TVS Shriram Growth Fund, CHENNAI V. ITO, CHENNAI

ITA 1902/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4391 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 16-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PERCY J PARDEWALLA SR
• Assessee Lawyers: K N DHANDAPANI
• Keywords: Business income; Rectification of order; Charitable institution; Maximum Marginal Rate; Earning of tax free income; Source of fund; Proportionate interest; Advance ruling; Date of conversion; Non-deduction of tax; Revocable transfer
• Section: 63; 154

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.1345 & 1401/MDS/2016 * * /ASSESSMENT YEARS: 2009-10 & 2010-11 THE INCOME TAX OFFICER, NON- CORPORATE WARD 3(5), ROOM NO.632E, 6 TH FLOOR, WANAPARTHY BLOCK, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI-600 034. VS. M/S.TVS SHRIRAM GROWTH FUND, NO.249A, AMBUJAMMAL STREET, OFF. TTK ROAD, NEAR ALWARPET POST OFFICE, ALWARPET, CHENNAI-600 018. [PAN: AABIT 5582 H ] ( - /APPELLANT) ( ./- /RESPONDENT) ./ ITA NOS. 1902, 981 & 982/MDS/2016 * * /ASSESSMENT YEARS: 2009-10, 2009-10 & 2010-11 M/S.TVS SHRIRAM GROWTH FUND, NO.249A, AMBUJAMMAL STREET, OFF. TTK ROAD, NEAR ALWARPET POST OFFICE, ALWARPET, CHENNAI-600 018. VS. THE INCOME TAX OFFICER, NON- CORPORATE WARD 3(5), ROOM NO.632E, 6 TH FLOOR, WANAPARTHY BLOCK, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI-600 034. [PAN: AABIT 5582 H ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.K.N.DHANDAPANI, JCIT ./- 0 /RESPONDENT BY : MR.PERCY J. PARDEWALLA, SR. COUNSEL 0 /DATE OF HEARING : 16.03.2017 0 /DATE OF PRONOUNCEMENT : 07.06.2017 ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 2 -: / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDERS OF COMMISSIONER OF IN COME TAX (APPEALS)-4 CHENNAI, FOR THE ASSESSMENT YEAR 2009-10 AND 2010-1 1 IN ITA NO.172/2013-14 DATED 16/02/2013 AND IN ITA NO.37/2 013-14 DATED 11/03/2016. FACTS OF THE CASE ARE THE SAME FOR ALL THE APPEALS, HENCE ALL THE APPEALS ARE CLUBBED, HEARD TOGETHER AND DISPOSE D OFF IN A COMMON ORDER AS UNDER. 2.0 ITA NO.981 & 982/2016-A.Y 2009-10 &2010-11 ARE THE ASSESSEES APPEALS AND THE MAIN ISSUE INVOLVED IN THESE APPEA LS IS WHETHER THE ASSESSEE IS A DETERMINATE TRUST OR INDETERMINATE TR UST AND THE INCOME OF THE ASSESSEE IS ALLOWED PASS THROUGH OR NOT U/S 161 (1) OF IT ACT. FOR THE SAKE OF CONVENIENCE, THE FACTS ARE EXTRACTED FROM T HE RECORD OF THE A.Y 2009-10. 2.1 THE ASSESSEE FILED THE RETURN OF INCOME DECLARIN G TOTAL INCOME OF RS. NIL. THE ASSESSEE IS A VENTURE CAPITAL FUND, REGIS TERED WITH SEBI AND ELIGIBLE FOR EXEMPTION U/S 10(23FB), CARRYING ON IN VESTMENT ACTIVITY MANAGING THE FUNDS OF TVS INVESTMENT I FUND. THE A O TAKEN UP THE CASE FOR SCRUTINY AND MADE THE FOLLOWING ADDITIONS: ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 3 -: DISALLOWANCES RS. RS.5,92,96,950/- U/S.40A(2)(B) RE LATING TO THE PAYMENT MADE TO TVS CAPITAL NON-DEDUCTION OF TAX AT SOURCE ON PROVISIONAL FEE R S.6,77,269/- 2.1 THE ASSESSEES TOTAL INCOME WAS LOSS OF RS.17,26,3 2,448/- WHICH WAS CLAIMED AS PASS-THROUGH TO THE BENEFICIARIES. THE AO DISALLOWED A SUM OF RS.5,99,34,183/- AND ASSESSED BUSINESS LOSS AT RS.11,26,98,263/-. 3.0 THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) ALLOWED THE ASSESSEES APPEAL. HOWEVER, THE LD.CIT( A) BROUGHT TO TAX THE INCOME IN RESPECT OF INCOME FROM INVESTMENT IN VENT URE CAPITAL UNDERTAKING (IN SHORT VCU) AMOUNTING TO RS.2,69,3 8,526/- STATING THAT THE ASSESSEE IS AN ENTITY ELIGIBLE FOR EXEMPTION U/ S.10(23FB) AND IN THE CASE OF TRUST REGISTERED AS VENTURE CAPITAL FUND UN DER THE SECURITIES AND EXCHANGE BOARD OF INDIA REGULATIONS, THE INCOME DER IVED FROM THE INVESTMENTS WITH VCU ARE ALONE EXEMPTED AS PER THE SEC.10(23FB) R/W SEC.115(U) OF THE INCOME TAX ACT. HENCE, THE LD. C IT(A) BROUGHT TO TAX THE INTEREST INCOME EARNED ON FIXED DEPOSITS WITH B ANKS IN THE HANDS OF THE ASSESSEE. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US AGITATING THAT THE ASSESSEE IS A CONTRIBUTORY TRUST AND THE I NCOME OF THE ASSESSEE IS TO BE ALLOWED PASS-THROUGH STATUS IN ACCORDANCE WI TH THE PROVISIONS OF SEC.161(1) OF THE IT ACT. 4.0 APPEARING FOR THE ASSESSEE, THE LD.AR MADE THE SUB MISSIONS AS UNDER: ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 4 -: TVS SHRIRAM GROWTH FUND (APPELLANT) IS A CONTRIBU TORY TRUST ORGANIZED UNDER THE INDIAN TRUSTS ACT 1882 AND IS REGISTERED AS A VENTU RE CAPITAL FUND (VCF) UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA (VENTURE CAPITAL FUNDS) REGULATIONS, 1996 (VCF REGULATIONS). FOR THE PURPOSE OF THE ACT , THE APPELLANT IS A DETERMINATE TRUST WITH THE BENEFICIARIES BEING IDEN TIFIABLE AND THEIR RESPECTIVE SHARE BEING ASCERTAINABLE AS PER THE TRUST DEED. SECTION 164 OF THE ACT WARRANTS THAT IN ORDER TO DE CIDE THE STATUS OF A TRUST AS DETERMINATE TRUST OR INDETERMINATE TRUST, THE BENEF ICIARIES SHOULD BE IDENTIFIABLE AND THEIR SHARES SHOULD BE DETERMINABLE/ASCERTAINAB LE AT ANY POINT OF TIME. THE TRUST DEED OF THE APPELLANT VIDE CLAUSE 1.1.10 OF T HE TRUST DEED GIVE DETAILS OF THE BENEFICIARIES AND DESCRIPTION OF THE PERSONS WH O ARE TO BE BENEFITED FROM THE APPELLANT. CLAUSE 1.1.10 OF THE TRUST DEED DEFINES CONTRIBUTORS OR BENEFICIARIES AS FOLLOWS : CONTRIBUTORS OR BENEFICIARIES MEANS THE PERSONS EACH OF WHOM HAVE MADE OR AGREED TO MAKE THE CAPITAL COMMITMENT TO THE RES PECTIVE SCHEMES IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT AND THE RESPECTIVE PRIVATE PLACEMENT MEMORANDUM AND WHO HAVE BENEFICIAL INTEREST IN THE TRUST FUND RELATING TO THE RESPECTIVE SCHEMES AND INCLUDES PERSONS IN WHOSE FA VOUR THE BENEFICIAL INTEREST OR PART THEREOF ARE TRANSFERRED OR ASSIGNED BY EXIS TING CONTRIBUTORS OR BENEFICIARIES. THEREFORE, THE BENEFICIARIES COULD NOT BE SET TO BE UNCERTAIN AND THE BENEFICIARIES ARE KNOWN AND IDENTIFIABLE IN THE TRU ST DEED ITSELF. SIMILARLY, CLAUSE 1.1.4 OF THE TRUST DEED OF THE AP PELLANT, CLEARLY DEMONSTRATES THAT THE SHARE OF BENEFICIAL INTEREST ARE ASCERTAIN ABLE. CLAUSE 1.1.4 OF THE TRUST DEED DEFINES BENEFICIAL INTEREST AS UNDER: BENEFICIAL INTEREST MEANS THE PROPORTIONATE INTEREST HELD BY EACH OF T HE BENEFICIARIES AS EVIDENCED BY THE NUMBER OF UNITS H ELD BY THE BENEFICIARIES FORM TIME TO TIME ON THE BASIS OF WHICH DISTRIBUTION PRO CEEDS AVAILABLE WILL THE TRUST SHALL BE DISTRIBUTED BY THE TRUSTEE AS PER THE PROV ISIONS OF THE RESPECTIVE CONTRIBUTION AGREEMENT AND THE PRIVATE PLACEMENT ME MORANDUM. CLAUSE 1.1.35 DEFINES UNIT AS FOLLOWS: UNIT MEANS A UNIT OF ANY CLASS EVIDENCING BENEFICIAL INT EREST OF THE CONTRIBUTORS/BENEFICIARIES IN THE RESPECTIVE SCHEME OF THE TRUST ISSUED BY THE TRUSTEE/INVESTMENT MANAGER TO A CONTRIBUTOR/BENEFIC IARY ON THE MAKING OF A CAPITAL CONTRIBUTION AND INCLUDES A FRACTION OF A U NIT EVIDENCING BENEFICIAL INTEREST IN THE CONTRIBUTION FUND OF A VALUE LESS THAN THE F ACE VALUE OF THE RESPECTIVE CLASS UNITS. THE ENTITLEMENT OF SHARE OF BENEFICIAL INTEREST OF EACH OF THE CONTRIBUTOR TO THE FUND IS ASCERTAINABLE AND WELL DETAILED IN THE TRUS T DEED ITSELF VIDE CLAUSE 3.5 OF THE TRUST DEED AS FOLLOWS: CLAUSE 3.5 OF THE TRUST DEED ALL THE CONTRIBUTORS/ BENEFICIARIES OF VARIOUS SCHE MES UNDER VARIOUS PPMS WILL BECOME THE BENEFICIAL OWNER OF THE TRUST FUND AND T HE CONTRIBUTORS/BENEFICIARIES WILL BE ENTITLED TO BENEFICIAL INTEREST EACH AND EV ERY YEAR COMPRISING OF CORPUS AND ACCRETIONS THERETO IN PROPORTION TO THEIR CONTR IBUTION UNDER RESPECTIVE SCHEMES/PPMS. THE BENEFICIAL INTEREST OF EACH SUCH CONTRIBUTOR/BENEFICIARY IN THE CONTRIBUTION FUND SHALL EXTEND AND BE LIMITED TO TH E AGGREGATE VALUE OF THE CAPITAL CONTRIBUTION MADE BY THAT CONTRIBUTOR IN TH E CONTRIBUTION FUND UNDER ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 5 -: RESPECTIVE PRIVATE PLACEMENT MEMORANDUM. ALL THE CO NTRIBUTORS ARE BENEFICIARIES UNDER THIS INSTRUMENT AND ON FULFILMENT OF ALL THE TERMS AND CONDITIONS STIPULATED IN THE CONTRIBUTION AGREEMENT SUCH CONTRIBUTORS WIL L BE INCLUDED AS THE BENEFICIARIES OF THE TRUST. THE FUND IS, SHALL BE A ND REMAIN DETERMINATE AT ALL TIMES WITH DETAILS OF CONTRIBUTORS ALONG WITH THEIR RESPECTIVE BENEFICIAL INTEREST IN THE FUND IN ACCORDANCE WITH THE RESPECTIVE CONTRIBU TION AGREEMENTS. THE BENEFICIAL INTEREST ON THE INCOME ARISING EACH YEAR OF THE INVESTMENTS MADE UNDER RESPECTIVE PPMS WILL BE INTIMATED TO THE CONT RIBUTORS/ BENEFICIARIES ON COMPLETION OF ACCOUNTS TO FACILITATE THE CONTRIBUTO RS/ BENEFICIARIES TO INCLUDE AND OFFER THE SAID BENEFICIAL INTEREST IN THE RETURN OF INCOME EVERY YEAR FILED BY EACH CONTRIBUTORS/BENEFICIARIES SPECIFIED UNDER EACH CON TRIBUTION AGREEMENT. BASED ON THE ABOVE, THE BENEFICIARIES ARE IDENTIFIA BLE AND THEIR BENEFICIAL INTEREST IS ASCERTAINABLE WITH REFERENCE TO THE TRUST DEED. FURTHER, THE DISTRIBUTION OF INCOME IS NOT AT THE DISCRETION OF THE APPELLANT AN D IS REGULATED AS PER THE CLAUSES OF THE TRUST DEED, RESPECTIVE CONTRIBUTION AGREEMEN T AND THE PRIVATE PLACEMENT MEMORANDUM. THEREFORE, THE APPELLANT SATISFIES THE PROVISIONS OF THE ACT TO QUALIFY AS A DETERMINATE TRUST AND THE DECISION O F THE MADRAS HIGH COURT IN THE CASE OF P. SEKAR TRUST (321 ITR 305) SQUARELY APPLI ES TO THE CASE OF THE APPELLANT. ON IDENTICAL FACTS AND ISSUE, THE ITAT, B BENCH, BANGALORE IN ITA NO.178/BANG/2012 DATED 17.10.2014 IN THE CASE OF IN DIA ADVANTAGE FUND VII, HAS LAID DOWN FOLLOWING PRINCIPLES ON APPLICABILITY OF SECTION 164(1) OF THE ACT: IDENTIFICATION OF BENEFICIARIES ASCERTAINMENT OF SHARE OF THE BENEFICIARIES THE BANGALORE ITAT HAS HELD THAT ALL THAT IS NECESS ARY IS THAT THE BENEFICIARY SHOULD BE IDENTIFIABLE WITH REFERENCE TO THE INSTRU MENT OR TRUST DEED ON THE DATE OF SUCH INSTRUMENT OR TRUST DEED AND WHICH SHOULD CLEA RLY LAY DOWN THAT THE BENEFICIARIES MEANS THE PERSONS, EACH OF WHOM HAVE MADE OR AGREED TO MAKE CONTRIBUTIONS TO THE TRUST IN ACCORDANCE WITH THE C ONTRIBUTION AGREEMENT. THE ABOVE CLAUSE IS SUFFICIENT TO IDENTIFY THE BENEFICI ARIES. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BENE FICIARIES, THE BANGALORE ITAT HAS HELD THAT IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND ALSO SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE IND ETERMINATE. THE PERSONS AS WELL AS THE SHARES MUST BE CAPABLE OF BEING DEFINITELY P IN POINTED AND ASCERTAINED ON THE DATE OF THE TRUST DEED ITSELF WITHOUT LEAVING T HESE TO BE DECIDED UPON AT A FUTURE DATE BY A PERSON OTHER THAN THE AUTHOR AT HI S DISCRETION IN THE MANNER NOT ENVISAGED IN THE TRUST DEED. EVEN IF THE TRUST DEED AUTHORISES ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME, IN ADDITION TO INITIAL CONTRIBUTORS, THEN THE SAME WOULD NOT MAKE THE BENE FICIARIES UNKNOWN OR THEIR SHARE INDETERMINATE. EVEN IF THE SCHEME OF COMPUTAT ION OF INCOME OF BENEFICIARIES IS COMPLICATED, IT IS NOT POSSIBLE TO SAY THAT THE SHARE OF INCOME OF THE BENEFICIARIES CANNOT BE ASCERTAINED OR KNOWN FROM T HE TRUST DEED. THE ITAT THEREFORE, CONCLUDED THAT THE IDENTITY BY REFERENCE TO THE TERMS OF THE TRUST DEED IS SUFFICIENT AND IT IS NOT NECESSARY TH AT THE BENEFICIARIES SHOULD BE SPECIFICALLY NAMED IN THE TRUST DEED. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 6 -: IN LIGHT OF THE APPELLANTS FACTS OF THE CASE AND V ARIOUS JUDICIAL PRECEDENTS, THE APPELLANT IS A DETERMINATE TRUST AND THEREFORE, THE PROVISIONS OF SECTION 161(1) OF THE ACT WILL BE APPLICABLE TO THE APPELLANT, REFERENCE CAN ALSO BE DRAWN TO UNDER ECTION 166 OF THE ACT THE DEPARTMENT HAS AN OPTION TO MAKE A DIRECT ASSESSMENT IN THE HANDS OF THE BENEFICIARIES OR OR IN THE HANDS OF THE TRUSTEES IN THEIR CAPACITY AS A RE PRESENTATIVE ASSESSEE. THE APPELLANT, FOR THE ASSESSMENT YEAR UNDER CONSID ERATION, ALONG WITH THE RETURN OF INCOME, HAD FILED A LIST OF BENEFICIARIES, THEIR PERMANENT ACCOUNT NUMBER, AMOUNT CONTRIBUTED, SHARE OF BENEFICIAL INTEREST AN D THE INCOME APPORTIONED TO EACH BENEFICIARY. IN THE MEMO OF INCOME, THE APPE LLANT HAD CLEARLY STATED THAT THE SHARE OF INCOME/LOSS WILL BE OFFERED BY THE BEN EFICIARIES IN THEIR RESPECTIVE RETURN OF INCOME. ALL THE BENEFICIARIES HAVE INCLU DED THEIR RESPECTIVE SHARE OF INCOME IN THEIR RETURN OF INCOME. THE BENEFICIARIES HAVE CONFIRMED THAT INCOME FROM T HE APPELLANT, A SEBI REGISTERED VCF, HAS BEEN OFFERED TO TAX IN THEIR RE SPECTIVE RETURN OF INCOME BY PLACING RELIANCE ON FORM 64 WHICH IS ISSUED WITH RE SPECT TO INCOME FROM VCUS. AS PER THE STATEMENT OF INCOME WHICH IS ISSUED WITH RE SPECT TO INCOME FROM NON-VCU INVESTMENTS AND CREDITED TO THEIR PROFIT & LOSS ACC OUNT, THE SAME HAS BEEN ASSESSED TO TAX VIDE PAN (SAMPLES PLACED AS PART OF THE PAPER BOOK). FURTHER IN AS MUCH AS THE PROFITS HAVE BEEN CREDITE D TO THE RESPECTIVE ACCOUNTS OF THE BENEFICIARIES, IN VIEW OF DECISION OF SUPREME C OURT IN THE CASE OF CIT VS KAMALINIKHATAU (209 ITR 101), IT IS THE BENEFICIARI ES IN WHOSE HANDS THE INCOME WILL BE ASSESSED. THE ABOVE DECISION WAS REAFFIRME D BY THE SUPREME COURT IN THE CASE OF MOTI TRUST VS CIT (236 ITR 37) THE APPELLANTS ASSESSMENT FOR THE AY WAS COMPLETED ON 31.12.2011, THE LAST DATE ON WHICH THE SCRUTINY ASSESSMENT HAS TO BE COM PLETED. ASSESSMENTS IN RESPECT OF BENEFICIARIES HAVE BEEN COMPLETED PRIOR TO THE COMPLETION OF THE ASSESSMENT OF THE APPELLANT. FURTHER, WHERE THE DEPARTMENT HAS EXERCISED THE OPT ION TO TAX THE BENEFICIARIES, THE SAME INCOME CANNOT BE ASSESSED AGAIN IN THE HAN DS OF THE TRUSTEE OF THE APPELLANT IN ITS CAPACITY AS THE REPRESENTATIVE ASS ESSEE. THE KERALA HIGH COURT IN THE CASE OF CIT VS DR. DAV ID JOSEPH (214 ITR 0658) HAS HELD THAT ONCE A BENEFICIARY IS ASSESSED AND HIS AS SESSMENT IS COMPLETED PRIOR IN POINT OF TIME AND HIS ASSESSMENT IS AN ELEMENT OF F INALITY, IT IS NO MORE PERMISSIBLE FOR THE DEPARTMENT TO ASSESS THE TRUST AGAIN. THIS IS ALSO IN LINE WITH THE CBDT CIRCULAR NO.157, DATED 26.12.1974. THE DEC ISION OF KARNATAKA HIGH COURT IN THE CASE OF CIT VS SMT. INDRAMMA (25 TAXMA NN.COM 259) ALSO AFFIRMS THE ABOVE FINDINGS. ON AN IDENTICAL FACTS AND ISSUE, THE ITAT, B BEN CH, BANGALORE IN ITA NO.178/BANG/2012 DT.17.10.2014 IN THE CASE OF INDIA ADVANTAGE FUND VII, HAS LAID DOWN FOLLOWING PRINCIPLES ON APPLICABILITY OF SECTION 164(1) OF THE ACT. A) IDENTIFICATION OF BENEFICIARIES B) ASCERTAINMENT OF SHARE OF THE BENEFICIARIES THE ITAT, BANGALORE HAS HELD THAT ALL THAT IS NECES SARY IS THAT THE BENEFICIARY SHOULD BE IDENTIFIABLE WITH REFERENCE TO THE INSTRU MENT OR TRUST DEED ON THE DATE OR SUCH INSTRUMENT OR TRUST DEED WHICH CLEARLY LAYS SO WN THAT THE BENEFICIARIES MEANS ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 7 -: THE PERSONS, EACH OF WHOM HAVE MADE OR AGREED TO MA KE CONTRIBUTIONS TO THE TRUST IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT . THE ABOVE CLAUSE IS SUFFICIENT TO IDENTIFY THE BENEFICIARIES. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BENE FICIARIES, THE ITAT, BANGALORE HAS HELD THAT IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND ALSO SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE IND ETERMINATE. THE PERSONS AS WELL AS T HE SHARES MUST BE CAPABLE OF BEING DEFINITELY PIN POINTED AND ASCERTAINED ON THE DATE OF THE TRUST DEED ITSELF WITHOUT LEAVING T HESE TO BE DECIDED UPON AT A FUTURE DATE AT HIS DISCRETION IN THE MANNER NOT ENV ISAGED IN THE TRUST DEED EVEN IF HE TRUST. EVEN IF THE TRUST DEED AUTHORISES ADDITI ON OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TIME, IN ADDITION TO I NITIAL CONTRIBUTORS, THEN THE SAME WOULD NOT MAKE THE BENEFICIARIES UNKNOWN OR THEIR S HARE INDETERMINATE. EVEN IF THE SCHEME OF COMPUTATION OF INCOME OF BENEFICIARIE S IS COMPLICATED, IT IS NOT POSSIBLE TO SAY THAT THE SHARE INCOME OF THE BENEFI CIARIES CANNOT BE ASCERTAINED OR KNOWN FROM THE TRUST DEED. THE ITAT CONCLUDED THAT THE IDENTITY BY REFERENCE T O THE TERMS OF THE TRUST DEED IS SUFFICIENT AND IT IS NOT NECESSARY THAT THE BENEFIC IARIES SHOULD BE SPECIFICALLY NAMED IN THE DEED OF TRUST DEED ON THE CONTENTION THAT ASSESSMENT HAS TO BE MADE ON THE RIGHT PERSON, THE DECISION OF THE SUPREME COURT IN THE CASE OF ITO VS CH. ATCHAIAH (218 ITR 239) IS NOT APPLICABLE TO THE APPELLANTS CASE AS UNLIKE 19 22 ACT, THERE IS NO SUCH OPTION AVAILABLE IN 1961 ACT. IN CASE OF A DETERMINATE TRUST, AS DISCUSSED IN PT. NO. 3 ABOVE, THE TRUSTEE IS ASSESSED AS REPRESENTATIVE AS SESSEE IN RESPECT OF INCOME RECEIVED ON BEHALF OF THE BENEFICIARY. THE TRUSTEE OF THE APPELLANT IS THEREFORE ASSESSABL E AS REPRESENTATIVE ASSESSEE UNDER SECTION 161(1) OF THE ACT IN RESPECT OF INCOM E RECEIVED ON BEHALF OF THE BENEFICIARIES. PARA 3.5 OF THE TRUST DEED CLEARLY STATES THAT THE CONTRIBUTORS / BENEFICIARIES ARE ENTITLED TO BENEFICIAL INTEREST EVERY YEAR COMPRISI NG OF CORPUS AND ACCRETIONS THERETO IN PROPORTION TO THEIR CONTRIBUTION. AS PE R PARA 3.5 OF THE TRUST DEED, THE BENEFICIAL INTEREST ON THE INCOME ARISING EACH YEAR ON THE INVESTMENTS MADE WILL BE INTIMATED TO THE BENEFICIARIES / CONTRIBUTORS ON COMPLETION OF ACCOUNTS TO FACILITATE THE BENEFICIARIES / CONTRIBUTORS TO INCL UDE AND OFFER THE SAID BENEFICIAL INTEREST IN THE RETURN OF INCOME EVERY YEAR FILED B Y EACH BENEFICIARY / CONTRIBUTOR. THE BENEFICIARIES OF THE APPELLANT HAVE INCLUDED TH E ENTIRE INCOME EARNED BY THE APPELLANT IN THEIR RETURN OF INCOME AND OFFERED TO TAX. THE APPELLANT FILED A NIL RETURN OF INCOME SINCE THE INCOME WAS OFFERED TO TAX BY THE BENEFICIARIES AND ALSO FILED A LIST OF BENEF ICIARIES, THEIR PAN, CONTRIBUTIONS MADE, THEIR BENEFICIAL INTEREST AND INCOME & EXPENS ES APPORTIONED TO EACH BENEFICIARY ALONG WITH THE RETURN. THE BENEFICIARIES HAVE CONFIRMED THAT INCOME FROM T HE APPELLANT, A SEBI REGISTERED VENTURE CAPITAL FUND, HAS BEEN OFFERED T O TAX IN THEIR RESPECTIVE RETURN OF INCOME BY PLACING RELIANCE ON FORM 64 WHICH IS I SSUED WITH RESPECT TO INCOME FROM VCUS. AS PER THE STATEMENT OF INCOME WHICH IS ISSUED WITH RESPECT TO OTHER INCOME FROM NON-VCU INVESTMENTS AND CREDITED TO THE IR PROFIT & LOSS ACCOUNT, THE ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 8 -: SAME HAS BEEN ASSESSED TO TAX VIDE PAN (SAMPLES PLA CED AS PART OF THE PAPER BOOK) THE IDENTICAL ISSUE ON IDENTICAL SET OF FACTS WAS C ONSIDERED BY ITAT, B BENCH, BANGALORE IN THE CASE OF DCIT VS INDIA ADVANTAGE FU ND VII (SUPRA) WHILE ALLOWING THE APPEAL HAS SET THE FOLLOWING PRINCIPLES TO BE A PPLIED TO DECIDE THE STATUS OF THE TRUST WHETHER A IS DETERMINATE OR IN-DETERMINATE: A. IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE REL EVANT PREVIOUS YEAR SHOULD BE ACTUALLY NAMED IN THE ORDER OF THE COURT OR THE INS TRUMENT OF TRUST. ALL THAT IS NECESSARY IS THAT THE BENEFICIARY SHOULD BE IDENTIF IABLE WITH REFERENCE TO THE ORDER OF THE COURT OR INSTRUMENT OF TRUST. B. IT IS NOT THE REQUIREMENT OF LAW THAT TRUST DEED SH OULD ACTUALLY PRESCRIBE THE PERCENTAGE SHARE OF EACH BENEFICIARY IN THE ORDER F OR THE TRUST TO BE DETERMINATE. IT IS ENOUGH IF THE SHARES ARE CAPABL E OF BEING DETERMINED BASED ON THE PROVISIONS OF THE TRUST DEED. C. AS PER THE TRUST DEED, THE TRUSTEE HAVE NO DISCRETI ON TO DECIDE THE SHARE OF EACH BENEFICIARY AND ARE BOUND BY THE PROVISIONS OF THE TRUST DEED IS DULY BOUND TO FOLLOW THE DISTRIBUTION MECHANISM SPECIFIE D IN THE TRUST DEED. D. IF THE TRUST DEED EXPRESSLY SETS OUT THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND ALSO THE SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE INDETERM INATE. E. IDENTITY BY REFERENCE TO THE TERMS OF THE TRUST DEE D IS SUFFICIENT AND IT IS NOT NECESSARY THAT THE BENEFICIARIES SHOULD BE SPECIFIC ALLY NAMED IN THE DEED OF THE TRUST THE IDENTICAL ISSUE WAS CONSIDERED BY THE ITAT, B BENCH, BANGALORE IN THE CASE OF ICICI EMERGING SECTOR FUND VIDE ITS ORDER DT.13. 2.2015 IN ITA NO.475/BANG/2013 AND ALLOWED THE APPEAL FOLLOWING I TS ORDER IN THE CASE OF INDIA ADVANTAGE FUND. ICICI EMERGING SECTOR FUND IS A SE BI REGISTERED VENTURE CAPITAL FUND. WHILE ARRIVING AT THE DECISIONS, THE ITAT, BANGALOR E DID NOT DISTINGUISH BETWEEN A NORMAL TRUST AND A TRUST WHICH IS A REGISTERED VENT URE CAPITAL FUND WITH SEBI. THE TERMS OF THE TRUST DEED OF THE APPELLANT ARE ID ENTICAL IN SUBSTANCE AND FORM, THE DECISION OF THE ITAT, BANGALORE IN THE CASE OF INDIA ADVANTAGE FUND VII AND ICICI EMERGING SECTOR FUND SQUARELY APPLIES TO THE APPELLANT. THE HONBLE HC VIDE ITS ORDER DATED 1.2.2017 IN ITA NO.191/2015 AND ITA NO.446 TO 450/2015 WHILE CONFIRMING THE ORDER OF THE ITAT, BANGALORE IN THE CASE OF INDIA ADVANTAGE FUND VII AND ICICI EMERGING SECTOR FUND H AS REAFFIRMED THE FOLLOWING PRINCIPLES: F. THE CONTENTION THAT ON THE DATE OF EXECUTION OF THE TRUST DEED, THE SHARES SHOULD SPECIFICALLY COME IN EXISTENCE WITH THE QUAN TIFICATION AND IT NEED NOT DEPEND UPON FUTURE SHARE OF BENEFITS OR UPON ANY FU TURE CONTINGENCY IS WHOLLY MISCONCEIVED. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 9 -: G. BY NO INTERPRETATIVE PROCESS, THE EXPLANATION TO SE CTION 164 OF THE ACT, CAN BE READ FOR DETERMINABILITY OF THE SHARE OF THE BENEFI CIARY WITH THE QUANTUM ON THE DATE WHEN THE TRUST DEED IS EXECUTED. H. THE REAL TEST IS THE DETERMINABILITY OF THE SHARES OF THE BENEFICIARY AND IS NOT DEPENDENT UPON THE DATE ON WHICH THE TRUST DEED WAS EXECUTED. I. THE REAL TEST IS WHETHER SHARES ARE DETERMINABLE EV EN WHEN OR AFTER THE TRUST IS FORMED OR MAY BE IN FUTURE WHEN THE TRUST IS IN EXISTENCE. J. BENEFICIARIES ARE TO SHARE THE BENEFIT IN PROPORTIO N TO THE INVESTMENT MADE. K. ONCE THE BENEFITS ARE TO BE SHARED BY THE BENEFICIA RIES IN PROPORTION TO THE INVESTMENT MADE, ANY PERSON WITH REASONABLE PRUDENC E WOULD REACH TO THE CONCLUSION THAT THE SHARES ARE DETERMINABLE. L. ONCE THE SHARES ARE DETERMINABLE AMONGST THE BENEFI CIARIES, IT WOULD MEET THE REQUIREMENT OF THE LAW TO COME OUT FROM THE APPLICA BILITY OF SECTION 164 OF THE ACT. M. ONCE THE SHARES ARE DETERMINATE, THE INCOME IS TO B E TAXED OF THAT RESPECTIVE SHARER OR THE BENEFICIARIES IN THE HANDS OF BENEFIC IARY AND NOT IN THE HANDS OF THE TRUSTEE. SECTION 115U PROVIDES SPECIAL BENEFITS TO CERTAIN S EBI REGISTERED ENTITIES (TRUST & COMPANY) WHICH DOES NOT FALL UNDER THE PURVIEW OF S ECTION 160 OF THE ACT. HENCE, OPERATIONS OF SECTION 160 WILL NOT GET AFFEC TED BECAUSE OF INTRODUCTION OF SECTION 115U WHICH IS APPLICABLE ONLY FOR SPECIFIC CATEGORY OF ASSESSEES. ONCE ONE OF THE BENEFICIARIES HAS OFFERED THE INCOM E FROM TRUST TO TAX AND IS ALSO ASSESSED TO TAX, THE TAX AUTHORITIES CANNOT ASSESS THE APPELLANT. THUS, ONCE THE BENEFICIARIES ARE IDENTIFIABLE AS A CLASS AND THEIR SHARE ARE DETERMINABLE AT ANY POINT OF TIME FROM THE TRUST DE ED, THE TRUST IS A SPECIFIC TRUST AND IT DOES NOT MATTER IF THE ACTUAL BENEFICIARIES ALTER OVER A PERIOD (CWT VS TRUSTEES OF H.E.H.NIZAMS FAMILY (REMAINDE R WEALTH TRUST) 108 ITR 555 (SC). 2. THE TERMS OF THE TRUST DEED OF THE ASSESSEE IS IDEN TICAL WITH THE TERMS OF THE TRUST DEEDS CONSIDERED IN THE FOLLOWING CASES, WHEREIN IT HAS BEEN HELD THAT SUCH TRUSTS ARE SPECIFIC AND REVOCABLE TRUSTS, WHOSE BENEFICIAR IES ARE SPECIFIED AND SHARE OF THEIR BENEFITS ARE SPECIFIED. HENCE THE INCOME OF THE TRUST IS TAXABLE ONLY IN THE HANDS OF THE BENEFICIARIES. 1. CIT VS ICICI EMERGING SECTORS FUND & INDIA ADVANTAGE FU ND VII- (KARNATAKA HC IN ITA 191/2015&177/BANG/2012) 2. DCIT VS INDIA ADVANTAGE FUND VII (ITA NO 178/BANG/20 12), ICICI EMERGING SECTORS FUND (ITA NO. 179/BANG/2012), I TAT BANGALORE 3. INDIAN CORPORATE LOAN SECURITIZATION TRUST VS ITO (I TA NO.3986/MUM/2013) ITAT MUMBAI ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 10 -: 4. ITO VS MILESTONE ARMY NAVY TRUST (ITA NOS 4067/ MUM/2014) - ITAT, MUMBAI THEREFORE, THE CASE OF THE ASSESSEE IS DIRECTLY COV ERED BY THE ABOVE DECISIONS WHEREIN IT HAS BEEN HELD THAT ANY INCOME RECEIVED BY SUCH TRUS TS ARE TAXABLE IN THE HANDS OF THE BENEFICIARIES ONLY AND NOT IN THE HANDS OF THE TRUS T. WITHOUT PREJUDICE, THE APEX COURT AND OTHER HIGH COURTS HAVE HELD THAT EVEN IN THE CASE OF DISCRETIONARY TRUST, IF THE BENEFICIAL IN TERESTS HAVE BEEN OFFERED FOR TAX BY THE BENEFICIARIES OR THE BENEFICIARIES SHARE HAVE BEEN CREDITED TO THE ACCOUNTS OF THE BENEFICIARIES (AS HAS BEEN DONE IN THI S CASE), THEN THE TRUST IS NOT TAXABLE. A) KAMALINIKHATAU -209 ITR (101) (SC) B) MOTI TRUST 236 ITR 37 (SC) C) INDRAMMA - 25 TAXMANN.COM 259 (KAR) D) DAVID JOSEPH 214 ITR 658 (KER) 5.0 ON THE OTHER HAND, THE LD. DR ARGUED THAT THE ASSE SSEE IS A REGISTERED VENTURE CAPITAL FUND AND IS A PASS THROU GH TRUST, SUCH PASS THROUGH STATUS CAN BE EXTENDED ONLY TO THE EXTENT O F INCOME EARNED ON VCU INVESTMENTS SINCE THE ASSESSEE BEING A SEBI REG ISTERED VCU IS SQUARELY COVERED BY THE PROVISIONS OF SEC.10(23FB) R/W SEC.115(U) OF THE ACT. ACCORDING TO THE LD.AR THE ASSESSEE IS NOT A DETERMINATE TRUST AND IT CANNOT BE CATEGORIZED SO, SINCE THE CONDITIONS LAID DOWN IN EXPLANATION-1 OF SEC.164 ARE TOTALLY ABSENT. IN ORDER TO CLASSIFY AS A DETERMINATE TRUST, THE SHARES OF THE BENEFICIARIES SHOULD BE EXPRESSLY STATED IN THE ORDER OF THE INSTRUMENT OF THE TRUST AND IDENTIFIABLE AS SUC H ON THE DATE OF SUCH INSTRUMENT OR THE DEED. 5.1 THE LD. DR REFERRING TO PAGE NOS. 87 & 107 OF PAPE R BOOK STATED THAT THE BENEFICIARIES ARE TOTALLY UNKNOWN AND THE BENEFICIARIES OF VCF ARE IDENTIFIED BY THE CONTRIBUTION AGREEMENT IN THE ASS ESSEES CASE THAT IS PRIVATE PLACEMENT MEMORANDUM(PPM). THE LD. DR ALSO BROUGHT TO OUR ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 11 -: NOTICE THAT THE LIST OF CONTRIBUTORS FOR THE AY 200 9-10 (I.E. BENEFICIARIES) WERE 664 IN NUMBER AND FOR THE AY 2010-11, LIST OF CONTRIBUTORS INCREASED TO 675. THE PERCENTAGE OF SHARE OF BENEFICIARIES H AS UNDERGONE A CHANGE AND THE LD.DR BROUGHT TO OUR NOTICE SPECIFICALLY T HE CASE OF TVS ELECTRONICS WHICH WAS 5.22% AS ON 31.03.2009 AND IN CREASED TO 6.00% AS ON 31.03.2010 ACCORDINGLY THE DR STATED THAT NO. O F BENEFICIARIES AND THE SHARES OF THE BENEFICIARIES ARE NOT CONSTANT AND VO LATILE. THE LD. DR WAS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE THAT THE ASSESSEES TRUST IS A DETERMINATE TRUST IS INCONGRUOUS. ACCORDING TO T HE LD. DR, THE SHARES OF THE BENEFICIARIES NEED TO BE DETERMINED IN THE TRUS T DEED IN WHICH CASE THE SHARES OF THE BENEFICIARIES WOULD BE CONSTANT A ND IN SUCH SITUATION, THE TRUST SHOULD BE CATEGORIZED AS DETERMINATE TRUS T. SINCE THE PARAMETERS OF CONSISTENCY IS LACKING, THE LD. DR AR GUED THAT THE ASSESSEES CLAIM OF APPLICATION OF PROVISIONS OF SE C.161(1) IS INCORRECT. FURTHER, THE LD. DR ALSO ARGUED THAT EVEN IF THE AS SESSEES ARGUMENT IS ACCEPTED THAT THE ASSESSEES CASE IS COVERED BY SEC .161(1) OF IT ACT AS REPRESENTATIVE ASSESSEE, THE ASSESSEE IS A REGISTER ED VCF SPECIFICALLY ALLOWED THE EXEMPTION U/S.10(23FB) R/W SEC.115(U) O F IT ACT AND ACCORDINGLY THE ASSESSEE IS NOT ALLOWED TO PASS THR OUGH STATUS IN THE CASE OF THE INCOME EARNED ON THE INTEREST ON DEPOSITS. I F PASS THROUGH STATUS IS ALLOWED FOR INTEREST INCOME, THERE IS NO NEED FOR S EC.10(23FB) OF IT ACT. THE REVENUE IS NOT OBJECTING THE PASS THROUGH STATU S OF THE ASSESSEE IN THE CASE OF SEC.10(23FB), THE BONE OF CONTENTION OF THE REVENUE IS A PASS THROUGH STATUS IS ONLY IN RESPECT OF VCU INCOME A ND NOT IN RESPECT OF ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 12 -: NON-VCU INCOME. THE LD. DR FURTHER ARGUED THAT FOR M NO.64 A STATEMENT OF INCOME PAID OR CREDITED BY VENTURE CAPITAL COMPA NY(VCC) OR VCF TO THE ASSESSEE IS TO BE FURNISHED U/S.115(U) OF IT AC T AND R/W RULE 12C OF IT RULES THE INFORMATION REQUIRED TO BE REPORTED WI TH REGARD TO OTHER INCOME FROM NON VCU INVESTMENTS AND THE SAME CANNOT BE PASSED ON TO THE BENEFICIARIES. 5.2 THE LD. DR ALSO RELIED ON THE DECISION OF ITAT D BENCH IN THE CASE OF DHFL VENTURE CAPITAL FUND DATED 08.01.2016, THE HONBLE SUPREME COURT DECISION IN THE CASE OF ITO V. CH. ATCHAIAH 2 18 ITR 239 AND THE HONBLE SPECIAL BENCH OF THE ITAT, DELHI IN THE CAS E OF PRADEEP AGENCIES JOINT VENTURE REPORTED IN (2007) 111 TTJ DELHI 346. 5.3 THE LD. DR MADE FURTHER SUBMISSIONS THAT THE ASSES SEES INVESTMENT MANAGER M/S.TVS CAPITAL LTD., A COMPANY INCORPORATED UNDER THE INDIAN COMPANIES ACT HAD PUBLISHED THE FAQS AND NOTE ON TAXATION OF INCOME EARNED BY THE BENEFICIARIES FROM THE TSGF. I N THE SAID DOCUMENT IN PAGE NO.11 TO 15 OF PAPER BOOK, IT HAD CATEGORIZ ED THE DISTINCTION AND NON-VCU INCOME. IT HAD ALSO NARRATED THE PRINCIPLE BY WHICH THE RESPECTIVE HEAD OF INCOME, BE IT DIVIDEND OR INTERE ST OR CAPITAL GAINS THAT HAS TO BE OFFERED TO TAX IN THE HANDS OF THE BENEFI CIARIES. THE INVESTMENT MANGER HAD STATED THAT THE INTEREST INCOME HAS TO B E INCLUDED AS INCOME FROM OTHER SOURCES AND PAY TAX AT THE APPLICABLE RA TES IN THE HANDS OF THE BENEFICIARY. ON THE CONTRARY, FORM NO.6 4 ISSUED BY THE ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 13 -: TSGF HAS MISDIRECTED THE BENEFICIARIES AND THUS BEN EFICIARIES HAVE CONSOLIDATED THE INCOME UNDER THE DIFFERENT HEADS I NTO ONE HEAD AND OFFERED THE LOSS TO TAX. TSGF HAS NOT FORWARDED A SINGLE DOCUMENT WHEREIN, THE BENEFICIARY HAD OFFERED THE INTEREST I NCOME TO TAX AS SUCH. THIS CONTENTION IS AFFIRMED BY THE CONTENTS OF FORM NO.64 BEING THE NET BENEFICIAL INTEREST BEING LOSS WAS DEBITED TO THE A CCOUNTS OF THE BENEFICIARIES AND A CERTIFICATE ISSUED TO THE BENEF ICIARIES TO INCLUDE THE SAME IN THEIR RETURN OF INCOME. THE LD.DR FURTHER ARGUED THAT THE INTEREST INCOME OFFERED TO BE TAXED IN THE HANDS OF THE BENE FICIARIES HAS TO BE TAXED AS SUCH AND CANNOT BE SET OFF AGAINST OTHER H EADS SO AS TO INCLUDE THE NET LOSS, IT HAS TO BE BIFURCATED AND TREATED S EPARATELY. FROM THE FORM NO.64 ISSUED BY THE ASSESSEE, IT CAN BE SEEN THAT F OR THE AYS 2009-10 TO 2014-15, THE VCU LOSS AND NON-VCU INCOME HAS BEEN C LUBBED AND THE NET LOSS IS PASSED ON TO THE BENEFICIARIES. ONLY IN AY 2015-16 AFTER THE DISCREPANCY BEING HIGHLIGHTED BY THE DEPARTMENT, TH E ASSESSEE CAME FORWARD TO SEGREGATE THE INCOME BETWEEN VCU AND NON -VCU INCOME. BY THIS PROCESS, NEITHER THE TSGF PAYS TAX LEGITIMATEL Y TO THE EXCHEQUER ON NON-VCU INTEREST INCOME NOR TO THE BENEFICIARIES IN THEIR HEADS. THEREFORE, THE PLEA THAT INCOME IS OFFERED TO TAX I N THE HANDS OF THE BENEFICIARIES IS IN REALITY MISREPRESENTATION OF TH E FACTS. IT IS UNDER SUCH CIRCUMSTANCES, THE PROVISIONS OF SEC.161(1) COMES I NTO BEING SINCE THE BENEFICIARIES HAVE FAILED TO PAY TAX ON NON-VCU INT EREST INCOME TSGF IS LIABLE TO BE TAXED IN ITS REPRESENTATIVE CAPACITY. THE LD. DR SUMMED UP HIS ARGUMENT THAT TSGF IS COVERED BY SECTION 10(23F B) R/W 115(U) AND ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 14 -: PASS THROUGH ENTITLEMENT IS RESTRICTED TO THE EXTEN T OF INCOME EARNED FROM VCU ACTIVITY AND BY NO STRETCH OF IMAGINATION IT CA N BE EXTENDED TO NON- VCU INTEREST. EVEN IF IT IS PRESUMED THAT THAT ASSE SSEE IS COVERED BY SECTION 161(1) OF THE IT ACT, THE INCOME OF THE BEN EFICIARIES IS LIABLE TO BE TAXED IN THE HAND OF THE ASSESSEE, SINCE THE ASSESS EE FAILED TO INTIMATE THE INTEREST INCOME SEPARATELY AS REQUIRED UNDER SE CTION 10(23FB). 6.0 WE HAVE HEARD BOTH THE PARTIES. LD. SR. COUNSEL MR .J.P.PARDIWALLA ARGUED ELABORATELY THAT THE ASSESSEE IS A DETERMIN ATE TRUST AND THE INCOME OF THE ASSESSEE IS TAXABLE IN THE HANDS OF THE BENEFICIARIES UNDER 161(1) OF IT ACT. WHETHER THE INCOME IS FROM INVES TMENT IN VENTURE CAPITAL UNDERTAKING OR NOT MAKES NO DIFFERENCE IN T HE CASE OF DETERMINATE TRUST. ONCE THE TRUST IS DETERMINATE AND THE SHARES OF THE BENEFICIARIES ARE KNOWN THE ENTIRE INCOME OF THE TRUST HAS TO BE TA XED IN THE HANDS OF THE BENEFICIARIES BUT NOT IN THE HANDS OF THE ASSESSEE. ACCORDING TO HIM IT IS IMMATERIAL REGARDING THE CHANGES OF SHARE HOLDINGS OF THE BENEFICIARIES AND THEIR SHARES BOUND CHANGE WITH THE PACE OF INCR EASE IN NUMBER OF BENEFICIARIES. THE LD.SR.COUNSEL HAS RELIED ON THE HOST OF JUDICIAL PRONOUNCEMENTS SPECIFICALLY INVITED OUR ATTENTION T O THE DECISION OF DCIT V. INDIA ADVANTAGE FUND, ITAT BANGALORE, DCIT V. EM ERGING SECTORS FUNDS ITAT BANGALORE, CIT V. DR.DAVID JOSEPH 214 IT R 658 KERALA, CIT V. SMT. INDIRAMMA 25 TAXMANN.COM 259 KARNATAKA AND CI T V. P. SEKHAR TRUST 321 ITR 304 (MAD). ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 15 -: 6.1 SHRI GOPALA SRINIVASAN S/O. LATE T.A.SRINIVASAN HA S CREATED A A CONTRIBUTORY TRUST IN THE NAME OF TVS SHRIRAM GROWT H FUNDS UNDER THE PROVISIONS OF INDIAN TRUST ACT, 1882 AND REGISTERED AS VENTURE CAPITAL FUND (VCF) UNDER THE SECURITIES AND EXCHANGE BOARD OF INDIA VENTURE CAPITAL FUNDS (REGULATIONS), 1996. THE IL & FS TRU ST CO. LTD., A COMPANY INCORPORATED UNDER COMPANIES ACT, 1956 HAVING REGIS TERED OFFICE AT MUMBAI HAS BEEN APPOINTED AS TRUSTEE AS PER THE IND ENTURE OF THE TRUST DATED 01.02.2008. THE OBJECTIVES OF THE TRUST WAS TO CARRY ON THROUGH VARIOUS SCHEMES, THE ACTIVITY OF VCF AS PERMISSIBLE UNDER THE VCF REGULATIONS AND FOR THE PURPOSE OF RAISING RESOURCE S TO MAKE AVAILABLE VENTURE CAPITAL ASSISTANCE TO INVESTMENT COMPANIES SO AS TO ACHIEVE LONG TERM CAPITAL APPRECIATION FOR CONTRIBUTORS/BENEFICI ARIES UNDER RESPECTIVE SCHEMES. THE TRUST SHALL INVEST IN ALL SECURITIES INCLUDING EQUITY, QUASI EQUITY AND EQUITY RELATED INVESTMENT AND WOULD INCL UDE OTHER INVESTMENTS, SUCH AS PREFERENCE WARRANTS FOR EQUITY CONVERSION DATE INSTRUMENTS BOTH CONVERTIBLE AND NON-CONVERTIBLE PR OPERTY, OPTIONS AND OTHER INSTRUMENTS OF LIKE NATURE. IN A NUTSHELL, T HE OBJECTIVES OF THE TRUST ARE TO MAKE INVESTMENTS IN VENTURE CAPITAL UNDERTAK ING TO CERTAIN KIND OF SECURITIES AND TO ACHIEVE COMMENSURATE RETURNS TO T HE CONTRIBUTORS. THE BENEFICIARIES OF THE TRUST ARE THE CONTRIBUTORS AS PER THE CLAUSE NO.1.1.10 OF TRUST, THE BENEFICIARIES OR CONTRIBUTORS OR DEFI NED AS UNDER: 1.1.10. CONTRIBUTORS OR BENEFICIARIES MEANS THE PERSONS, EACH OF WHOM HAVE MADE OR AGREED TO MAKE CAPITAL COMMITMENT TO THE RESPECTIVE SCHEMES IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT AND THE RESPECTIVE PPM (AS D EFINED HEREINAFTER) AND WHO HAVE BENEFICIAL INTEREST IN THE TRUST FUND RELATING TO T HE RESPECTIVE SCHEME AND INCLUDES PERSONS IN WHOSE FAVOUR THE BENEFICIAL INTEREST OR PART THE REOF ARE TRANSFERRED OR ASSIGNED BY EXISTING CONTRIBUTORS OR BENEFICIARIES. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 16 -: 6.2 CONTRIBUTION TO THE TRUST FUND IS AGGREGATION OF C APITAL CONTRIBUTIONS OF RESPECTIVE SCHEMES INCLUDING ADDITION THERETO AN D ALSO DEFINED IN CLAUSE NO.1.1.4 OF THE TRUST DEED (PAGE NO.5 RED MA RKING). THE UNIT IS DEFINED IN CLAUSE NO.1.1.35 PAGE NO.009 AS UNDER: 1.1.35. UNIT MEANS A UNIT OF ANY CLASS EVIDENCING BENEFICIAL INTEREST OF THE CONTRIBUTORS / BENEFICIARIES IN THE RESPECTIVE SCHEME OF THE TRUST ISSUED BY THE TRUSTEE / INVESTMENT MANAGER TO CONTRIBUTOR / BENEFICIARY ON THE MAKING O F A CAPITAL CONTRIBUTION AND INCLUDES A FRACTION OF A UNIT EVIDENCING BENEFICIAL INTEREST I N THE CONTRIBUTION FUND OF A VALUE LESS THAN THE FACE VALUE OF THE RESPECTIVE CLASS OF UNITS. TH E MANAGEMENT AND TERMS OF THE TRUST ARE SPELL OUT IN CLAUSE NO.3.5 OF THE TRUST DEED (P AGE NO.11) AS UNDER: 3.5. MANAGEMENT AND TERMS OF THE TRUST - THE TRUST WILL BE ORGANIZED, ADMINISTERED AND MANAGED BY THE TRUSTEE IN ACCORDANCE WITH THIS DEED , THE RESPECTIVE INVESTMENT MANAGEMENT AGREEMENT, CONTRIBUTION AGREEMENTS, THE PPM AND OTHER ANCILLARY DOCUMENTS/AGREEMENTS AS MAY BE CONSIDERED BY THE TRU STEE. ALL THE CONTRIBUTORS / BENEFICIARIES OF VARIOUS SCHE MES UNDER VARIOUS PPMS WILL BECOME THE BENEFICIAL OWNER OF THE TRUST FUND AND THE CONTRIBU TORS BENEFICIARIES WILL BE ENTITLED TO THE BENEFICIAL INTEREST EACH AND EVERY YEAR COMPRISING OF CORPUS AND ACCRETIONS THERETO IN PROPORTION TO THE THEIR CONTRIBUTION UNDER THE RESP ECTIVE SCHEMES AND PPMS. THE BENEFICIAL INTEREST OF EACH SUCH CONTRIBUTOR / BENEFICIARY IN THE CONTRIBUTION FUND SHALL EXTEND TO AND BE LIMITED TO THE AGGREGATE VALUE OF THE CAPITAL CO NTRIBUTION MADE BY THAT CONTRIBUTOR IN THE CONTRIBUTION FUND UNDER RESPECTIVE PRIVATE PLAC EMENT MEMORANDUMS. ALL THE CONTRIBUTORS ARE THE BENEFICIARIES UNDER THIS INSTR UMENT AND ON FULFILLMENT OF ALL THE TERMS AND CONDITIONS STIPULATED IN THE CONTRIBUTION AGREE MENT SUCH CONTRIBUTORS WILL BE INCLUDED AS THE BENEFICIARIES OF THE TRUST. THE FUND IS, SHA LL BE AND REMAIN DETERMINATE AT ALL TIMES WITH DETAILS OF CONTRIBUTORS ALONG WITH THEIR RESPE CTIVE BENEFICIAL INTEREST IN THE FUND IN ACCORDANCE WITH THE RESPECTIVE CONTRIBUTION AGREEME NTS. THE TRUST SHALL KEEP SEPARATE ACCOUNTS IN RESPECT O F THE CAPITAL CONTRIBUTION INCLUDING ACCRETIONS THERETO UNDER EACH PPMS SUCH THAT THE BE NEFICIARIES AND THEIR BENEFICIAL INTEREST UNDER EACH AND EVERY PPMS ARE DETERMINATE AT ALL PO INTS OF TIME. THUS, THE BENEFICIAL INTEREST OF ALL THE BENEFICIARIES / CONTRIBUTORS SHA LL BE DETERMINATE AT ALL POINTS OF TIME. THE BENEFICIAL INTEREST ON THE INCOME ARISING EACH YEAR OUT OF THE INVESTMENTS MADE UNDER RESPECTIVE PPMS WILL BE INTIMATED TO THE CONTRIBUTO RS / BENEFICIARIES ON COMPLETION OF THE ACCOUNTS TO FACILITATE THE CONTRIBUTORS / BENEFICIAR IES TO INCLUDE AND OFFER THE SAID BENEFICIAL INTEREST IN THE RETURN OF INCOME EVERY YEAR FILED B Y EACH CONTRIBUTORS / BENEFICIARIES SPECIFIED UNDER EACH CONTRIBUTION AGREEMENT. 6.3 THE INVESTMENT MANAGER INVITES OFFER FOR CAPITAL C OMMITMENTS FROM THE PROSPECTIVE CONTRIBUTORS FOR THE SUBSCRIPTIONS AND PURCHASE OF UNITS OF THE RESPECTIVE SCHEMES ON PRIVATE PLACEMENT BASIS. THE PPM IS DEEMED TO BE FORMED AS AN INTEGRAL PART OF TRUST DEED. AS PER THE CLAUSE NO.3.6 OF THE TRUST DEED, THE TRUST FUND SHALL NOT BE APPL IED FOR DIRECTLY OR ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 17 -: INDIRECTLY FOR ANY OTHER OBJECTS OTHER THAN SET OUT IN THE OBJECTS CLAUSE IN CLAUSE-2 OF THE TRUST DEED. CLAUSE -2 DEALS WITH TH E INVESTMENT DISCUSSED IN THE PRECEDING PARAGRAPH NO.6.1. THE MANAGEMENT O F THE TRUST FUND IS SPELT OUT IN CLAUSE NO.3.7 OF THE TRUST DEED IN PAG E NO.12 AS UNDER: 3.7 MANAGEMENT OF THE TRUST FUND: THE SETTLOR HERE BY DECLARES THAT HENCEFORTH THE TRUST FUND SHALL BE MANAGED BY THE TRUSTEE IN ACCORDANCE WITH AND SUBJECT TO THIS INDENTURE. THE TRUSTEE SHALL APPOINT AN INVESTMENT MANAGER TO MANAGE AND ADMINISTER THE TRUST FUND AND SHALL FOR THIS PURPOSE EXECUTE THE INVESTMENT M ANAGEMENT AGREEMENT. EACH SCHEME WILL ADDITIONALLY BE GOVERNED BY ITS RESPECTIVE PPM AND THE CONTRIBUTION AGREEMENT TO THE EXTENT APPLICABLE, WHICH IS DEEMED TO BE INCORPORAT ED BY REFERENCE HEREIN. THE TRUSTEE SHALL PAY TO THE INVESTMENT MANAGER, FROM THE CONTR IBUTION FUND, A MANAGEMENT FEE IN ACCORDANCE WITH THE TERMS SET OUT IN THE INVESTMENT MANAGEMENT AGREEMENT AND THE PPM, IN ADDITION, THE INVESTMENT MANAGER WOULD ALSO BE E NTITLED TO A CARRIED INTEREST AT SUCH RATE AND ON SUCH TERMS AS SET OUT IN THE PPM. 6.4 THE LD.AR ARGUED THAT THE TRUST DEED HAS IDENTIFIE D THE BENEFICIARIES BY CAPITAL CONTRIBUTION AGREEMENTS AS PER THE PRIVATE PLACEMENT MEMORANDUM. THE BENEFICIARIES AND THE DE SCRIPTION OF THE PERSONS WHO ARE TO BE BENEFITTED FROM THE TRUST IS DEFINED IN THE TRUST DEED AS CONTRIBUTORS OR BENEFICIARIES. BY CLAUSE NO .1.1.4 OF THE TRUST DEED EXPLAINS THE BENEFICIAL INTEREST WHICH MEANS T HE PROPORTIONATE INTEREST HELD BY EACH OF THE BENEFICIARIES (AS DEFI NED HEREINAFTER) AS EVIDENCED BY THE NUMBER OF UNITS HELD BY THE BENEFI CIARIES FROM TIME TO TIME ON THE BASIS OF WHICH DISTRIBUTION PROCEEDS AV AILABLE WITH THE TRUST SHALL BE DISTRIBUTED BY THE TRUSTEE AS PER THE PROV ISIONS OF THE RESPECTIVE CONTRIBUTION AGREEMENT AND THE PPM. BASED ON THE A BOVE CLAUSES OF THE TRUST DEED, THE LD.AR ARGUED THAT BENEFICIARIES ARE IDENTIFIABLE, BENEFICIAL INTEREST IS ASCERTAINABLE W.R.T. THE TRUST DEED. FU RTHER, THE DISTRIBUTION OF INCOME IS NOT AT THE DISCRETION OF THE ASSESSEE AND IS REQUIRED AS PER THE CLAUSE OF THE TRUST DEED RESPECTIVE CONTRIBUTION AG REEMENT AND PPM. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 18 -: HENCE, THE LD.AR CONTENDED THAT THE ASSESSEE SATISF IES ALL THE REQUIREMENTS OF THE ACT TO QUALIFY AS DETERMINATE TRUST AND THE HONBLE HIGH COURT IN THE CASE OF P.SEKAR TRUST SQUARELY AP PLIES TO THE ASSESSEE. ON IDENTICAL FACTS, ITAT B BENCH BANGALORE IN ITA NO.178/BANG/2012 DATED 17.10.2014 HAS HELD THAT THE TRUST IS DETERMI NATE TRUST AND THE DECISION OF HONBLE ITAT BANGALORE WAS FOLLOWED BY THE ITAT BANGALORE IN M/S. ICICI EMERGE SECTOR FUND V. DIRECTOR OF IT IN ITA NO.179/BANG/2012 FOR THE AY 2008-09 AND HELD THAT THE TRUST IS A DET ERMINATE TRUST. THE ORDER OF THE HONBLE ITAT BANGALORE IS AFFIRMED BY THE HONBLE KARNATAKA HIGH COURT. THE HONBLE ITAT BANGALORE IN THE ORDER CITED SUPRA CONSIDERED ALL THE ISSUES RAISED BY THE LD. DR WITH REGARD TO IDENTIFICATION OF THE BENEFICIARIES IN THE TRUST DEED THEIR SHARES APPLICABILITY OF THE PROVISIONS OF SEC.60, 61, 63, 160, 161,164 & 166 A ND HELD THAT THE TRUST IS DETERMINATE TRUST. 6.5 FOR THE SAKE OF CONVENIENCE AND CLARITY, WE RE-PRO DUCE HERE UNDER PARA NOS.43 TO 72 TO RELEVANT PARAGRAPHS ORDER OF T HE HONBLE ITAT, BANGALORE IN INDIA ADVANTAGE FUND WHICH READS AS UN DER: 42. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ASSESSEE, AS WE HAVE ALREADY SEEN, IS THE ASSESSEE IS A TRUST CO NSTITUTED UNDER AN INSTRUMENT OF TRUST DATED 25/9/2006. M/S. ICICI VENTURE FUNDS MANAGEMENT COMPANY LIMITED (HEREINAFTER REFERRED TO AS 'SETTLOR') BY AN INDENTURE OF TRUST D ATED 25.9.2006 TRANSFERRED A SUM OF RS.10,000/- TO M/S. THE WESTERN INDIA TRUSTEE AND EX ECUTOR COMPANY LIMITED (HEREINAFTER REFERRED AS THE 'TRUSTEE') AS INITIAL CORPUS TO BE A PPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THE INDENTURE DATED 25.9.2006. THE TR USTEE WAS EMPOWERED TO CALL FOR CONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE I NVESTED 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 FROM THE CONTRIBUT ORS TOGETHER WITH THE INITIAL CORPUS WAS TO BE HANDED OVER TO THE TRUSTEES UNDER THE PROVISI ONS OF THE INDIAN TRUST ACT, 1882. THE TRUST WAS TO FACILITATE INVESTMENT BY THE CONTRIBUT ORS WHO SHOULD BE RESIDENT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE CONTRIBUT ORS TO THE FUND ARE ITS BENEFICIARIES. IT IS A PRIVATE TRUST TO WHICH THE PROVISIONS OF INDIAN T RUST ACT, 1882 WOULD APPLY. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 19 -: 43. SEC.3 OF THE INDIAN TRUST ACT, 1882 DEFINES 'TRUST ' AS AN OBLIGATION ANNEXED TO THE OWNERSHIP OF PROPERTY, AND ARISING OUT A CONFIDENCE REPOSED IN AND ACCEPTED BY THE OWNER, OR DECLARED AND ACCEPTED BY HIM, FOR THE BENEFIT OF ANOTHER, OR OF ANOTHER AND THE OWNER; THE PERSON WHO REPOSES OR DECLARES THE CONFIDENCE I S CALLED THE 'AUTHOR 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 SUBJECT-MATTER OF THE TRUST IS CALLED 'TRUST PROPERTY' OR 'TRUST-MONEY'; THE 'BENEFICIAL INTEREST' OR 'INTEREST' OF THE BENEFICIARY IS HIS RIGHT AGAINST THE TRUSTEE AS OWNER OF THE TRUST -PROPERTY; AND THE INSTRUMENT, IF ANY, BY WHICH THE TRUST IS DECLARED IS CALLED THE 'INSTRUME NT OF TRUST'. 44. WE WERE INITIALLY DOUBTFUL, WHETHER A PERSON WHO C ONTRIBUTES TO THE TRUST IN ACCORDANCE WITH THE TERMS OF A CONTRIBUTION AGREEMENT COULD BE SAID TO BE 'BENEFICIARY' OF THE TRUST. IT IS NO DOUBT TRUE THAT THE BENEFICIARIES ARE IDENTIF IABLE IN TERMS OF THE TRUST DEED AS PERSONS WHO CONTRIBUTE UNDER THE CONTRIBUTION AGREEMENT. BU T CAN THE BENEFICIARIES BE MADE TO CONTRIBUTE TO THE TRUST? BENEFICIARIES ARE GENERALL Y RECIPIENTS OF BENEFITS UNDER THE DEED OF TRUST. CAN THE TRUST HOLD THE MONEY SO CONTRIBUTED IN TRUST FOR THE CONTRIBUTORS AND CAN SUCH CONTRIBUTORS BE CALLED 'BENEFICIARIES'? IT APP EARED TO US TO BE A VENTURE UNDERTAKEN BY THE TRUST, AUTHOR OF THE TRUST AND THE IDENTIFIED B ENEFICIARY AT THE TIME OF CREATION OF THE TRUST WHO HAPPENS TO BE THE BENEFICIARY AND THE INV ESTMENT MANAGER TO WHOM WITHOUT ANY OPTION THE MANAGEMENT OF THE TRUST FUND HAD TO BE E NTRUSTED. IT IS LIKE ANY OTHER FORM OF BUSINESS ORGANIZATION MOBILIZING FUNDS FOR INVESTME NTS AND PROMISING RETURNS TO THE CONTRIBUTORS. CAN SUCH OBJECTIVE BE ACHIEVED BY FOR MING A TRUST? 45. SIMILAR QUESTIONS AROSE FOR CONSIDERATION BEFORE T HE AUTHORITY FOR ADVANCE RULING IN THE CASE OF COMPANIES INCORPORATED IN MAURITIES, (SUPRA ). WE NEED TO LOOK AT THE FACTS OF THE SAID CASE BEFORE WE SET OUT THE RULING GIVEN BY THE AAR. AN AMERICAN COMPANY IN COLLABORATION WITH AN INDIAN FINANCIAL SERVICES COM PANY PROPOSED TO SET UP ANOTHER FUND. FOR THIS PURPOSE A TRUST WAS CREATED WHEREBY THE IN DIAN FINANCIAL SERVICES COMPANY WAS THE AUTHOR OF THE TRUST AND ANOTHER INDIAN TRUST CO MPANY WAS APPOINTED AS TRUSTEE. THE FUNDS OF THE TRUST WERE TO BE INVESTED IN INDIAN CO MPANIES AND PROJECTS IN INDIA. THE INDIAN FINANCIAL SERVICE COMPANY WAS TO ACT AS THE PRINCIPAL INVESTMENT ADVISER IN INDIA TO THE TRUST UNDER AN ADVISORY AGREEMENT. BY AN INDENT URE OF TRUST, THE INDIAN FINANCIAL SERVICE COMPANY MADE AN INITIAL SETTLEMENT OF RS. 1 LAKH ON THE TRUSTEES ON TRUST. THIS ALONG WITH CONTRIBUTIONS THAT MAY BE MADE TO THE TR UST FUND BY OTHERS IS REFERRED TO AS 'CONTRIBUTION FUND'. THE INDIAN FINANCIAL SERVICES COMPANY WAS THE ONLY CONTRIBUTOR AND ALSO THE ONLY BENEFICIARY UNDER THE TRUST DEED. CLA USE 7 OF THE TRUST DEED CONTAINS A PROVISION TO THE FOLLOWING EFFECT :- 'POWER OF ADDITION 7. (A) THE TRUSTEE SHALL HAVE THE POWER AT ANY TIME OR TIMES DURING THE TRUST PERIOD TO ADD AS BENEFICIARIES SUCH ONE OR MORE PERSONS OR CL ASS OF PERSONS AS THE TRUSTEE SHALL IN THEIR ABSOLUTE DISCRETION DETERMINE. (B) ANY SUCH ADDITION SHALL BE MADE BY DEED SIGNED B Y 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 THE DATE OF THE DEED BUT DURING THE TR UST PERIOD) FROM WHICH SUCH PERSON OR PERSONS TO BE THEREBY ADD ED AS BENEFICIARIES; AND (C) IT IS HEREBY CLARIFIED THAT SUCH BENEFICIARIES W ILL BE ENTITLED TO ONLY SUCH SHARE THAT IS IN PROPORTION TO THE CONTRIBUTION MADE BY THEM A ND IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT.' 46. ON THE ABOVE FACTS, WHICH ARE ON PAR WITH THE FACT S 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 DISCRETION ON THE TRUSTEES TO ADD NAMES OF BENEFICIARIES TO THE TRUST WOULD BE JUSTIFIED IN LA W. THOUGH THE AUTHORISED REPRESENTATIVE OF THE APPLICANT (AR) CONTENDED THAT THIS CLAUSE WAS PERFECTLY IN ORDER ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 20 -: (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, HA VE THE POWER AT THEIR DISCRETION TO ADMIT AS BENEFICIARY ANY INSTITUTIONAL INVESTOR WHI CH AGREES TO ENTER INTO A CONTRIBUTION AGREEMENT.' AND, CONSEQUENT ON THE ABOVE, TO INSERT A DEFINITIO N OF THE EXPRESSION 'INSTITUTIONAL INVESTOR' IN CL. 1 TO THE FOLLOWING EFFECT : '(1) 'INSTITUTIONAL INVESTOR' MEANS ANY ENTITY OTHER THAN AN INDIVIDUAL, BEING A NATURAL PERSON INCLUDING BUT NOT LIMITED TO FINANCIAL INSTI TUTION, COMPANY OR CORPORATION, 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 COUL D BE ANY VALID OBJECTIONS TO THE CONSTITUTION OF A TRUST IN THIS MANNER. THE AUTHORS OF THE TRUST ARE THE IC, THE INDIAN FINANCIAL SERVICE COMPANY AND OTHERS CONTRIBUTING T O THE TRUST BY THE DATE OF THE TRUST DEED. INDEED EVEN INSTITUTIONAL INVESTORS CONTRIBUT ING TO THE TRUST, IN HELPING THE CT ACHIEVE ITS TARGET OF 50 MILLION DOLLARS CAN BE CON SIDERED AS SUPPLEMENTAL AUTHORS OF THE TRUST, THE CA CONSTITUTING R/W THE TRUST DEED, T HE INSTRUMENTS CONSTITUTING THE TRUST IN THEIR CASES. THE PURPOSES OF THE TRUST ARE, AS S TATED IN THE TD, TO INVEST THE TRUST FUNDS AND DISTRIBUTING THE PROCEEDS TO THE BENEFICI ARIES. THIS IS, IN A SENSE, NOTHING MORE THAN AN ARRANGEMENT BY WHICH CERTAIN PARTIES A GREED TO CONTRIBUTE FUNDS FOR A COMMON PURPOSE AND DIVIDE THE PROFITS AMONGST THEMS ELVES. NO DOUBT THE SAME OBJECTIVE COULD BE ACHIEVED BY THE CONSTITUTION OF A FIRM OR A COMPANY BUT, EQUALLY, 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, MERELY REPRESENTS CERTA IN OBLIGATIONS ANNEXED TO THE OWNERSHIP OF PROPERTY IN THE FORM OF THE CONTRIBUTE D 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 INVOLVING INJURY TO ANY PERSON OR PRO PERTY OR OPPOSED TO PUBLIC POLICY : VIDE S. 4 OF THE INDIAN TRUSTS ACT (IV OF 1882). IT WILL APPEAR LATER THAT, IN ENTERING INTO THE PRESENT TRANSACTIONS, THE PARTIES TOOK INTO ACC OUNT CERTAIN DIFFICULTIES IF THE SAME TRANSACTIONS HAD BEEN PUT THROUGH THE FORMAT OF A C OMPANY AND ALSO TOOK INTO ACCOUNT CERTAIN FINANCIAL AND TAX IMPLICATIONS. BUT THESE C ANNOT 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 AUT HORITY FELT, MIGHT INTRODUCE A DEGREE OF UNCERTAINTY REGARDING THE ELEMENT OF BENE FICIARIES UNDER THE TRUST. THE PARTIES HAVE AGREED TO MODIFY THE CLAUSE AS INDICAT ED ABOVE. THE RESULT IS THAT NOW THE TRUSTEE'S CHOICE OF BENEFICIARIES IS RESTRICTED (A) BY THE OVERALL LIMIT OF THE FUND; (B) ONLY TO INSTITUTIONAL INVESTORS; AND (C) TO PERSONS WHO AGREE TO SUBSCRIBE TO THE CA. THE CRITERIA FOR PERSONS TO BECOME BENEFICIARIES AN D THE SHARES OF INCOME THEY ARE ENTITLED TO ARE CLEARLY DEFINED IN THE DEED. THE AU THORITY IS OF OPINION, THAT WITH THE INTRODUCTION OF THE MODIFICATIONS REFERRED TO ABOVE AND IN THE LIGHT OF THE STATEMENT ON LAW CONTAINED IN THE PASSAGES FROM AGARWALLA'S TRUS T ACT CITED BY LEARNED COUNSEL, THERE CAN BE NO OBJECTION TO THE VALIDITY OF THE MO DIFIED TRUST DEED. [PARENTHETICALLY, HOWEVER, IT MAY BE OBSERVED THAT, IN THE DEFINITION IN CL. (A) PROPOSED TO BE INSERTED, THE WORDS 'BEING A NATURAL PERSON' APPEARS TO BE A SURPLUSAGE AND MAY BE OMITTED WITHOUT DETRACTING FROM THE MEANING OF THE CLAUSE. BUT THIS HAS NO IMPACT ON THE VALIDITY OF THE TRUST DEED.' (EMPHASIS SUPPLIED) 47. WE AGREE WITH THE AFORESAID OBSERVATIONS OF THE AA R AND WE PROCEED FURTHER TO DECIDE THE VARIOUS ISSUES RAISED BY THE REVENUE IN ITS APP EAL. 48. PRIVATE TRUSTS COULD BE FIXED OR DISCRETIONARY TRU STS. A FIXED TRUST IS A TRUST IN WHICH THE BENEFICIARIES HAVE A CURRENT FIXED ENTITLEMENT TO SUCH INCOME AS REMAINS AFTER PROPER EXERCISE OF THE TRUSTEE'S POWERS. ON THE OTHER HAND, A DISCRETIONARY TRUST IS ONE IN WHICH THE BENEFICIARIES HAVE NO SUCH CURRENT FIXED ENTITL EMENT, 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 ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 21 -: BENEFICIARIES. THE BENEFICIARIES HAVE NO INTEREST I N POSSESSION UNDER THE TRUST. THERE ARE VARIOUS REASONS WHY A SETTLOR PREFERS TO ESTABLISH A DISCRETIONARY TRUST RATHER THAN A FIXED TRUST. SOME OF THE IMPORTANT ONE'S BEING - TO PROTE CT THE BENEFICIARY 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 WILL FARE IN THE FUTURE; WHICH OF THE M WILL BE MOST IN NEED, WHICH WILL BE DESERVING, WHICH SPENDTHRIFT, WHICH INEBRIATE, WHIC H WILL MARRY MILLIONAIRES AND WHICH MISSIONARIES'. THE TRUSTEE CAN TAKE ALL THESE FACTO RS INTO CONSIDERATION IN MAKING THEIR DECISIONS. 49. WHEN IT COMES TO TAX ON INCOME RECEIVED BY THE TRU ST ON BEHALF OF THE BENEFICIARIES, THERE ARE SOME IMPLICATIONS DEPENDING ON WHETHER TH E TRUST IS A DISCRETIONARY TRUST OR A NON-DISCRETIONARY TRUST. AS WE HAVE ALREADY SEEN IN TERMS OF SEC.164(1) A TRUST IS ASSESSED AS A REPRESENTATIVE ASSESSEE IN RESPECT OF INCOME W HICH IT RECEIVES ON BEHALF OF ITS BENEFICIARIES AND IF THE BENEFICIARIES ARE NOT CERT AIN OR SHARES OF BENEFICIARIES ARE INDETERMINATE, TAX SHALL BE CHARGED ON THE RELEVANT INCOME OR PART OF RELEVANT INCOME AT THE MAXIMUM MARGINAL RATE. EXPLANATION 1 TO SEC.164 DEEMS THAT IN CERTAIN SITUATIONS BENEFICIARIES SHALL BE DEEMED TO BE NOT IDENTIFIABL E OR THEIR SHARES ARE UNASCERTAINED OR INDETERMINATE OR UNKNOWN. THESE PROVISIONS HAVE ALR EADY BEEN SET OUT IN THE EARLIER PART OF THIS ORDER AND ARE NOT BEING REPEATED. THE LEGISLAT IVE HISTORY OF THE ABOVE PROVISIONS NEEDS TO BE EXAMINED TO FIND OUT THE OBJECT OF INTRODUCTI ON 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 E LABORATED 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 BENEFICIARIES ARE INDETERMINATE OR UNKNOWN, IS CHARGEABLE TO TAX AS A SINGLE UNIT TREATING IT AS THE TOTAL INCOME OF AN AOP. THIS PROV ISION AFFORDS SCOPE FOR REDUCTION OF TAX LIABILITY BY TRANSFERRING PROPERTY TO TRUSTEES AND VESTING DISCRETION IN THEM TO ACCUMULATE THE INCOME OR APPLY IT FOR THE BENEFIT O F ANY ONE OR MORE OF THE BENEFICIARIES, AT THEIR CHOICE. BY CREATING A MULTI PLICITY OF SUCH TRUSTS, EACH ONE OF WHICH DERIVES A COMPARATIVELY LOW INCOME, THE INCID ENCE OF TAX ON THE INCOME FROM PROPERTY TRANSFERRED TO THE SEVERAL TRUSTS IS MAINT AINED 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 BENEFICIARIES UNDER THE TERMS OF THE TRUST, SUCH INCOME CANNOT BE SUBJECT TO TAX AT A HIGH PERSONAL RATE WH ICH WOULD HAVE BEEN APPLICABLE IF THEIR SHARES HAD BEEN DETERMINATE.' 50. IN ORDER TO PUT AN EFFECTIVE CURB ON THE PROLIFERA TION OF SUCH TRUSTS, AND TO REDUCE THE SCOPE OF TAX AVOIDANCE THROUGH SUCH MEANS, THE FINA NCE ACT, 1970, HAS REPLACED S. 164 OF THE IT ACT BY A NEW SECTION. UNDER S. 164 AS SO REP LACED, A 'REPRESENTATIVE ASSESSEE' WHO RECEIVES INCOME FOR THE BENEFIT OF MORE THAN ONE PE RSON WHOSE SHARES IN SUCH 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 WOULD BE APPLICABLE IF SUC H INCOME WERE THE TOTAL INCOME OF AN AOP, WHICHEVER COURSE WOULD BE MORE BENEFICIAL TO TH E REVENUE. 51. WHEN THE EXPLANATION WAS ADDED IN 1980, THE CBDT I SSUED THE FOLLOWING CIRCULAR [SEE (1980) 123 ITR (ST) 159] [THE QUOTATION HAS BEEN TAKEN FROM THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE (NO. 2) BILL, 1980 AND NOT FROM THE RELEVANT CIRCULAR, WHICH IS CIRCULAR NO. 281 DT. 22ND SEPT., 1980 REPORTED IN ( 1981) 131 ITR (ST) 4, THOUGH THE CIRCULAR USES SIMILAR LANGUAGEED.] : '49. ** ** ** (IV) UNDER THE EXISTING PROVISIONS, THE FLAT RATE OF 65% IS NOT APPLICABLE WHERE THE BENEFICIARIES AND THEIR SHARES ARE KNOWN IN THE PRE VIOUS YEAR, ALTHOUGH SUCH BENEFICIARIES OR THEIR SHARES HAVE NOT BEEN SPECIFI ED IN THE RELEVANT INSTRUMENT OF TRUST, ORDER OF THE COURT OR WAKF DEED. THIS PROVIS ION HAS BEEN MISUSED IN SOME CASES BY GIVING DISCRETION TO THE TRUSTEES TO DECIDE THE ALLOCATION OF THE INCOME EVERY YEAR AND IN OTHER WAYS. IN SUCH A SITUATION, THE TRUSTEE S AND BENEFICIARIES ARE ABLE TO MANIPULATE THE ARRANGEMENTS IN SUCH A MANNER THAT A DISCRETIONARY TRUST IS CONVERTED ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 22 -: TO A SPECIFIC TRUST WHENEVER IT SUITS THEM TAX-WISE . IN ORDER TO PREVENT SUCH MANIPULATION, IT IS PROPOSED TO PROVIDE THAT UNLESS THE BENEFICIARIES AND THEIR SHARES ARE EXPRESSLY STATED IN THE ORDER OF THE COURT OR T HE INSTRUMENT OF TRUST OR WAKF DEED, AS THE CASE MAY BE, AND ARE ASCERTAINABLE AS SUCH O N THE DATE OF SUCH ORDER, INSTRUMENT OR DEED, THE TRUST WILL BE REGARDED AS A DISCRETIONARY TRUST AND ASSESSED ACCORDINGLY.' 52. FROM THE ABOVE EXTRACTS IT CAN BE SEEN THAT THE OB JECT OF THE AMENDMENTS TO THE PROVISION WAS ONLY THAT THE DISTRIBUTION OF THE INC OME SHOULD NOT BE ENTIRELY AT THE DISCRETION OF THE TRUSTEES AND THAT THE TRUST DEED SHOULD REGULATE THE SHARES. 53. HAVING NOTICED THE TAX IMPLICATIONS OF DISCRETIONA RY TRUSTS, WE MAY NOW REVERT TO THE VARIOUS ISSUES RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL AND THE FACTS OF THE PRESENT CASE. THE ISSUE 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 APPLICABILITY OF THE PROVISIONS OF SEC.60, 61 AND 63 OF THE ACT TO THE F ACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THIS REGARD IT NEEDS TO BE CLARIFIED THAT THE ASSESSEE IN ITS REPLY DATED 15.12.2010 TO THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS PO INTED OUT THE ABOVE PROVISIONS AND SUBMITTED THAT IT IS ONLY THE BENEFICIARIES WHO HAV E TO BE ASSESSED TO TAX IN RESPECT 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 THI S ASPECT HAVE BEEN ACCEPTED BY THE CIT(A) BUT HE HAS NOT DISCUSSED OR GIVEN ANY REASONS AS TO HOW THE SUBMISSIONS ARE BEING ACCEPTED. THE BASIC SCHEME OF SECTION 61 R/W SECTION 62 AND SECTION 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 SETTLEMENT IS REVOCAB LE OR IRREVOCABLE. IF UNDER A SETTLEMENT ANY INCOME ARISES TO ANY OTHER PERSON APART FROM TH E SETTLOR SUCH INCOME CAN STILL BE ASSESSED IN THE HANDS OF THE SETTLOR PROVIDED THE S ETTLEMENT IS REVOCABLE. EVEN IF A SETTLEMENT ON THE FACE OF IT IS STATED TO BE IRREVO CABLE, 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 S UCH INCOME OR ASSET, THE SETTLEMENT SHOULD BE DEEMED TO BE REVOCABLE. 54. IN CHAPTER X OF THE PRIVATE PLACEMENT MEMORANDUM I SSUED BY THE INVESTMENT MANAGER INVITING CONTRIBUTION FROM INVESTORS, THE T AX CONSIDERATIONS IN MAKING INVESTMENTS AS UNDERSTOOD BY THEM HAVE BEEN SET OUT. THE CONTEN TS THEREOF IN BRIEF ARE THAT THE CONTRIBUTION BY THE CONTRIBUTORS ARE AKIN TO 'REVOC ABLE TRANSFER' U/S.61 OF THE ACT READ WITH SEC.63 OF THE ACT AND THEREFORE INCOME ARISING FROM THE TRANSFER ARE ASSESSABLE IN THE HANDS OF THE CONTRIBUTORS. THE CONTRIBUTORS ARE THE REFORE INFORMED THAT IN RESPECT OF THEIR PRO-RATA SHARE OF INCOME RECEIVED BY THE FUND IT IS THE CONTRIBUTORS WHO WILL BE LIABLE TO TAX AND NOT THE TRUST/FUND. THE NATURE OF INCOME THAT IS LIKELY TO ARISE FROM THE 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, AR E EXEMPT IN THE HANDS OF THE SHAREHOLDERS AND THEREFORE THE DIVIDEND EARNED BY T HE TRUST FROM INVESTMENT WOULD BE EXEMPT FROM TAX AND THEREFORE THERE WOULD BE NO TAX IMPLICATIONS IN THE HANDS OF THE BENEFICIARY. (2) INTEREST ON LOANS GIVEN BY THE TRUS T/FUND TO COMPANIES WOULD SUFFER TAX DEDUCTION AT SOURCE. NEVERTHELESS THE BENEFICIARIES HAVE TO DECLARE INTEREST 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 SUBJECTED TO TAX EIT HER 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/FU ND 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 RATES. (4) GAIN ON REDEMPTION PREMIUM OF DEBENTURES/BONDS WILL ALSO SUFFER TAX EITHER AS LONG TERM OR SHORT TERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING. 55. UNDER CLAUSE-2 OF THE CONTRIBUTION AGREEMENT, THE CONTRIBUTOR/BENEFICIARY/INVESTOR AGREES TO CONTRIBUTE A SPECIFIED SUM TO THE TRUST/FU ND. CLAUSE-2.6 OF THE CONTRIBUTION AGREEMENT SPECIFIES THAT THE CONTRIBUTOR/INVESTOR/BEN EFICIARY SHALL NOT HAVE ANY RIGHT TO DEMAND THE RETURN OF HIS/HER/ITS FUND CONTRIBUTOR, O THER 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 ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 23 -: LAYS DOWN THAT THE REDEMPTION OF UNITS BY THE BENEF ICIARY SHALL BE AT THE SOLE DISCRETION OF THE TRUSTEES IN CONSULTATION WITH THE INVESTMENT MA NAGER. 56. IN THE LIGHT OF THE AFORESAID CLAUSES IN THE CONTR IBUTION AGREEMENT, CAN IT BE SAID THAT TRANSFER OF FUNDS BY THE BENEFICIARY TO THE TRUST/FU ND IS A REVOCABLE TRANSFER? 57. THE ANSWER TO THE ABOVE QUESTION CANNOT BE GIVEN B Y MERELY READING THE CLAUSES IN THE CONTRIBUTION AGREEMENT ALONE. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US WAS THAT THE CONTRIBUTION AGREEMENT HAS T O BE READ ALONG WITH THE TRUST DEED AS WELL AS THE INVESTMENT MANAGEMENT AGREEMENT AND OFF ER DOCUMENT FOR PRIVATE PLACEMENT ISSUED BY THE INVESTMENT MANAGER. ARTICLE-13 OF THE TRUST DEED PROVIDES FOR TERMINATION OF THE TRUST. THOUGH SUCH A POWER IS NOT WITH THE BENE FICIARY/TRANSFEROR, IT IS NOT THE REQUIREMENT OF SEC.61 THAT THE POWER OF REVOCATION MUST BE AT THE INSTANCE OF THE BENEFICIARY/TRANSFEROR. THE POWER OF REVOCATION UNDE R CLAUSE13 OF THE DEED OF TRUST IS A GENERAL POWER OF REVOCATION AND THE SAME WOULD BE S UFFICIENT FOR CONSTRUING THE TRANSFER IN THE PRESENT CASE AS A REVOCABLE TRANSFER. AS RIGHTL Y CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE IT IS NOT NECESSARY THAT THE POWER OF REVOCATION SHOULD BE AT THE INSTANCE OF THE CONTRIBUTORS/BENEFICIARIES/ TRANSFEROR AND IT CAN BE AT THE INSTANCE OF ANY PERSON EITHER SETTLOR, TRUSTEE, TRANSFEREE OR THE BENEFICIARIES. 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 COUNSEL FOR THE ASSE SSEE ON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF SURAT ART SILK CLOTH M FRS. ASSOCIATION (SUPRA) SUPPORT THE PLEA TAKEN BY HIM. AS RIGHTLY CONTENDED BY HIM THE EXIST ENCE OF A POWER TO REVOKE THE TRANSFER THAT HAS TO BE SEEN AND NOT THE MANNER IN WHICH/ OR AT WHOSE INSTANCE SUCH REVOCATION IS BROUGHT ABOUT. 58. THE ALTERNATIVE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PROVISIONS OF SEC.63(A) OF THE ACT, WHICH DEEMS EXISTENCE OF PO WER OF REVOCATION IN CERTAIN CIRCUMSTANCES, ARE ALSO ACCEPTABLE. IN THIS REGARD PROSPECTUS INVITING CONTRIBUTION FROM CONTRIBUTORS CLEARLY LAY DOWN IN CERTAIN CIRCUMSTAN CES 75% OF THE CONTRIBUTORS CAN REVOKE THEIR CONTRIBUTION TO THE FUND AT ANY POINT OF TIME AND THE TRUSTEES SHALL THEN TERMINATE THE FUND. THOUGH THE ABOVE POWER OF THE TRANSFEROR/BENEF ICIARY TO REVOKE THE TRANSFER IS NOT IN THE INSTRUMENT OF TRANSFER BUT BY VIRTUE OF THE POW ER CONFERRED IN A DOCUMENT BY WHICH THE INVESTMENT MANAGER APPOINTED BY THE TRUST BY VIRTUE OF POWERS CONFERRED UNDER THE TRUST DEED, WOULD BE SUFFICIENT TO CONCLUDE THAT THE TRAN SFEROR/BENEFICIARY HAD DEEMED POWERS OF REVOCATION. IN THIS REGARD THE RELIANCE PLACED BY T HE LEARNED COUNSEL 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 T O THE PRESENT CASE. IN THE AFORESAID DECISION THE HON'BLE SUPREME COURT HELD THAT SEC. 6 3(1) OF THE ACT DOES NOT SAY THAT THE DEED OF TRANSFER MUST CONFER OR VEST AN UNCONDITION AL OR AN EXCLUSIVE POWER OF REVOCATION IN THE TRANSFEROR. IT WAS FURTHER HELD THAT THE FACT T HAT CONCURRENCE OF THE TRUSTEE HAD TO BE OBTAINED BY THE TRANSFEROR/SETTLER FOR REVOCATION WI LL NOT MAKE THE TRUST AN IRREVOCABLE TRANSFER. IN SUCH CIRCUMSTANCES IT MUST BE HELD THA T THE DEED CONTAINS A PROVISION GIVING THE TRANSFEROR A RIGHT TO RE-ASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART OF INCOME OR ASSETS WITHIN THE MEANING OF S. 63(A)(I I) OF THE ACT. 59. FOR THE REASONS GIVEN ABOVE WE HOLD THAT SEC.61 RE AD WITH SEC.63 OF THE ACT WHICH MANDATES THAT INCOME ARISING TO ANY PERSON BY VIRTU E OF A REVOCABLE TRANSFER OF ASSETS SHALL BE CHARGEABLE TO INCOME TAX AS INCOME OF THE TRANSF EROR WILL APPLY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THEREFORE THE ASSESSMENT IN THE HANDS OF THE TRANSFEREE/REPRESENTATIVE ASSESSEE WAS NOT PROPER. 60. THE ISSUES RAISED BY THE REVENUE IN GROUNDS 4 TO 7 OF THE GROUNDS OF APPEAL IS WITH REGARD TO APPLICABILITY OF PROVISIONS OF SEC.164(1) OF THE ACT. IN VIEW OF THE CONCLUSION ON GROUND NO.3 THE ADJUDICATION OF OTHER GROUNDS MAY N OT BE NECESSARY. SINCE THE ORDER OF THE AO IS BASED ON THE APPLICABILITY OF THE PROVISIO NS OF SEC.164(1) OF THE 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 RE LEVANT IN THIS REGARD. 'SEC.164(1) LAYS DOWN THAT WHERE ANY INCOME OR ANY P ART THEREOF IN RESPECT OF WHICH THE PERSONS MENTIONED IN CL. (IV) OF SUBSECTION (1) O F SECTION 160 IS LIABLE AS REPRESENTATIVE ASSESSEE OR ANY PART THEREOF ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 24 -: (I) IS NOT SPECIFICALLY RECEIVABLE ON BEHALF OR FOR THE BENEFIT OF ANY ONE PERSON; OR (II) WHERE THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT S UCH INCOME OR SUCH PART THEREOF IS RECEIVABLE ARE INDET ERMINATE OR UNKNOWN (SUCH INCOME, SUCH PART OF THE INCOME AND SUCH PERSONS BEING HERE AFTER IN THIS SECTION REFERRED TO AS 'RELEVANT INCOME', 'PART OF RELEVANT INCOME' AND 'B ENEFICIARIES', 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 DEEMED AS BEING NOT SPECIFIC ALLY RECEIVABLE ON BEHALF OR FOR THE BENEFIT OF ANY ONE PERSON UNLESS THE PERSON ON WHOS E BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE DURING TH E PREVIOUS YEAR IS EXPRESSLY STATED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUS T OR WAKF DEED, AS THE CASE MAY BE, AND IS IDENTIFIABLE AS SUCH ON THE DATE OF SUCH ORD ER, INSTRUMENT OR DEED;(II) THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVED SHALL BE DEEMED TO BE INDETERMINATE OR UNKNOWN UNLESS THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHAL F OR FOR WHOSE BENEFIT SUCH INCOME OR SUCH PART THEREOF IS RECEIVABLE, ARE EXPRESSLY S TATED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED, AS THE CASE MAY B E, AND ARE ASCERTAINABLE AS SUCH ON THE DATE OF SUCH ORDER, INSTRUMENT OR DEED.' 61. THE GENERAL RULE AS LAID DOWN IN SEC. 161(1) IS THA T INCOME RECEIVED BY A TRUSTEE ON BEHALF OF THE BENEFICIARY SHALL BE ASSESSED IN THE HANDS OF THE TRUSTEE AS REPRESENTATIVE ASSESSEE AND SUCH ASSESSMENT SHALL BE MADE AND THE TAX THEREON SHALL BE LEVIED UPON AND BE RECOVERED FROM THE REPRESENTATIVE ASSESSEE 'IN L IKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON THE RECOVERABLE FROM THE PER SON REPRESENTED BY HIM'. TO THE ABOVE RULE, HOWEVER, THREE EXCEPTIONS HAVE BEEN INCORPORA TED IN THE ACT :- (A) UNDER S. 161(1A), THIS RULE OF APPORTIONMENT AND DE TERMINATION OF PROPORTIONATE TAX ATTRIBUTABLE TO THE BENEFICIARY WILL NOT APPLY TO A NY INCOME EARNED BY THE TRUSTEE AS PRO FITS AND GAINS OF A BUSINESS. THE WHOLE OF SUCH INCOME S HALL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. A SIMILAR PROVISO OCCURS ALSO IN S. 164(1) RESTRICTING BENEFITS WHERE BUSINESS INCOME IS INVOLVED. (B) UNDER S. 164(1), IF THE BENEFICIARIES ARE NOT ID ENTIFIABLE OR THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF AND FOR WHOSE BENEFIT THE I NCOME IS RECEIVABLE ARE INDETERMINATE OR UNKNOWN, SUCH INCOME, AGAIN, WILL BE TAXED AT TH E 'MAXIMUM MARGINAL RATE'. (C) IN CERTAIN OTHER CIRCUMSTANCES, SET OUT IN THE PROVISO TO S. 164(1), THE RELEVANT INCOME WI LL BE ASSESSABLE NOT AT THE MAXIMUM RATE BUT AT THE RA TE APPLICABLE TO IT AS IF IT WERE THE TOTAL INCOME OF AN AOP. 62. IN THE PRESENT CASE THE AO HAS NOT INVOKED THE PROV ISIONS 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. AS FAR AS IDENTIFICATION OF INDIVIDUAL SHARES OF TH E 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 RE GARDING 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 ASP ECT IS WITH REGARD TO ASCERTAINMENT OF THE SHARE OF THE BENEFICIARIES. 64. ON THE ASPECT OF IDENTIFICATION OF THE BENEFICIARI ES, IT IS THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SO LONG AS THE TRUST DEED GIV ES THE DETAILS OF THE BENEFICIARIES AND THE DESCRIPTION OF THE PERSON WHO IS TO BE BENEFITED, T HE BENEFICIARIES CANNOT BE SAID TO BE UNCERTAIN. CBDT CIRCULAR NO.281 DATED 22.9.1980 WHE REIN THE CBDT HAS EXPLAINED THE SCOPE OF SEC.164 WITH REGARD TO STATING THE NAME OF THE BENEFICIARIES IN THE TRUST DEED. IN THE SAID CIRCULAR THE PROVISIONS OF EXPLN.-1 TO SEC .164 OF THE ACT REGARDING IDENTIFICATION OF BENEFICIARIES HAS BEEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATION OF BENEFICIARIES IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE RELEVANT PREV IOUS YEAR SHOULD BE ACTUALLY NAMED IN ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 25 -: THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST O R 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 THE DATE OF SUC H ORDER, INSTRUMENT OR DEED. WE FIND THAT CLAUSE 1.1.13 OF THE TRUST DEED CLEARLY LAYS D OWN THAT BENEFICIARIES MEANS THE PERSONS, EACH OF WHOM HAVE MADE OR AGREED TO MAKE C ONTRIBUTIONS TO THE TRUST IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT. WE ARE OF THE VIEW THAT THE ABOVE CLAUSE IS SUFFICIENT TO IDENTIFY THE BENEFICIARIES. 65. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BEN EFICIARIES, WE FIND THAT ARTICLE 6.5 OF THE TRUST DEED CLEARLY SPECIFIES THE MANNER IN WHIC H THE INCOME OF THE ASSESSEE IS TO BE DISTRIBUTED. THE SAID CLAUSE DETAILS FORMULA WITH R ESPECT TO THE SHARE OF EACH BENEFICIARY. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IT IS N OT 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 THE SHARES ARE CAPABLE OF BEING DETERMINED BASED ON THE PROVISIONS OF THE TRUST DEED. IN THE CASE OF THE AS SESSEE THE TRUSTEE HAVE NO DISCRETION TO DECIDE THE SHARE OF EACH BENEFICIARY AND ARE BOUND BY THE PROVISIONS OF THE TRUST DEED AND IS DUTY BOUND TO FOLLOW THE DISTRIBUTION MECHANISM SPECIFIED IN THE TRUST DEED. THE FURTHER ASPECT THAT MAY REQUIRE CONSIDERATION IN THE PRESEN T CASE IS WITH REGARD TO THE CLAUSE IN THE TRUST DEED WHICH AUTHORISES ADDITION OF FURTHER CON TRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TIME IN ADDITION TO INITIAL CONTRIBUTORS. FROM T HIS CLAUSE CAN IT BE SAID THAT SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FROM THE TRUST DEED. ON THE ABOVE ASPECT, WE FIND THE AAR IN THE CASE OF COMPANIES IN CORPORATED IN MAURITIES IN RE (SUPRA) HAS CONSIDERED SIMILAR CLAUSE IN A TRUST DEED WITH SPECIFIC REFERENCE TO THE PROVISIONS OF SEC.164(1) OF THE ACT AND HAS HELD THAT 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, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE IND ETERMINATE. THE PERSONS AS WELL AS THE SHARES MUST BE CAPABLE OF BEING DEFINITELY PIN-POIN TED AND ASCERTAINED ON THE DATE OF THE TRUST DEED ITSELF WITHOUT LEAVING THESE TO BE DECID ED UPON AT A FUTURE DATE BY A PERSON OTHER THAN THE AUTHOR EITHER AT HIS DISCRETION OR I N 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 CO NTRIBUTORS, THAN THE SAME WOULD NOT MAKE THE BENEFICIARIES UNKNOWN OR THEIR SHARE INDETERMIN ATE. EVEN IF THE SCHEME OF COMPUTATION OF INCOME OF BENEFICIARIES IS COMPLICATED, IT IS NO T POSSIBLE TO SAY THAT THE SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FRO M THE TRUST DEED. IN VIEW OF THE AFORESAID DECISION OF THE AAR, WITH WHICH WE RESPEC TFULLY AGREE, WE HOLD THAT THE PROVISIONS OF SEC.164(1) OF THE ACT WOULD NOT BE ATTRACTED IN T HE PRESENT CASE. WE ALSO FIND THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF P.SEKAR TR UST (SUPRA)AND MANILAL BAPALAL (SUPRA)HAS TAKEN A VIEW THAT IDENTITY BY REF ERENCE TO THE TERMS OF THE TRUST DEED IS SUFFICIENT AND IT IS NOT NECESSARY THAT THE BENEFIC IARIES SHOULD BE SPECIFICALLY NAMED IN THE DEED OF TRUST. CONSEQUENTLY GROUNDS 4 TO 7 RAISED B Y THE REVENUE ARE HELD TO BE WITHOUT MERIT. 66. IN GROUND NO.8, THE REVENUE HAS CHALLENGED THE ORD ER 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 THAT THERE IS NO SEPARATE STA TUS OF TRUST FOR MAKING ASSESSMENT ENVISAGED UNDER THE ACT. IN THIS REGARD THE DEFINIT ION OF PERSON U/S. 2(31) OF THE ACT WHICH DOES NOT SPECIFICALLY REFER TO 'TRUST' IS BEING HIG HLIGHTED IN THE GROUNDS RAISED BY THE REVENUE. THESE GROUNDS CAN BE CONVENIENTLY DEALT WI TH 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 EXPRESSI ON AOP OCCURRING IN THE 1922 ACT. BY A SERIES OF DECISIONS, THE MEANING OF THIS EXPRESSION WAS PRECISELY DEFINED AND TESTS WERE LAID DOWN IN ORDER TO FIND OUT WHEN A CONGLOMERATE OF PE RSONS COULD BE HELD TO BE AN AOP FOR THE PURPOSES OF SECTION 3 OF THE 1922 ACT. WHILE IN TERPRETING THIS EXPRESSION OCCURRING IN SECTION 3 OF THE INDIAN IT ACT, 1922, THE SUPREME C OURT IN CIT V. INDIRA BALKRISHNA (SUPRA) HELD 'AN AOP MUST BE ONE IN WHICH TWO OR MOR E PERSONS JOIN IN A COMMON PURPOSE OR COMMON ACTION, AND AS THE WORDS OCCUR IN A SECTI ON 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 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 FACTS AND CIRCUMSTANC ES OF EACH CASE AS TO WHETHER THE ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 26 -: CONCLUSION CAN BE DRAWN OR NOT''. TO THE ABOVE JUDI CIAL EXPOSITION OF WHAT CONSTITUTES AOP, THERE HAS BEEN A STATUTORY RIDER ADDED. THE FINANCE ACT, 2002 HAS INSERTED W.E.F. 1ST APRIL, 2003 AN EXPLANATION TO CLARIFY THAT OBJECT OF DERIV ING INCOME IS NOT NECESSARY FOR AOP, BOI, LOCAL AUTHORITY OR AN ARTIFICIAL JURIDICAL PERSON I N ORDER THAT SUCH ENTITY MAY COME WITHIN THE DEFINITION OF 'PERSON' IN SECTION 2(31). IF INCOME R ESULTS THAN THEY ARE LIABLE TO BE TAXED AS AOP IF THE OTHER CONDITIONS LAID DOWN BY JUDICIAL DE CISIONS ARE SATISFIED. IN THE LIGHT OF THE ABOVE DEFINITION OF AOP, LET US EXAMINE THE FACTS OF THE PRESENT CASE. (I) THE ASSESSEE IS A TRUST CONSTITUTE D UNDER AN INSTRUMENT OF TRUST DATED 25/9/2006. M/S.ICICI VENTURE FUNDS MANAGEMENT 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 EXECUT OR COMPANY LIMITED (HEREINAFTER REFERRED AS THE 'TRUSTEE') AS INITIAL CORPUS TO BE APPLIED AND G OVERNED BY THE TERMS AND CONDITIONS OF THE INDENTURE DATED 25.9.2006. THE TRUSTEE WAS EMPO WERED TO CALL FOR CONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE IN VESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJECT S OF THE TRUST. THE OBJECTIVE OF CREATION OF THE TRUST WAS T O INVEST IN CERTAIN SECURITIES CALLED MEZZANINE INSTRUMENTS AND TO ACHIEVE COMMENSURATE R ETURNS 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 TRU ST 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 CONTRIBUTORS TO THE FUND ARE ITS BENEFICIARIES. (II) THE TRUSTEES HAD POWER TO APPOINT INVESTMENT MANAGE RS TO MANAGE THE TRUST FUND. THE SETTLOR WAS TO BE APPOINTED AS THE INVESTMENT MANAG ER. THE TERMS OF THE APPOINTMENT OF THE SETTLOR AS INVESTMENT MANAGER ARE SET OUT IN AN INVESTMENT MANAGEMENT AGREEMENT DATED 25.9.2006 BETWEEN THE ASSESSEE REPRESENTED BY THE TRUSTEE AND SETTLOR. (III) THE SETTLOR AS INVESTMENT MANAGER ISSUED MEMORANDUM TO PROSPECTIVE INVESTORS ON A CONFIDENTIAL BAS IS FOR THEM TO CONSIDER AN INVESTMENT IN MEZZANINE FUND. AN INVESTOR WHO WISHES TO CONTRIBUTE TO THE FUND ENTERS INTO A CONT RIBUTION AGREEMENT WITH THE TRUST, THE TRUSTEES ACTING ON BEHALF OF THE TRUST AND THE SETT LOR ACTING IN HIS CAPACITY AS INVESTMENT MANAGER. 68. IT CAN THUS BE SEEN THAT THE BENEFICIARIES CONTRIB UTED THEIR MONEY TO THE ASSESSEE AND A SEPARATE AGREEMENT WAS ENTERED INTO BETWEEN THE A SSESSEE AND EACH BENEFICIARY. THERE IS NO INTER SE ARRANGEMENT BETWEEN ONE CONTRIBUTORY / BENEFICIARY AND THE OTHER CONTRIBUTORY/BENEFICIARY AS EACH OF THEM ENTER INTO SEPARATE CONTRIBUTION ARRANGEMENT WITH THE ASSESSEE. THEREFORE IT CANNOT BE SAID THAT TWO OR MORE BENEFI CIARIES JOINED IN A COMMON PURPOSE OR COMMON ACTION AND THEREFORE THE TESTS FOR CONSIDERI NG THE ASSESSEE AS AOP WAS SATISFIED. THE BENEFICIARIES HAVE NOT SET UP THE TRUST. THEREF ORE IT CANNOT BE SAID THAT THE BENEFICIARIES HAVE COME TOGETHER WITH THE OBJECT OF CARRYING ON INVESTMENT IN MEZZANINE FUNDS WHICH IS THE OBJECT OF THE TRUST. THE BENEFIC IARIES ARE MERE RECIPIENTS OF THE INCOME EARNED BY THE TRUST. THEY CANNOT THEREFORE BE REGAR DED AS AN AOP. GROUND NO.8 RAISED BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MER IT. 69. ANOTHER REASON ASSIGNED BY THE AO FOR TREATING THE STATUS OF THE ASSESSEE AS AOP WAS THAT IN THE RETURN OF INCOME FILED 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 EXISTED FOR THE RELEVANT ASSESSMENT YEAR DID NOT CO NTAIN A CLAUSE FOR FILING RETURN OF INCOME BY A 'TRUST' IN THE STATUS OTHER THAN AOP. THE CBDT REALISED THIS DIFFICULTY FACED BY 'PRIVATE DISCRETIONARY TRUSTS' HAVING TOTAL INCOME EXCEEDING TEN LAKH RUPEES FACING PROBLEM IN FILING THEIR RETURN OF INCOME ELECTRONICALLY IN CASES WHER E THEY ARE FILING THEIR RETURN IN THE STATUS OF AN INDIVIDUAL BECAUSE STATUS OF A PRIVATE DISCRE TIONARY 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 'PRIVATE DISCRETIONARY TR USTS', IF ITS TOTAL INCOME EXCEEDS TEN LAKH RUPEES, TO ELECTRONICALLY FURNISH THE RETURN OF INC OME FOR ASSESSMENT YEAR 2012-13. FORM NO.49A WHICH WAS THE PRESCRIBED FORM OF APPLICATION FOR ALLOTMENT OF PERMANENT ACCOUNT NUMBER (PAN) ALSO DID NOT CONTAIN A SEPARATE STATUS 'TRUST' BUT CONTAINED A COLUMN 'AOP (TRUST)'. THE REVISED FORM NO.49A LATER NOTIFIED CON TAINS A COLUMN FOR STATUS AS 'TRUST'. THEREFORE THE ARGUMENT OF THE REVENUE THAT ALL 'TRU STS' ARE AOPS IS NOT CORRECT. IF THE CONTENTION OF THE REVENUE AS RAISED IN GROUND NO.9 IS ACCEPTED THAN THE PROVISIONS OF SEC.161(1) OF THE ACT WOULD BECOME REDUNDANT. THE CH ARGE TO TAX IN THE HANDS OF THE ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 27 -: 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. GR OUND NO.9 RAISED BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. 70. IN GROUND NO.10 THE REVENUE HAS RAISED ISSUE THAT 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, 26TH DEC., 1974 AND 24TH AUG., 1966 ON THE ISSUE WHEREIN IT HAS BEEN OPINED THAT ONCE THE CHOICE IS MADE BY THE DEPARTMENT TO T AX EITHER THE TRUST OR THE BENEFICIARY, IT IS NO MORE OPEN TO THE DEPARTMENT TO GO BEHIND IT A ND ASSESS THE OTHER AT THE SAME TIME. 71. IN THE CASE OF DR. DAVID JOSEPH (SUPRA) THE HON'BLE KERALA HIGH COURT AFTER MAKING A REFERENCE TO THE ABOVE CIRCULARS HELD THAT ONCE A B ENEFICIARY IS ASSESSED AND HIS ASSESSMENT IS COMPLETED PRIOR IN POINT OF TIME, AND HIS ASSESSMENT IS AN ELEMENT OF FINALITY, IT IS A NATURAL CONSEQUENCE FLOWING THERE FROM THAT THE DEPARTMENT DOES NOT GET ANY PERMISSION TO GO BEHIND IT FOR THE PURPOSE OF SCRUT INISING 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 CON SEQUENCES THAT FLOW FROM THE PRINCIPLE OF FINALITY. THIS PRINCIPLE ESPECIALLY EMERGES FROM THREE CIRCULARS AND HAS ESTABLISHED INTO A SETTLED PRACTICE, ANY TIME A DEVIATION THEREFROM CA NNOT BE PERMITTED, EVEN ON THE GROUND OF A MISTAKE WITH REGARD TO THE MERITS OF THE SITUA TION THAT RECEIVED FINALITY. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE M.P.HIGH COURT IN THE CASE OF RAI SAHE SETH GHISALAL MODI FAMILY TRUST (SUPRA)AND HON'BLE BOMBAY HIGH COURT IN THE CASE OF TRUSTEES OF CHATURBHUJ RAGHAVJI TRUST (SUPRA). 72. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TRUST EES OF CHATURBHUJ RAGHAVJI TRUST (SUPRA)HELD THAT UNDER SUB-S. (2) OF S. 41, IT IS PERMISSIBLE FOR THE IT AUTHORITIES TO MAKE DIRECT ASSESSMENT ON THE PERSON ON WHOSE BEHAL F INCOME, PROFITS AND GAINS FROM A TRUST ARE RECEIVABLE. SEC. 41 HAVING PROVIDED FOR T WO ALTERNATIVE METHODS, NAMELY, EITHER TO TAX THE INCOME IN THE HANDS OF THE TRUSTEES OR DIRE CTLY IN THE HANDS OF THE PERSON ON WHOSE BEHALF THE INCOME WAS RECEIVABLE UNDER THE TRUST, A ND ONE OF THEM HAVING BEEN AVAILED OF BY THE IT DEPARTMENT IN DIRECTLY ASSESSING BENEFICI ARY IN RESPECT OF THE INCOME, THE OTHER WAS NO LONGER AVAILABLE TO THE DEPARTMENT. IT WAS C ONTENDED ON BEHALF OF THE REVENUE THAT THE OPTION WAS OF THE ITO WHO WAS ASSESSING THE TRUS T TO DECIDE WHETHER HE WOULD ASSESS THE INCOME IN THE HANDS OF THE TRUSTEES OR DIRECTLY IN THE HANDS OF THE BENEFICIARY. THIS CONTENTION WAS REJECTED BY THE HON'BLE HIGH COURT W HICH HELD THAT SEC. 41 WAS A SPECIAL ENABLING PROVISION WHICH PERMITTED THE ASSESSMENT I N THE HANDS OF THE TRUSTEES BUT DID NOT PRECLUDE THE DIRECT ASSESSMENT IN THE HANDS OF THE BENEFICIARIES. THERE IS NOTHING IN S. 41 WHICH WOULD INDICATE THAT THE CHOICE BETWEEN THE AL TERNATIVE METHODS PROVIDED THEREIN HAS TO BE MADE ONLY AT THE TIME OF THE ASSESSMENT OF TH E 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 TIME OF RAISING THE INITIAL ASSESSMENT EITHER OF THE TRUST OR THE BENEFICIARIES ADOPT A COURSE BENEFICIAL TO THE REVENUE. HAVING EXERCISED HIS OPTION ONCE, IT WILL 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 TRUSTEE). IN CBDT CIRCULAR NO.13/2014 DATED 28.7.2014 THE BOARD HAS HOWEVER GIVEN INSTRUCTIONS THAT AS PER THE SEBI (ALTERNATIVE INVE STMENT FUNDS) REGULATIONS, 2012 FUNDS WHICH ARE NOT VENTURE CAPITAL FUNDS AND WHICH ARE N ON-CHARITABLE TRUSTS WHERE THE INVESTORS NAME AND BENEFICIAL INTEREST ARE NOT EXPLICITLY KNO WN ON THE DATE OF ITS CREATION- SUCH INFORMATION BECOMING AVAILABLE ONLY WHEN THE FUNDS STARTS ACCEPTING 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 RECEIVED ON BEHALF O F 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 WAS NOT IN FORCE AT T HE RELEVANT AY WHEN THE ASSESSMENT WAS MADE BY THE AO ON THE PRESENT ASSESSEE. CIRCULARS NO T IN FORCE IN THE RELEVANT ASSESSMENT YEAR CANNOT BE APPLIED AS HELD BY THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF BASF (INDIA) LTD. (SUPRA). THE DECISION OF THE HON'BLE SUP REME IN THE CASE OF CH. ATCHAIAH (SUPRA)ON WHICH THE AO PLACED RELIANCE IN MA KING ASSESSMENT ON 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 AOP WAS NOT DISPUTED BUT IT WAS ARGUED THAT THE ITO HAD OPTION TO ASSESS EITHER THE AOP OR THE INDIVIDUAL MEMBER OF THE AOP. THE HON'BLE SUPREME COURT ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 28 -: HELD THAT UNLIKE UNDER S. 3 OF THE 1922 ACT, THE IT O DID NOT HAVE AN OPTION UNDER S. 4 OF THE IT ACT, 1961, TO ASSESS EITHER THE AOP OR THE INDIVI DUAL MEMBERS THEREOF. IF THE ITO HAS ASSESSED A WRONG PERSON, SAY INDIVIDUAL INSTEAD OF AOP, HE IS NOT PRECLUDED, IN CONTRADISTINCTION TO THE 1922 ACT, TO SEEK TO ASSES S THE RIGHT PERSON UNDER THE 1961 ACT. THE HON'BLE COURT MADE IT CLEAR THAT WHEREVER SUCH ON OPTION IS GIVEN UNDER THE 1961 ACT, IT HAS BEEN SPECIFICALLY PROVIDED, AS IN S.183 AND THAT UNDER THE 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 REPRESENTATIVE ASSESSEE OR THE PERSON IN RESPECT OF WHOM SOME OTHER PERSON IS CONS IDERED AS REPRESENTATIVE ASSESSEE. SEC.161(1) BY IMPLICATION PERMITS ASSESSMENT OF EITH ER THE BENEFICIARY OR THE TRUSTEE. WHEN THE TRUSTEE IS ASSESSED AS REPRESENTATIVE ASSE SSEE IN RESPECT OF INCOME RECEIVED ON BEHALF OF THE BENEFICIARY, THE SECTION PROVIDES THA T TAX SHALL BE LEVIED UPON AND RECOVERED FROM HIM IN LIKE MANNER AND TO THE SAME EXTENT AS I T WOULD BE LEVIABLE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM. IN OUR VIEW, THEREFORE, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CH. ATCHAIAH ( SUPRA)WILL NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE IN THE PRESENT CASE. 6.6 THE HONBLE KARNATAKA HIGH COURT CONFIRMED THE ORD ER THE TRIBUNAL IN THE ABOVE CASE REPORTED IN [2017] 78 TAXMANN.COM 301 (KARNATAKA).HONBLE HIGH COURT IN THE CITED CASE HEL D AS UNDER: 10. IN OUR VIEW, THE CONTENTION IS WHOLLY MISCONCEIVED FOR THREE REASONS. ONE IS THAT BY NO INTERPRETATIVE PROCESS THE EXPLANATION TO SECTION 164 OF THE ACT, WHICH IS PRESSED IN SER VICE CAN BE READ FOR DETERMINABILITY OF THE SHARES OF TH E BENEFICIARY WITH THE QUANTUM ON THE DATE WHEN THE TRUST DEED IS EXECUTED AND THE SECOND REASON IS THAT THE REAL TEST IS THE DETERMINABILITY OF THE SHARES OF THE BENEFICIARY AN D IS NOT DEPENDENT UPON THE DATE ON WHICH THE TRUST DEED WAS EXECUTED IF ONE IS TO CONN ECT THE SAME WITH THE QUANTUM. THE REAL TEST IS WHETHER SHARES ARE DETERMINABLE EVEN W HEN EVEN OR AFTER THE TRUST IS FORMED OR MAY BE IN FUTURE WHEN THE TRUST IS IN EXISTENCE. IN THE FACTS OF THE PRESENT CASE, EVEN THE ASSESSING AUTHORITY FOUND THAT THE BENEFICIARIES AR E TO SHARE THE BENEFIT AS PER THEIR INVESTMENT MADE OR TO SAY IN OTHER WORDS, IN PROPOR TION TO THE INVESTMENT MADE. ONCE THE BENEFITS ARE TO BE SHARED BY THE BENEFICIARIES IN P ROPORTION TO THE INVESTMENT MADE, ANY PERSON WITH REASONABLE PRUDENCE WOULD REACH TO THE CONCLUSION THAT THE SHARES ARE DETERMINABLE. ONCE THE SHARES ARE DETERMINABLE AMONG ST THE BENEFICIARIES, IT WOULD MEET WITH THE REQUIREMENT OF THE LAW, TO COME OUT FROM T HE APPLICABILITY OF SECTION 164 OF THE ACT. 11. UNDER THE CIRCUMSTANCES, WE CANNOT ACCEPT THE CONT ENTION OF THE REVENUE THAT THE SHARES WERE NON-DETERMINABLE OR THE VIEW TAKEN BY T HE TRIBUNAL IS PERVERSE. ON THE CONTRARY, WE DO FIND THAT THE VIEW TAKEN BY THE TRI BUNAL IS CORRECT AND WOULD NOT CALL FOR INTERFERENCE SO FAR AS DETERMINABILITY OF THE SHARE S OF THE BENEFICIARIES ARE CONCERNED. 12. ONCE THE SHARES OF THE BENEFICIARIES ARE FOUND TO BE DETERMINABLE, THE INCOME IS TO BE TAXED OF THAT RESPECTIVE SHARER OR THE BENEFICIARIE S IN THE HANDS OF THE BENEFICIARY AND NOT IN THE HANDS OF THE TRUSTEES WHICH HAS ALREADY BEEN SHOWN IN THE PRESENT CASE. 13. UNDER THE CIRCUMSTANCES, IN ANY CASE, IT CANNOT BE SAID THAT THE TRIBUNAL HAS COMMITTED ERROR. ACCORDINGLY, THE QUESTION IS ANSWE RED IN AFFIRMATIVE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 6.7 IN THE INSTANT CASE, THE ASSESSEE HAS CREATED A TR UST WHICH WAS REGISTERED AND THE BENEFICIARIES HAVE BEEN IDENTIFI ED BY THE CONTRIBUTION ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 29 -: AGREEMENT(PPM) AND THEIR SHARES ARE ALSO ASCERTAINA BLE WITH RESPECT TO CONTRIBUTIONS AND THE UNITS. THE HONBLE HIGH COURT CONSIDERED THE ISSUE REGARDING IDENTIFICATION OF BENEFICIARIES AT THE TI ME OF FORMATION OF THE TRUST AND EXPRESSED VIEW THAT EVEN AFTER EXECUTION OF THE TRUST DEED IF THE BENEFICIARIES ARE IDENTIFIABLE AND THEIR SHARES ARE ASCERTAINABLE IT IS SUFFICIENT COMPLIANCE TO HOLD THE TRUST AS DETERMIN ATE TRUST. IN THE ASSESSEES CASE THE BENEFICIARIES ARE IDENTIFIABLE WITH PPM AND THEIR SHARES ARE ASCERTAINABLE AS DISCUSSED EARLIER IN THIS ORDE R. THE FACTS OF THE CASE ARE SIMILAR TO THAT OF INDIA ADVANTAGE FUND SUPRA AND THE DECISION RENDERED BY THE HONBLE ITAT BANGALORE SQUARELY APP LIES IN THIS CASE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH OF BANGALORE AND HONBLE KARNATAKA HIGH COURT SUPRA WE HOLD THA T THE ASSESSEES TRUST IS A DETERMINATE TRUST AND THE APPEAL OF THE ASSESSEE IS ON THIS ISSUE IS ALLOWED. 7.0 THE SECOND ISSUE IN THIS APPEAL RAISED BY THE ASSE SSEE HAVING DETERMINATE TRUST, THE INTEREST INCOME OF THE TRUST SHOULD BE ASSESSED IN THE HANDS OF THE BENEFICIARIES BUT NOT IN THE HANDS OF THE ASSESSEE. SEC.161(1),PROVIDES FOR ASSESSMENT OF INCOME IN THE HANDS OF THE BENEFICIARY AND IN CERTAIN CIRCUMSTANCES IN THE HAN DS OF THE TRUST IN REPRESENTATIVE CAPACITY, IF THE SHARES ARE UNKNOWN AS PER SEC.164 THE INCOME REQUIRED TO BE ASSESSED IN THE HANDS OF THE TRUST AT MAXIMUM MARGINAL RATE. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 30 -: 7.1 WE HAVE DECIDED THAT THE ASSESSEE IS DETERMINA TE TRUST IN THE EARLIER PARAGRAPHS. HAVING HELD THE TRUST AS DETERM INATE TRUST WE HOLD THAT THE INCOME OF THE TRUST REQUIRED TO BE ASSESSE D IN THE HANDS OF THE BENEFICIARIES OR IN THE HANDS OF THE TRUST IN THE R EPRESENTATIVE ASSESSEE U/S.161(1) OF IT ACT. HOWEVER, THE ASSESSEE IS TRUS T REGISTERED AS VENTURE CAPITAL FUND AND ANY INCOME OF A VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND [FROM INVESTMENT] IN A VENTURE CAPITAL UNDERTAKING IS EXEMPT U/S 10(23FB) AND TAXABLE IN THE HANDS OF THE BENEFI CIARIES U/S 115U. CHAPTER XII-F AND SECTION 115U HAVE BEEN INTRODUCED IN THE STATUTE VIDE FINANCE ACT 2000 FOR MAKING VCF/VCC AS A PASS THROUGH VEHICLE AND TAXING INVESTORS AS IF THEY HAD RECEIVED INCOME DIR ECTLY FROM THE VENTURE CAPITAL UNDERTAKING. THIS SECTION HAS BEEN INTRODUC ED CORRESPONDING TO THE INSERTION OF NEW CLAUSE (23FB) IN SECTION 10 BE ING AN ENABLING PROVISION FOR TAXING INVESTORS, WHO RECEIVES THE IN COME FROM VCC/VCF BECAUSE, AS PER THE PROVISIONS OF SECTION 10(23FB) ANY INCOME OF VCC OR VCF IS EXEMPT. SEC. 115U IS INTENDED TO GRANT TAX C ONCESSION TO THE RECIPIENT OF INCOME FROM A VCC/VCF AND SUCH INCOME IN THE HANDS OF THE INVESTOR SHALL BE CHARGEABLE TO TAX AS IF IT WERE I NCOME FROM INVESTMENT IN VENTURE CAPITAL UNDERTAKING MADE DIRECTLY BY SUCH P ERSON. THUS, SECTION 115U STIPULATES THAT THE INCOME RECEIVED BY A PERSO N FROM VCC/VCF SHALL BE DEEMED TO BE OF SAME NATURE AND THE SAME PROPORT ION ACCRUING TO THE VCF/VCF. HOWEVER, THE CONCESSION IN TAX IS IN THE S HAPE THAT THE PROVISIONS OF CHAPTER XII-D OR XII-E OR XVII-B SHAL L NOT APPLY TO THE INCOME PAID BY THE VCC OR VCF. THIS MEAN THAT NO TA X SHALL BE PAYABLE ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 31 -: U/S 115-0 OR SECTION 115R AND NO TAX DEDUCTION AT S OURCE SHALL BE MADE UNDER THE PROVISIONS CONTAINED IN CHAPTER XVII-B FR OM THE INCOME PAID BY THE VCC OR VCF TO AN INVESTOR. AS PER SUB.-SEC (2) OF SECTION 115U, IT IS MANDATORY ON THE PART OF THE VCC OR VCF TO FURNISH A STATEMENT IN THE PRESCRIBED FORM AND VERIFY IN THE PRESCRIBED MANNER GIVING THE DETAILS OF NATURE OF INCOME PAID DURING THE PREVIOUS YEAR. FOR M 64 IS PROVIDED FOR MAKING THE STATEMENT OF INCOME DISTRIBUTED BY VCC O R VCF TO BE FURNISHED U/S 115U OF THE IT ACT. IT MAKES CLEAR THAT VCC OR VCF HAS TO FURNISH THE DETAILS OF THE NATURE OF INCOME RECEIVED BY THE INV ESTOR FROM VCC OR VCF. SPECIFIC DETAILS REQUIRING THE INCOME/AMOUNT PAID U NDER LONG TERM CAPITAL GAINS, SHORT TERM CAPITAL GAINS, DIVIDEND OR OTHER INCOME SUCH AS INTEREST ETC. THUS, SECTION 115U MANDATES THAT THE NATURE OF INCOME WHICH IS RECEIVED BY THE VCC OR VCF FROM THE VENTURE CAPITAL UNDERTAKING AND FURTHER DISTRIBUTED TO THE INVESTOR SHALL BE TAXABL E IN THE HANDS OF THE INVESTOR BY TREATING THE SAME NATURE OF INCOME LIKE LONG TERM CAPITAL GAIN, SHORT TERM CAPITAL GAINS, DIVIDEND OR OTHER INCOME SUCH AS INTEREST ETC., AND ACCORDINGLY BE TAXED AS PER THE PROVISIONS AS A PPLICABLE UNDER DIFFERENT HEADS OF THE INCOME. HENCE, SECTION 115U PRESCRIBES THE PRINCIPLE OF PASS THROUGH BY TREATING THE VCC OR VC F AS A PASS THROUGH VEHICLE AND FURTHER, GRANTS SOME CONCESSION IN THE SHAPE OF NON- APPLICABILITY OF PROVISIONS OF CHAPTER XIV-D, XII E OR XVII B. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 32 -: 7.2 THE ASSESSEE IS DUTY TO BOUND TO FURNISH THE CORR ECT INFORMATION REGARDING THE INCOME PAID OR CREDITED TO THE BENEFI CIARY FROM EACH SOURCE WHICH REQUIRED TO BE INCLUDED BY THE BENEFICIARY UN DER THE SAME HEAD AS IF THE BENEFICIARY HAS DERIVED INCOME FROM INVESTMENT IN VENTURE CAPITAL UNDER TAKING AS PER RULE 12C AND SEC.115U OF IT ACT . THE ASSESSEE HAS ISSUED THE FORM 64 SHOWING THE DIVIDEND INCOME, INC OME FROM INTEREST AND THE LOSS FROM THE FUND AS FOLLOWS: STATE BANK OF INDIA FORM NO.64 DIVIDEND RS.7,837/- INTEREST RS.24,99,979/- LESS EXPENDITURE RS.1,85,28,645/- NET LOSS FROM THE SOURCES OF FUND (-)1,60,28,666/- THE ABOVE INFORMATION INDICATES THAT THE NET LOSS OF RS. 1,60,28,666/- WAS RELATED TO THE INCOME FROM OTHER SOURCES WHICH MAY BE CLAIMED AS SET OFF AGAINST OTHER SOURCES OR FROM CURRENT YEAR INCOME AS PER THE SET OFF PROVISIONS OF INCOME TAX ACT AND RESULTS IN TO UNDERSTATEMENT OF INCOME BY THE BENEFICIARIES. THUS, THE ARGUMENT OF THE LD.AR THAT BENEFICIARIES HAVE CONSIDERED THE INCOME UNDER THE DIFFERENT HEADS IN TO ONE AND OFFERED THE LOSS TO TAX HAS MERIT. IN FACT THE INTEREST INCOME REQUIRED TO BE TAXED AS SUCH IN THE HANDS OF BENEFI CIARY UNDER THE HEAD OTHER SOURCES. THE LOSS IS RELATING TO THE ACTIVITY OF VENTURE CAPITAL UNDERTAKING AND THE ENTIRE EXPENDITURE DEBITED TO P ROFIT AND LOSS ACCOUNT IS ALSO RELATING TO THE ACTIVITY OF VENTURE CAPITAL INCOME BARRING THE EXPENDITURE RELATING TO EARNING THE INTEREST INCOME . IN THE ABOVE CASE DIVIDEND INCOME ALONE REPRESENT VENTURE CAPITAL INC OME WHICH IS BEING ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 33 -: EXEMPT IN THE HANDS OF THE BENEFICIARY AND LOGICAL CONCLUSION IS NO OTHER EXPENDITURE IS ALLOWABLE OR CLAIMED TO BE SET OFF A GAINST OTHER INCOME IN THE HANDS OF THE BENEFICIARY AND THE NET INCOME OF OTHER SOURCE REQUIRED TO BE BROUGHT TO TAX. THUS, FORM NO.64 REQUIRED TO BE ISSUED BY THE ASSESSEE INDICATING THE NET LOSS OF VCU INCOME AND NET PROFIT OF OTHER SOURCES. IT IS ALSO NOT CLEAR WHETHER THE BENEFICIA RIES CLAIMED THE ENTIRE EXPENDITURE IN THIS CASE RS. 1,60,28,666/- (LOSS) F ROM THE TAXABLE INCOME INSTEAD OF ADMITTING THE INTEREST INCOME AS SUCH IN THE HANDS OF BENEFICIARIES AND CLAIMING SET OFF OF LOSS IN RESPE CTIVE SOURCE OF INCOME. THE ASSESSEE IN THE P&L ACCOUNT DID NOT APPORTION T HE EXPENDITURE RELATING TO OTHER INCOME AND THE INCOME RELATING TO VENTURE CAPITAL INCOME. IT IS NECESSARY TO BIFURCATE THE EXPENDITUR E INCURRED FOR VARIOUS SOURCES OF INCOME TO INCLUDE IN THE HANDS OF THE BE NEFICIARIES TO CLUB UNDER THE VARIOUS HEADS CORRECTLY SINCE EXPENDITURE RELATING TO EXEMPT INCOME IS NOT ALLOWABLE. THEREFORE, THE ENTIRE ISSU E REQUIRES FURTHER VERIFICATION FROM THE ASSESSING OFFICER TO COMPUTE THE CORRECT INCOME UNDER THE HEAD INTEREST INCOME WHICH REQUIRED TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND THE DIVIDEND INCOME AND LONG TERM CAPITAL GAINS. THEREFORE WE SET ASIDE THE ENTIRE MATTER BACK TO TH E FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE IN THE LIGHT OF THE AB OVE DISCUSSION AND DECIDE THE ISSUE AFRESH ON MERITS. THE ASSESSEE IS ALSO DI RECTED TO COLLECT INFORMATION FROM THE BENEFICIARIES REGARDING THE IN CLUSION OF INCOME RELATING TO THE TSGF AND SUBMIT THE SAME TO THE AO FOR EARLY COMPLETION OF THE ASSESSMENT. ON COMPLETION OF THE ENQUIRIES T HE ASSESSING OFFICER ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 34 -: DIRECTED TO ALLOW PASS THROUGH OF THE INCOME, IF TH E SAME IS ADMITTED CORRECTLY AND IN CASE OF NON-ADMISSION OR INCORRECT ADMISSION, IT MAY BE ASSESSED IN THE HANDS OF THE ASSESSEE IN REPRESENTA TIVE DEPENDING ON FACTS. ACCORDINGLY, THE APPEAL OF THE ASSESSEE SET ASIDE AND IS IS ALLOWED FOR STATISTICAL PURPOSES. 8.0 IN GROUND NO.1.8, THE ASSESSEE HAS RAISED THE ISSU E WITH REGARD TO SET OFF OF THE PROPORTIONATE AMOUNT OF EXPENDITURE RELATING TO INTEREST INCOME, IN CASE THE PASS THROUGH STATUS IS NOT ALLO WED WITH REGARD TO INTEREST INCOME. THE ASSESSEE WAS ARGUED THAT THE A SSESSEE IS ELIGIBLE FOR PASS THROUGH OF ENTIRE INCOME IRRESPECTIVE OF VENTU RE CAPITAL INCOME OR INCOME FROM OTHER SOURCES AS PER SEC.161(1) OF IT A CT. IN CASE, THE ASSESSEE IS LIABLE FOR TAXING THE OTHER INCOME SEPA RATELY, THE PROPORTIONATE EXPENDITURE REQUIRED TO BE ALLOWED. WE HAVE SET ASI DE THE ISSUE OF DETERMINING THE INCOME FROM OTHER SOURCES AND ALLOC ATION OF EXPENSES WITH REGARD TO VENTURE CAPITAL INCOME IN THE EARLIE R PARAGRAPHS. THEREFORE THIS ISSUE ALSO STANDS REMITTED TO BE FIL E OF THE ASSESSING OFFICER TO DECIDE THE CORRECT INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES TO BE PASSED ON TO THE BENEFICIARIES OR TO ASSESSEE IN THE HANDS OF THE ASSESSEE IN THE REPRESENTATIVE CAPACITY. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 9.0 GROUND NO.2 IS RELATED TO THE GRANT OF CREDIT FOR TAXES DEDUCTED AT SOURCE. IT IS THE DUTY OF THE AO TO ALLOW THE CREDI T FOR TAXES PAID OR ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 35 -: COLLECTED BY THE DEPARTMENT. IN THIS CASE, IT APPE ARS THAT THE AO HAS NOT ALLOWED THE CREDIT FOR THE TAXES DEDUCTED AT SOURCE . WE DIRECT THE AO TO ALLOW THE CREDIT FOR TAXES PAID. THIS GROUND OF AP PEAL IS ALLOWED. 10.0 IN THE RESULT, THE ASSESSEES APPEAL FOR THE AYS 2 009-10 & 2010-11 ARE PARTLY ALLOWED. ITA NO.1902/MDS/2016 11.0 THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER U/S.154 BY THE LD.CIT(A) FOR THE AY 2009-10. 12.0 AGAINST THE ASSESSMENT ORDER DATED 31.12.2011, THE ASSESSEE FILED APPEAL BEFORE THE LD.CIT(A). THE LD.CIT(A) IN THE APPEAL ORDER DATED 16.03.2006 IN PARA NOS.1 TO 8 ALLOWED THE ASSESSEE S APPEAL HOLDING THAT THE ASSESSEE IS A DETERMINATE TRUST WITH THE BENEFI CIARIES KNOWN AND THE PROVISIONS OF SEC.161(1) ARE APPLICABLE, HOWEVER T AXED THE INTEREST INCOME IN THE HANDS OF THE ASSESSEE TRUST. SUBSEQU ENTLY, THE ASSESSEE FILED PETITION U/S.154 ON 30.03.2016. THE PETITION U/S.154 IS DISPOSED OFF BY LD.CIT(A) BY A MODIFICATION ORDER DATED 05.04.20 16 AND IN THE RECTIFICATION ORDER LD.CIT(A) HELD THAT THE TRUST I S INDETERMINATE TRUST AND DISMISSED THE ASSESSEES PETITION ON APPLICATION OF SEC.161(1) TO ALLOW PASS THROUGH OF ENTIRE INCOME TO THE BENEFICIARIES. THE ASSESSEE FILED ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 36 -: APPEAL BEFORE THIS TRIBUNAL CHALLENGING THE ORDER O F THE LD.CIT(A). THE LD.COUNSEL APPEARING FOR THE ASSESSEE ARGUED THAT I N THE ORIGINAL APPEAL, THE LD.CIT(A) GIVEN A FINDING THAT THE ASSESSEES T RUST IS A DETERMINATE TRUST AND THE BENEFICIARIES ARE IDENTIFIABLE AND TH E PROVISIONS OF SEC.161(1) IS APPLICABLE IN THE ASSESSEES CASE AND ACCORDINGLY, THE INCOME OF THE ASSESSEE REQUIRED TO BE TAXED IN THE HANDS OF THE BENEFICIARIES BUT NOT IN THE HANDS OF THE ASSESSEE. THE ASSESSEE IS LIABLE TO BE TAXED ONLY IN THE REPRESENTATIVE CAPACITY AS PROVIDED U/S.161(1). THE ABOVE FINDING GIVEN BY THE LD.CIT(A) IN THE ORD ER PASSED U/S.250(6) OF THE IT ACT IS REVERSED IN THE ORDER U/S.154 WHIC H IS NOT PERMISSIBLE. THE ISSUE WITH REGARD TO THE DETERMINATE AND INDETE RMINATE TRUST INVOLVES LOT OF DEBATE AND ANALYSIS OF FACTS AND LAW AND LEN GTHY DISCUSSION AND REVISITING THE ISSUE. THEREFORE, THE DEBATABLE ISS UE CANNOT BE DECIDED U/S.154. ON THE OTHER HAND, THE LD. DR ARGUED THA T THE LD.CIT(A) HAS MADE CLEAR IN THE APPELLATE ORDER THAT THE ASSESSEE IS A DETERMINATE TRUST AND THE INCOME OF THE ASSESSEE IS TAXABLE AS PER THE PR OVISIONS OF SEC.1023(FB) AND SEC.115U OF IT ACT. LD.CIT(A) THO UGH HELD THAT THE ASSESSEE IS A DETERMINATE TRUST BUT CLEARLY HELD TH AT THE OTHER INCOME OF THE ASSESSEE IS TAXABLE IN THE HANDS OF THE ASSESSE E. THERE IS NO CHANGE IN THE STAND OF THE LD.CIT(A) REGARDING TAXATION OF INCOME. THEREFORE, THE LD. DR ARGUED THAT THERE WAS NO MISTAKE IN THE ORDE R U/S.154 WHICH REQUIRE THE INTERFERENCE BY THE TRIBUNAL. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 37 -: 13.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. WE HAVE ALREADY DECIDED THE ISSUE IN TH E MAIN APPEAL NOS.981 & 982 HOLDING THAT THE ASSESSEE IS A DETERMINATE TR UST AND THE INCOME OF THE ASSESSEE IS TO ALLOWED TO BE PASS THROUGH IN TH E HANDS OF THE BENEFICIARIES U/S.161(1) AND SET ASIDE THE ISSUE FO R DETERMINING THE INCOME CORRECTLY UNDER VARIOUS HEADS AND TO PASS TH ROUGH THE INCOME. THE LD.CIT(A) HAS CHANGED THE DETERMINATE TRUST TO INDETERMINATE TRUST BY U/S.154. THE DEBATABLE ISSUES WHICH REQUIRE VERI FICATION AND LEGAL INTERPRETATION ARE NOT PERMISSIBLE TO DECIDE UNDER SECTION 154 AND ONLY THE MISTAKES APPARENT FROM THE RECORD ARE PERMITTED TO DECIDE UNDER SECTION 154. THE ISSUE ON HAND IS NOT MISTAKE APPAR ENT FROM RECORD AND THE ISSUE OF LAW WHICH REQUIRE VERIFICATION OF SEVE RAL ASPECTS BOTH ON LAW AND FACTS. THEREFORE, WE SET ASIDE THE ORDER OF TH E LD CIT(A) AND ALLOW THE ASSESSEES APPEAL. HOWEVER, THE ISSUE RELATING TO PASS THROUGH OF CORRECT INCOME IS STANDS REMITTED TO THE FILE OF TH E AO AS DISCUSSED IN EARLIER PARAGRAPHS. 14.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ITA NOS.1345 & 1401/MDS/2016 15.0 COMMON GROUNDS IN BOTH THE APPEALS ARE RELATING TO THE DISALLOWANCE U/S.40A(2)(B). DURING THE ASSESSMENT PROCEEDINGS, THE AO ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 38 -: DISALLOWED A SUM OF RS.5,92,56,914/- FOR THE AY 200 9-10 AND RS.6,51,95,795 FOR THE AY 2010-11 U/S. 40A(2)(B) OF IT ACT. THE ASSESSEE IS A TRUST CARRYING ON THE BUSINESS OF VENTURE CAPI TAL FUND AND APPOINTED THE TVS INVESTMENTS CAPITAL FUNDS LTD. AS THE MANAG ER, AND PAID THE ABOVE AMOUNT TO TVS CAPITAL FUND INVESTMENT, WHICH IS A SISTER CONCERN OF THE ASSESSEE. THE AO OBSERVED THAT THE AMOUNT P AID BY THE ASSESSEE TO THE INVESTMENT MANAGER IS NEARLY 64% OF THE FUND S DEPLOYED AS INVESTMENT. THEREFORE, THE AO DISALLOWED THE 50% O F EXPENDITURE U/S.40A(2)(B) OF INCOME TAX ACT. THE LD.CIT(A) DEL ETED THE ADDITION STATING THAT INCOMES OF THE ASSESSEE ARE GOVERNED B Y PROVISIONS OF CHAPTER-III OF THE IT ACT AS UNDER: 7. WITH REGARD TO THE DISALLOWANCES MADE U/S.37 R.W .S. 40A(2)(B), IT IS SEEN THAT THE INVESTMENT MANAGER IS NOT A RELATED ENTERPRISE AS D EFINED U/S.40A(2)(B). FURTHER, IN RESPECT OF THE EXPENDITURE DISALLOWED U/S.37 AND 40( A)(IA), WHILE THE INCOME OF THE ASSESSEE IS GOVERNED BY PROVISIONS OF CHAPTER III O F THE INCOME TAX ACT, 1961, BEING INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME AS IT HAS BEEN AFFIRMED EARLIER THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S. 10(23FB), DI SALLOWANCES CONTEMPLATED UNDER CHAPTER IV OF THE INCOME TAX ACT, 1961 CANNOT BE UN DERTAKEN. THEREFORE, THE DISALLOWANCE OF EXPENDITURE TO THE TUNE OF RS,5,99,34,183/- IS D ELETED AND THUS, THE APPELLANT SUCCEEDS ON GROUNDS OF APPEAL (D) AND (E), AS WELL AND THE SA ME IS ALLOWED. 16.0 WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. SEC.40A(2)(B) DEALS WITH THE EXPENSES OR PAYME NTS NOT DEDUCTIBLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PRO FESSION. IN THE ASSESSEES CASE, THE INCOME IS ONLY FROM THREE SEGM ENTS INCOME FROM OTHER SOURCES, DIVIDEND INCOME AND CAPITAL GAINS. THERE IS NO INCOME TO BE COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROVISION. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E LD.CIT(A) RIGHTLY HELD ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 39 -: THAT THE DISALLOWANCE CONTEMPLATED UNDER CHAPTER-II I OF IT ACT CANNOT BE UNDER TAKEN WHILE COMPUTING THE INCOME UNDER CHAPTE R-IV OF THE IT ACT. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE REVENUES APPEAL ON THIS G ROUND FOR THE AYS 2009-10 & 2010-11 ARE DISMISSED. 17.0 THE NEXT ISSUE FOR THE AY 2009-10 WAS DISALLOWANCE U/S.40(A)(I) OF IT ACT. 18.0 THE AO DISALLOWED A SUM OF RS.6,77,269/- PAID TOWA RDS LEGAL AND PROFESSIONAL FEE FOR NON-DEDUCTION OF TAX AT SOURCE U/S.40(A)(IA) OF IT ACT. THE ADDITION FOR NON-DEDUCTION OF TAX AT SOURCE IS APPLICABLE FOR THE EXPENDITURE DEBITED U/S.30-37 OF IT ACT. SEC.40(A) (IA) CONTEMPLATES THE DISALLOWANCES FOR NON DEDUCTION OF TAX UNDER THE HE AD PROFITS AND GAINS OR BUSINESS OR PROFESSION. AS DECIDED BY US IN THE EA RLIER PARAGRAPH, THE AO CANNOT MAKE DISALLOWANCES CONTEMPLATED BY THE CHAPT ER-III OF IT ACT WHILE COMPUTING THE INCOME UNDER CHAPTERIV OF IT A CT OR IN THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THEREFOR E, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAM E IS UPHELD. THE APPEAL OF THE REVENUE ON THIS GROUND IS DISMISSED. ITA NOS.1345 & 1401/MDS/2016 & ITA NOS.1902, 981 & 982/MDS/2016 :- 40 -: 19.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AND THE REVENUES APPEALS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 7 TH JUNE, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF