OF TRUST DATED 25/9/2006. M/S.ICICI VENTURE FUNDS MANAGEMEN T COMPANY LIMITED (HEREINAFTER REFERRED TO AS SETTLOR) BY AN INDENTURE OF TRUST DATED 25.9.2006 TRANSFERRED A SUM OF RS.10,000/- TO M/S. THE WESTERN INDIA TRUSTEE AND EXECUTOR COMPANY LIMITED (HEREINAFTER REFERRED AS THE TRUSTEE) AS INITIAL CORPUS TO BE APPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THE INDENTU RE DATED 25.9.2006. THE TRUSTEE WAS EMPOWERED TO CALL FOR C ONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE INVESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. THE OBJE CTIVE OF CREATION OF THE TRUST WAS TO INVEST IN CERTAIN SECURITIES CALLE D MEZZANINE INSTRUMENTS AND TO ACHIEVE COMMENSURATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FROM THE CONTRIBU TORS TOGETHER WITH ITA NO.178/BANG/2012 PAGE 69 OF 76 THE INITIAL CORPUS WAS TO BE HANDED OVER TO THE TRU STEES UNDER THE PROVISIONS OF THE INDIAN TRUST ACT, 1882. THE TRUS T WAS TO FACILITATE INVESTMENT BY THE CONTRIBUTORS WHO SHOULD BE RESIDE NT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE CONTRIBU TORS TO THE FUND ARE ITS BENEFICIARIES. (II) THE TRUSTEES HAD POWER TO APPOINT INVESTMENT M ANAGERS TO MANAGE THE TRUST FUND. THE SETTLOR WAS TO BE APPOINTED AS THE INVESTMENT MANAGER. THE TERMS OF THE APPOINTMENT OF THE SETTL OR AS INVESTMENT MANAGER ARE SET OUT IN AN INVESTMENT MANAGEMENT AGR EEMENT DATED 25.9.2006 BETWEEN THE ASSESSEE REPRESENTED BY THE TRUSTEE AND SETTLOR. (III) THE SETTLOR AS INVESTMENT MANAGER ISSUED MEMO RANDUM TO PROSPECTIVE INVESTORS ON A CONFIDENTIAL BASIS FOR T HEM TO CONSIDER AN INVESTMENT IN MEZZANINE FUND. AN INVESTOR WHO WISH ES TO CONTRIBUTE TO THE FUND ENTERS INTO A CONTRIBUTION A GREEMENT WITH THE TRUST, THE TRUSTEES ACTING ON BEHALF OF THE TRUST A ND THE SETTLOR ACTING IN HIS CAPACITY AS INVESTMENT MANAGER. 68. IT CAN THUS BE SEEN THAT THE BENEFICIARIES CONT RIBUTED THEIR MONEY TO THE ASSESSEE AND A SEPARATE AGREEMENT WAS ENTERED I NTO BETWEEN THE ASSESSEE AND EACH BENEFICIARY. THERE IS NO INTER S E ARRANGEMENT BETWEEN ONE CONTRIBUTORY/ BENEFICIARY AND THE OTHER CONTRIB UTORY/BENEFICIARY AS EACH OF THEM ENTER INTO SEPARATE CONTRIBUTION ARRANGEMEN T WITH THE ASSESSEE. ITA NO.178/BANG/2012 PAGE 70 OF 76 THEREFORE IT CANNOT BE SAID THAT TWO OR MORE BENEFI CIARIES JOINED IN A COMMON PURPOSE OR COMMON ACTION AND THEREFORE THE T ESTS FOR CONSIDERING THE ASSESSEE AS AOP WAS SATISFIED. THE BENEFICIARI ES HAVE NOT SET UP THE TRUST. THEREFORE IT CANNOT BE SAID THAT THE BENEFI CIARIES HAVE COME TOGETHER WITH THE OBJECT OF CARRYING ON INVESTMENT IN MEZZANINE FUNDS WHICH IS THE OBJECT OF THE TRUST. THE BENEFICIARIE S ARE MERE RECIPIENTS OF THE INCOME EARNED BY THE TRUST. THEY CANNOT THEREFORE BE REGARDED AS AN AOP. GROUND NO.8 RAISED BY THE REVENUE IS THEREFOR E HELD TO BE WITHOUT ANY MERIT. 69. ANOTHER REASON ASSIGNED BY THE AO FOR TREATING THE STATUS OF THE ASSESSEE AS AOP WAS THAT IN THE RETURN OF INCOME FI LED BY THE ASSESSEE THE STATUS WAS SHOWN IN RETURN OF INCOME. IN THIS REGARD IT IS NOT IN DISPUTE BEFORE US THAT THE FORM OF RETURN OF INCOME AS IT E XISTED FOR THE RELEVANT ASSESSMENT YEAR DID NOT CONTAIN A CLAUSE FOR FILING RETURN OF INCOME BY A TRUST IN THE STATUS OTHER THAN AOP. THE CBDT RE ALISED THIS DIFFICULTY FACED BY 'PRIVATE DISCRETIONARY TRUSTS' HAVING TOTA L INCOME EXCEEDING TEN LAKH RUPEES FACING PROBLEM IN FILING THEIR RETURN O F INCOME ELECTRONICALLY IN CASES WHERE THEY ARE FILING THEIR RETURN IN THE STA TUS OF AN INDIVIDUAL BECAUSE STATUS OF A PRIVATE DISCRETIONARY TRUST HAS BEEN HELD IN LAW AS THAT OF AN 'INDIVIDUAL' GAVE INSTRUCTIONS IN CIRCULAR NO .6/2012 DATED 3.8.2012 TO THE EFFECT THAT IT WILL NOT BE MANDATORY FOR 'PRIVA TE DISCRETIONARY TRUSTS', IF ITS TOTAL INCOME EXCEEDS TEN LAKH RUPEES, TO ELECTRONIC ALLY FURNISH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13. FORM NO.49A WH ICH WAS THE ITA NO.178/BANG/2012 PAGE 71 OF 76 PRESCRIBED FORM OF APPLICATION FOR ALLOTMENT OF PER MANENT ACCOUNT NUMBER (PAN) ALSO DID NOT CONTAIN A SEPARATE STATUS TRUST BUT CONTAINED A COLUMN AOP (TRUST). THE REVISED FORM NO.49A LATER NOTIF IED CONTAINS A COLUMN FOR STATUS AS TRUST. THEREFORE THE ARGUMENT OF T HE REVENUE THAT ALL TRUSTS ARE AOPS IS NOT CORRECT. IF THE CONTENTIO N OF THE REVENUE AS RAISED IN GROUND NO.9 IS ACCEPTED THAN THE PROVISIONS OF S EC.161(1) OF THE ACT WOULD BECOME REDUNDANT. THE CHARGE TO TAX IN THE H ANDS OF THE REPRESENTATIVE ASSESSEE HAS TO BE IN ACCORDANCE WIT H SEC.161(1) OF THE ACT AND THEREFORE THE STATUS OF THE ASSESSEE CANNOT BE THAT OF AOP. GROUND NO.9 RAISED BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. 70. IN GROUND NO.10 THE REVENUE HAS RAISED ISSUE TH AT INCOME HAS TO BE BROUGHT TO TAX IN THE HANDS OF THE RIGHT PERSON IN THE RIGHT STATUS. IN THIS REGARD THERE ARE CIRCULARS DT. 24TH FEB., 1967, 26T H DEC., 1974 AND 24TH AUG., 1966 ON THE ISSUE WHEREIN IT HAS BEEN OPINED THAT ONCE THE CHOICE IS MADE BY THE DEPARTMENT TO TAX EITHER THE TRUST OR T HE BENEFICIARY, IT IS NO MORE OPEN TO THE DEPARTMENT TO GO BEHIND IT AND ASS ESS THE OTHER AT THE SAME TIME. 71. IN THE CASE OF DAVID JOSEPH (SUPRA) THE HONBLE KERALA HIGH COURT AFTER MAKING A REFERENCE TO THE ABOVE CIRCULARS HEL D THAT ONCE A BENEFICIARY IS ASSESSED AND HIS ASSESSMENT IS COMPLETED PRIOR I N POINT OF TIME, AND HIS ASSESSMENT IS AN ELEMENT OF FINALITY, IT IS A NATUR AL CONSEQUENCE FLOWING ITA NO.178/BANG/2012 PAGE 72 OF 76 THEREFROM THAT THE DEPARTMENT DOES NOT GET ANY PERM ISSION TO GO BEHIND IT FOR THE PURPOSE OF SCRUTINISING THE PROCEDURE, FOR FINDING OUT FAULTS IN REGARD THERETO, THE SOLE OBJECT OF WHICH IS TO JUSTIFY THE SUBSEQUENT ACTION TAKEN BY THE DEPARTMENT. THESE ARE IN FACT THE NORMAL CONSEQ UENCES THAT FLOW FROM THE PRINCIPLE OF FINALITY. THIS PRINCIPLE ESPECIALL Y EMERGES FROM THREE CIRCULARS AND HAS ESTABLISHED INTO A SETTLED PRACTI CE, ANY TIME A DEVIATION THEREFROM CANNOT BE PERMITTED, EVEN ON THE GROUND O F A MISTAKE WITH REGARD TO THE MERITS OF THE SITUATION THAT RECEIVED FINALITY. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE M.P.HIGH COURT IN THE CAS E OF RAI SAHE SETH GHISALAL MODI FAMILY TRUST (SUPRA) AND HONBLE BOMBAY HIGH COURT IN THE CASE OF TRUSTEES OF CHATURBHUJ RAGHAVJI TRUST (SUPRA) . 72. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TRUSTEES OF CHATURBHUJ RAGHAVJI TRUST (SUPRA) HELD THAT UNDER SUB-S. (2) OF S. 41, IT IS PERMISSIBLE FOR THE IT AUTHORITIES TO MAKE DIREC T ASSESSMENT ON THE PERSON ON WHOSE BEHALF INCOME, PROFITS AND GAINS FR OM A TRUST ARE RECEIVABLE. SEC. 41 HAVING PROVIDED FOR TWO ALTERN ATIVE METHODS, NAMELY, EITHER TO TAX THE INCOME IN THE HANDS OF THE TRUSTE ES OR DIRECTLY IN THE HANDS OF THE PERSON ON WHOSE BEHALF THE INCOME WAS RECEIV ABLE UNDER THE TRUST, AND ONE OF THEM HAVING BEEN AVAILED OF BY THE IT DE PARTMENT IN DIRECTLY ASSESSING BENEFICIARY IN RESPECT OF THE INCOME, THE OTHER WAS NO LONGER AVAILABLE TO THE DEPARTMENT. IT WAS CONTENDED ON BE HALF OF THE REVENUE THAT THE OPTION WAS OF THE ITO WHO WAS ASSESSING TH E TRUST TO DECIDE ITA NO.178/BANG/2012 PAGE 73 OF 76 WHETHER HE WOULD ASSESS THE INCOME IN THE HANDS OF THE TRUSTEES OR DIRECTLY IN THE HANDS OF THE BENEFICIARY. THIS CONTENTION WA S REJECTED BY THE HONBLE HIGH COURT WHICH HELD THAT SEC. 41 WAS A SPECIAL EN ABLING PROVISION WHICH PERMITTED THE ASSESSMENT IN THE HANDS OF THE TRUSTE ES BUT DID NOT PRECLUDE THE DIRECT ASSESSMENT IN THE HANDS OF THE BENEFICIA RIES. THERE IS NOTHING IN S. 41 WHICH WOULD INDICATE THAT THE CHOICE BETWEEN THE ALTERNATIVE METHODS PROVIDED THEREIN HAS TO BE MADE ONLY AT THE TIME OF THE ASSESSMENT OF THE TRUSTEES OR THAT THE CHOICE ONLY BELONGS TO THE ITO WHO IS ASSESSING THE TRUST. IN CIRCULAR NO.157 DATED 26.12.1974 OF CBDT THE CBDT HAS CLARIFIED ON ASSESSMENT OF TRUST WHERE SHARE OF BENEFICIARIES ARE UNKNOWN. IT HAS BEEN CLARIFIED THEREIN THAT THE ITO SHOULD AT THE T IME OF RAISING THE INITIAL ASSESSMENT EITHER OF THE TRUST OR THE BENEFICIARIES ADOPT A COURSE BENEFICIAL TO THE REVENUE. HAVING EXERCISED HIS OPTION ONCE, I T WILL NOT BE OPEN TO THE ITO TO ASSESS THE SAME INCOME FOR THAT ASSESSMENT Y EAR IN THE HANDS OF THE OTHER PERSON (I.E., THE BENEFICIARY OR THE TRUS TEE). IN CBDT CIRCULAR NO.13/2014 DATED 28.7.2014 THE BOARD HAS HOWEVER GI VEN INSTRUCTIONS THAT AS PER THE SEBI (ALTERNATIVE INVESTMENT FUNDS) REGU LATIONS, 2012 FUNDS WHICH ARE NOT VENTURE CAPITAL FUNDS AND WHICH ARE N ON-CHARITABLE TRUSTS WHERE THE INVESTORS NAME AND BENEFICIAL INTEREST AR E NOT EXPLICITLY KNOWN ON THE DATE OF ITS CREATION- SUCH INFORMATION BECOM ING AVAILABLE ONLY WHEN THE FUNDS STARTS ACCEPTING CONTRIBUTION FROM THE IN VESTORS, HAVE TO BE TREATED AS FALLING WITHIN SEC.164(1) OF THE ACT AND THE FUND SHOULD BE TAXED ITA NO.178/BANG/2012 PAGE 74 OF 76 IN RESPECT OF THE INCOME RECEIVED ON BEHALF OF THE BENEFICIARIES AT THE MAXIMUM MARGINAL RATE. 73. THE RELIANCE PLACED ON THE AFORESAID CIRCULAR, IN OUR VIEW, WILL NOT BE OF ANY USE FOR THE REASON THAT THE SAID CIRCULAR WA S NOT IN FORCE AT THE RELEVANT AY WHEN THE ASSESSMENT WAS MADE BY THE AO ON THE PRESENT ASSESSEE. CIRCULARS NOT IN FORCE IN THE RELEVANT A SSESSMENT YEAR CANNOT BE APPLIED AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BASF (INDIA) LTD. & ANR. VS. W. HASAN, CIT & ORS. 280 IT R 136 (BOM) . THE DECISION OF THE HONBLE SUPREME IN THE CASE OF CH. ATCHAIAH (SUPRA) ON WHICH THE AO PLACED RELIANCE IN MAKING ASSESSMENT O N THE ASSESSEE IN OUR VIEW IS NOT APPLICABLE TO THE FACTS OF THE PRES ENT CASE. IN THE SAID DECISION THE STATUS OF THE ASSESSEE AS THAT OF AN A OP WAS NOT DISPUTED BUT IT WAS ARGUED THAT THE ITO HAD OPTION TO ASSESS EIT HER THE AOP OR THE INDIVIDUAL MEMBER OF THE AOP. THE HONBLE SUPREME COURT HELD THAT UNLIKE UNDER S. 3 OF THE 1922 ACT, THE ITO DID NOT HAVE AN OPTION UNDER S. 4 OF THE IT ACT, 1961, TO ASSESS EITHER THE AOP OR TH E INDIVIDUAL MEMBERS THEREOF. IF THE ITO HAS ASSESSED A WRONG PERSON, S AY INDIVIDUAL INSTEAD OF AOP, HE IS NOT PRECLUDED, IN CONTRADISTINCTION TO T HE 1922 ACT, TO SEEK TO ASSESS THE RIGHT PERSON UNDER THE 1961 ACT. THE HO NBLE COURT MADE IT CLEAR THAT WHEREVER SUCH ON OPTION IS GIVEN UNDER T HE 1961 ACT, IT HAS BEEN SPECIFICALLY PROVIDED, AS IN S.183 AND THAT UNDER T HE 1961 ACT, TAX HAS TO BE LEVIED ON THE RIGHT PERSON, IRRESPECTIVE OF BENEFIT TO REVENUE. IN THE PRESENT CASE, HOWEVER, WE ARE CONCERNED WITH A CASE OF ASSESSMENT OF ITA NO.178/BANG/2012 PAGE 75 OF 76 REPRESENTATIVE ASSESSEE OR THE PERSON IN RESPECT OF WHOM SOME OTHER PERSON IS CONSIDERED AS REPRESENTATIVE ASSESSEE. S EC.161(1) BY IMPLICATION PERMITS ASSESSMENT OF EITHER THE BENEFI CIARY OR THE TRUSTEE. WHEN THE TRUSTEE IS ASSESSED AS REPRESENTATIVE ASSE SSEE IN RESPECT OF INCOME RECEIVED ON BEHALF OF THE BENEFICIARY, THE S ECTION PROVIDES THAT TAX SHALL BE LEVIED UPON AND RECOVERED FROM HIM IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON AND RECOVE RABLE FROM THE PERSON REPRESENTED BY HIM. IN OUR VIEW, THEREFORE, THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF CH. ATCHAIAH (SUPRA) WILL NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE IN THE PRESEN T CASE. 74. FOR THE REASONS STATED ABOVE, WE FIND NO GROUND S TO INTERFERE WITH THE ORDER OF THE CIT(A). CONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSED. 75. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISSED . PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF OCTOBER , 2014 . SD/- SD/- ( JASON P. BOAZ ) ( N.V. VASUDEVA N ) ACCOUNTANT MEMBER JUDICIAL MEMBE R BANGALORE, DATED, THE 17 TH OCTOBER , 2014 . /D S/ ITA NO.178/BANG/2012 PAGE 76 OF 76 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.