INCOME TAX OFFICER, JAIPUR V. RVCF TRUST-II, JAIPUR, JAIPUR

ITA 198/JPR/2022

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9429 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-09-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 18-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Charitable institution; Opportunity of being heard; Maximum Marginal Rate; Question of law; Revocable transfer; Condonation of delay; TDS
• Section: 63; 11; 143(1); 143(2); 73; 13

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR MkWa- ,l-lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA. No. 198/JP/2022 fu/kZkj.k o"kZ@Assessment Years : 2010-11 Income Tax Officer, Jaipur. cuke Vs. RVCF Trust-II, 7 th Floor Ganga Hights, Tonk Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABTR 3535L vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Anil Goyal (CA) & Shri Anurag Goyal (CA) jktLo dh vksj ls@ Revenue by : Shri Sanjay Dhariwal (CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 07/09/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 31/10/2022 vkns'k@ ORDER PER: DR. S. SEETHALAKSHMI, J.M. This is an appeal filed by the Revenue directed against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as ‘NFAC’/ CIT(A)] dated 17.03.2022 for the Assessment year 2010-11. 2. At the outset of hearing, the Bench observed that there is delay of 3 days in filing the appeal by the Revenue for which the ld. DR of the Revenue filed an application dated 21.07.2022 for condonation of delay with following prayers. ITA No. 198 /JP/2022 RVCF Trust 2 “ In this regard, it is submitted that appeal in the above mentioned case was filed online on 13.05.2022 within prescribed time. The physical record of the appeal was submitted on 19.05.2022. After online submission a mail was received in this office on 13.05.2022 stating that the physical appeal as prescribed under rules may be filed before the Income Tax Appellate Tribunal, Jaipur within 30 days i.e. on or before 13.06.2022. In view of the above the physical appeal was filed on 19.05.2022 well before 12.06.2022 as directed in the said mail. However, if there is any delay on our part, kindly condone the delay.” 3. We have heard the rival contentions and perused the materials available on record. The prayer as mentioned above by the Revenue for condonation of delay of 3 days has merit and we concur with the submission of the Revenue. Thus the delay of 3 days in filing the appeal by the Revenue is condoned. 4. The Revenue raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in treating the assessee as representative assessee while it should be treated as AOP, because it has derived income which is other than the income derived from investments as specified in section 10(23FB) of the Act. 2. Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in treating it as recoverable trust.” 5. Brief facts of the case are that the return of income for the assessment year 2011-12 was filed by the assessee on 29.09.2011 declaring total income at Rs. Nil. ITA No. 198 /JP/2022 RVCF Trust 3 The return was processed u/s 143(1) of the Income Tax Act, 1961 (in short ‘Act’) the case was picked up for the scrutiny. Notice u/s 143(2) was issued on 25.09.2012 which was duly served upon the assessee. The assessee is a trust and same is registered as venture capital fund by SEBI vide order dated 25.07.2008 under Venture Capital Funds Regulations, 1996 subject to the conditions specified in the Act and in the regulations made there under. The basic object of the trust is to do venture capital funding under the regulations of the SEBI Regulations, 1996. It is raising resources to make available venture capital assistance to portfolio Companies, so as to achieve long term capital appreciation. During the year under consideration assessee has made investment in the scheme of SME Tech Fund. The fund of assessee RVCF Trust-II is created by a indenture of trust between Rajasthan Asset Management Company Private Limited (‘Settlor”) and Rajasthan Trustee Company Private Limited (‘Trustee”). The trust is not doing any charitable activity as define u/s 2(15) of the I.T. Act. 6. The Assessing Officer finding that the various income on which tax has been deducted at source is assessable in the hands of assessee as discussed supra and ld. AO has observed that “TDS credit claimed by the assessee is allowable, if at any stage of appeal of any proceedings it has been held that the aforesaid income is not taxable in the hands of the assessee, in that case according to specific provision of section 199, TDS credit of Rs.33,21,212/- claimed by the assessee is not allowable”. Thus, not taxing of income in the hands of the assessee trust will clearly be a violation of the provision of I.T Act, 1961. In view of above facts, contention of the assessee was not ITA No. 198 /JP/2022 RVCF Trust 4 considered that assessee is not liable to pay taxes. Therefore, as per powers conferred in section 166 of the I.T. Act, the AO was satisfied that income of the assessee is taxable in the hands of the assessee, RVCF Trust-II. As per income and expenditure account, total receipts of the assessee are Rs.7,08,87,934/-, claimed expenses Rs.2,94,76,248/- and there is surplus of income over expenditure are Rs.4,14,11,686/-. After considering the expenses claimed by the assessee Rs.2,94,76,248/- there are surplus of income of Rs. 4,14,11,686/-, which is taxable in the hands of assessee as discussed above. The assessee is being as AOP and income of the assessee is assessed as per provisions of section 164 of I.T. Act. at Maximum Marginal Rate. 7. Being aggrieved by the order of the ld. AO the assessee preferred an appeal before the ld. NFAC/ CIT(A) and the findings of the ld. NFAC/CIT(A) are reproduced as under:- “ I have also gone through the above judgments including the CBDT Circular No. 14 (supra) and found that they are directly applicable to assessee’s case here. I have already prima facie decided in favour of assessee in Gr No. 1 in para 1.2.2 above. Here that assessee is able to demonstrate that the corresponding part of income (particularly interest income earned on FDRs) pass over to beneficiaries/ contributors who incorporated the same in their income for the year in accordance with section 161 to 164 of the Act and as per the provisions of section 60-63 of the Act ( dealing with recoverable transfers) income is required to be taxed in the hands of the beneficiaries. Therefore assessee’s status is to treated as “Representative Assessee”because it has derived income other than income as specified in sec 10(23FB) of the Act and the same was passed through to the ITA No. 198 /JP/2022 RVCF Trust 5 beneficiaries in accordance with section 161 to 164 of the Act. Accordingly, once the respective shares of the beneficiaries are found to be terminable, the income is required to be taxed in the hands of that respective sharer or the beneficiaries but certainly not in the hands of the Trustees which has already been shown in the present case. Accordingly, AO’s action in impugned assessment order passed u/s 143(3) of the Act cannot be justified. Therefore, addition made is hereby deleted as assessee cannot be taxed as “AOP”and assessee’s appeal in Gr. No. 2 and 3 is hereby allowed.” 8. Being aggrieved by the order of Ld. NFAC/ CIT (A), the Revenue preferred an appeal before us. The Ld. AR for the assessee has reiterated its arguments in written submission for all the grounds which are as under:- “Background RVCF is a close ended fund organised as a Trust established under the Indian Trust Act, 1882. (Copy of registration certificate issued by SEBI at Paper book page No. 1) The Fund has invested in securities of the portfolio companies to achieve long term capital appreciation and receives income from the sale of such investments. For the assessment year 2011-12, RVCF filed its Return of Income (“ROI”) on 29 th September 2011, declaring ‘Nil’ income and claimed a refund of Rs 33,21,210 in respect of Taxes Deducted at Source (“TDS”).(Copy of Income tax return and audited accounts at Paper Book page no. 2 to14) Trust Deed: The assessee trust was constituted vide trust deed dated 2 nd June, 2008. The settlers of the trust are Rajasthan Asset Management Company Private Limited (a company incorporated under the Companies Act, 1956) and the trustees are Rajasthan Trustee Company Private Limited (a company incorporated under the Companies Act, 1956). (Copy of the trust deed is enclosed at paper book ITA No. 198 /JP/2022 RVCF Trust 6 page no 15 to 34 ) Both the Settlers and the Trustees are separately assessed to income tax. The trust is not a charitable trust. It is submitted that the assessee is a SEBI registered Venture Capital Fund governed by SEBI Venture Capital Regulations, 1996. The corpus of the fund is held by various central and state government undertakings and PSU banks for the purpose of financing venture capital undertakings. The whole idea of constitution of the trust is the pooling of resources of various entities with a view to promote investing into venture capital undertakings, which supports entrepreneurship and innovations. What is Venture Capital: Venture capital (VC) is risk capital provided to early-stage, high-potential, high risk, growth and start-up companies. The venture capital fund invests money by owning equity/bonds in the companies it invests in, which usually have innovative idea or technology or attractive business model. Venture capital funds helps in promoting innovations and entrepreneurship. Venture capital is also associated with job creation the knowledge economy, and used as a proxy measure of innovation within an economic sector or geography. What is SME Tech fund: SME Tech Fund is a scheme of the assessee trust through which all the investments are made in Venture Capital Undertakings. It is governed by Private Placement Memorandum(PPM) furnished to prospective investors on a confidential basis, for them to consider an investment in SME Tech Fund. (Copy enclosed at paper book page no 35.to 69.) Contributors/Beneficiaries: The assessee trust has total number of 12 contributors/beneficiaries(Details given in schedule to audited Balance Sheet at paper book page no 9) who have ITA No. 198 /JP/2022 RVCF Trust 7 contributed different amounts to the assessee for the purpose of investing into venture capital undertakings. The share of each beneficiary/contributor is determinate which is in proportion to amount of capital contributed by them in the assessee Trust. The Trustees and the Settlers have entered into a tripartite ‘contribution agreement’ with each of the contributors/beneficiaries. We are enclosing herewith a sample copy of ‘contribution agreement’ entered into with Rajasthan State Industrial Development and Investment Corporation Limited (RIICO).( Copy enclosed at Paper book page no 70 to 94) The names and percentage holding of each Contributors is as under: (As given in paper book page no. 202) Particulars Amount % Contribution a Rajasthan Asset Management Company P. Ltd 10,000 0.0017 b. Rajasthan Asset Management Company P. Ltd [880.31 (P.Y. 1000) Class B Units of Face Value Rs 100 each] 88,931 0.015 c. Union Bank of India [257560.92 )P.Y. 165000) Class A Units of Face Value ofRs 100 each] 2,57,56,092 4.35 d State Bank of Mysore [257901.15 (P.Y. Nil )Class A Units of Face Value Rs 100 each] 2,57,90.115 4.35 e State Bank of Bikaner & Jaipur [517201.82 (P.Y.3330000)Class A Units of Face Value Rs 100 each] 5,17,20,182 8.73 f United India Insurance Co. Ltd [517201.82 (P.Y.333000) Class A Units of 5,17,20,182 8.73 ITA No. 198 /JP/2022 RVCF Trust 8 Face Value ofRs 100 each] g General InsuranceCorporation of India [514544.16 (P.Y. 330000)Class A Units of Face Value Rs 100 each] 5,14,54,416 8.68 h Small Industries Development Bank of India [514544.16 (P.Y.330000)Class A Units ofFace Value of Rs 100 each] 5,14,54,416 8.68 i State Bank of Patiala [515121.84 (P.Y.3300000)Class A Units of Face Value of Rs 100/- each] 5,15,12,184 8.69 j Andhra Bank [515121.84 (P.Y.3300000)Class A Units of Face Value of Rs 100/- each] 5,15,12,184 8.69 k Bank of Baroda [515508.42 (P.Y. 330000) Class A Units of Face Value of Rs 100 each 5,15,50,842 8.70 l Technology Development Board [771816.24(P.Y.495000 ) Class A Units of Face Value of Rs 100 each] 7,71,81,624 13.02 m Rajasthan State Industrial Development& Investment Corp. [1029088.32 (P.Y.6600000) Class A Units of Face Value of Rs 100 each] 10,29,08,832 17.36 Total 59,26,60,000 100% During the year the assessee had income from various sources as per details given in the Profit & Loss Account of the company. Most of the income was distributed to the Contributors/Beneficiaries on pro rata basis in the ratio of their capital contribution. The balance amount was carried forward to the ITA No. 198 /JP/2022 RVCF Trust 9 Balance Sheet. Therefore, the assessee filed return of income declaring NIL income. Therefore, the beneficiaries are known and identifiable and the individual share of each beneficiary is also known which is in proportion to their capital contribution. Investment Management Agreement: The assessee has entered in Investment Management Agreement dt. 2.6.2008with Rajasthan Asset Management Company Private Ltd. (Copy enclosed at Paper Book page no. 157 to 182) for the purpose of advising, managing and administering the Trust Fund by providing professional advice and related services to the assessee. The case of the assessee trust is as under: The assessee was a representative assessee, created by a duly executed Trust Deed, within the meaning of Sec. 160(1)(iv) of Income tax Act. The assessee received certain amounts under Revocable Transfer of Assets (Within the meaning of Sec. 63 of the Income tax Act) from the Contributors/ beneficiaries. The share of each beneficiary/contributor of the assessee Trust is determinate. The assessee is holding this amount for the benefit of the contributors/beneficiaries only. These contributors/beneficiaries have offered such income for taxation in their hands. By virtue of provisions of Sec. 61 of Income tax Act, any income arising to any person in such revocable transfer of asset, shall be chargeable to income tax as the income of the transferor and not in the income of the transferee. Therefore, in view of provisions of Sec. 160 to 164 read with Sec. 61 to 63 of Income tax Act, no tax is payable by the assessee on such income. ITA No. 198 /JP/2022 RVCF Trust 10 For this reason, the income of the trust Rs. 4,14,11,686 ( as per audited Profit and Loss account on Pb page no. 8) has already been taxed in the hands of contributors/beneficiaries. Hence, the assessee trust filed return of income declaring Rs. Nil as total income of the assessee. The case of the assessee is fully covered by the following decisions of Banglore ITAT/ Karnataka High Court/ Madras High court, in his favour: DCI, Bangalorev.India Advantage Fund – VII (2014) (50 taxmann.com 350) Income-tax Officer v. India Advantage Fund- I [2015] 62 taxmann.com 86 (Bangalore - Trib.) CIT V. India Advantage Fund VII (2017) 78 taxmann.com 301 (Karnataka) CIT V TVS Shriram Growth Fund (2020) 121 taxmann.com 238 (Madras) Assessment Order of AO The AO passed an assessment order dated 27 th March, 2014, determining the total income of the Appellant at Rs 4,14,11,690 and raised a demand of Rs 1,28,67,970 on account of tax and interest. He has done so after taking the status of the assessee as AOP and charging tax at MMR. NFAC (CIT- Appeals)Order: The assessee preferred an appeal before CIT(A) in which 13 grounds of appeal were taken.NFAC vide their order dated 17.3.2022 have allowed all the grounds of appeal of the assessee anddeleted the entire addition made in the income of the assessee. Appeal of department before ITAT: ITA No. 198 /JP/2022 RVCF Trust 11 Against this order of NFAC, the department has filed appeal before your honour taking two grounds of appeal. The submissions of the asssessee on these grounds are as under. : Ground No. 1 of the department: ‘Whether on the facts and circumstances of the case and in law, the CIT(A)was justified in treating the assessee as Representative assessee while it should be treated as AOP, because it has derived income which is other than the income derived from investments as specified in section 10(23FB) of the Act.’ Submissions of assessee 1. The assessee is a representative assessee (Sec.160(1) ): a. It is submitted that the assessee trust was a representative assessee within the meaning of Sec. 160(1)(iv) of Income tax Act. b. The assessee Trust was created by a duly executed document called Indenture of Trust(Copy at Paper Book page no 15 to 34)which has the following parties: Rajasthan Asset Management Company Private Limited – Settler Rajasthan Trustee Company Private Limited -Trustee Initial Contribution by settler Rs. 10,000/-. c. As per aforesaid document, it was envisaged that the Trustee shall call for capital contribution from the Contributors. The Contributors will invest their monies i the respective scheme of the Trust and the Trustee shall in turn make investments in accordance with the objectives of the respective schemes. ITA No. 198 /JP/2022 RVCF Trust 12 d. It is submitted that the definition of Representative Assessee is given in Sec. 160(1) of the Income tax Act, which is reproduced below: Representative assessee. 160 (1) For the purposes of this Act, "representative assessee" means— (i) in respect of the income of a non-resident specified in [***] sub- section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot; (iii) in respect of income which the Court of Wards, the Administrator- General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager; (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; ITA No. 198 /JP/2022 RVCF Trust 13 [(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees. e. Therefore, the assessee is a Representative Assessee within the meaning of clause (iv) of Sec. 160(1) of Income tax Act. f. Learned AO has erred in mentioning on page 7 of the assessment order that the assessee has not substantiated under which clause of Sec. 160, the assessee is a representative assessee. The fact of the matter is that no such query raised during the assessment proceedings. g. The learned CIT(A)/NFAC have rightly given their finding inpara 1.3.2 of their order (Page no. 24 of order) and held that the assessee’s status is to be treated as ‘Representative Assessee’. 2. The assessee was not an AOP: a. AO has not specified who are the members of alleged AOP: On page no. 3 of the assessment order, the learned AO has held that the Fund should be taxed as an AOP on commercial lines, without specifying the basis for forming this opinion. He has also not specified as to who were the members of the alleged AOP and has not specified as to how the conditions relating to formation of an AOP are satisfied in the present case. b. There was a separate agreement between the assessee and each beneficiary: It is submitted per details given in the audited balance sheet of the assessee, (Paper book page no. 9) there were 12 Contributors/beneficiaries- mostly ITA No. 198 /JP/2022 RVCF Trust 14 government companies and nationalized banks and financial institutions – who contributed their money to the Assessee and a separate agreement was entered into between the Assessee and each such beneficiary. Copy of one sample agreement executed with RIICO Ltd.- one of the beneficiaries -is given at Paper Book page no 70 to 94. c. There was no inter-se agreement between contributories/beneficiaries – which is sine-quo non for formation of an AOP: between one contributory/ beneficiary and the other contributory/beneficiary as each of them entered into separate contribution arrangement with the Assessee. Therefore, it cannot be said that two or more beneficiaries joined hands for a common purpose or common action and therefore the tests for considering the Assessee as AOP was not satisfied. d. 'Association of persons' as used in section 2(31)(v) means an association in which two or more persons join in a common purpose or common action. The association must be one, the object of which is to produce income, profits or gains. Hon’ble Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546 while considering what constitutes an 'association of persons' held that the word 'association' means 'to join in common purpose' or 'to join in an action'. Therefore, 'association of persons' as used in section 2(31)( v) of the Act means an association in which two or more persons join in a common purpose or common action. e. Trustees and beneficiaries are merely receiving income cannot be treated as AOP-The trustee and beneficiaries could not be considered as having come together for earning income, but were merely in receipt of income, and the beneficiaries had not set up the trust, the mere fact that the ITA No. 198 /JP/2022 RVCF Trust 15 beneficiaries or trustees being representative assesses were more than one, could not lead to the conclusion that they constituted an association of persons, especially when the trustees derived their authority under the terms of the trust deed and they was absence of element of volition on the part of either the trustees or the beneficiaries – CIT v. SAE Head Office Monthly Paid Employees Welfare Trust [2004] 141 Taxman 364(Delhi) (Copy at Case law paper book Page no...61 to 70...) f. The beneficiaries have not set up the Trust. Therefore, it cannot be said that the beneficiaries have come together with the object of carrying on investment in funds which is the object of the trust. The beneficiaries are mere recipients of the income earned by the trust. They cannot therefore be regarded as members of an AOP. g. The conclusion of the AO that the Appellant is an AOP is without providing any detailed reasoning and has been made summarily. We wish to submit that the inference drawn by the AO is completely incorrect and bad in law. Just because the Fund is formed by the investments made by beneficiaries, it cannot be said that the beneficiaries have come together. All that the beneficiaries have done is invested in their individual capacity in the units of the Fund. The investors have not associated, there is no joint action, they have not joined together. h. We rely on findings given by learned CIT(A)/NFAC on this issue, in para no. 1.5.2 on page no. 31 and 32 of their order, holding that the AO has erred in taking status of the assessee as AOP disregarding the fact that each beneficiary has independently invested in RVCF-II without any association with any other beneficiary. ITA No. 198 /JP/2022 RVCF Trust 16 We rely on the following decisions in favour of the assessee: A. DCI, Bangalorev.India Advantage Fund – VII (2014) (50 taxmann.com 350) (Case law paper book page no 1/34.....) in which Hon’ble Bench has held as under: “It can thus be seen that the beneficiaries contributed their money to the Assessee and a separate agreement was entered into between the Assessee 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 beneficiaries joined in a common purpose or common action and therefore the tests for considering the Assessee as AOP was satisfied. The beneficiaries have not set up the Trust. Therefore, 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 beneficiaries are mere recipients of the income earned by the trust. They cannot therefore be regarded as an AOP.” Given the fact that the aforementioned tests as laid down by the ITAT in order to constitute an AOP are not fulfilled, we wish to respectfully submit that the assessee is not to be assessed to tax in the status of an AOP. B. The above decision of Banglore ITAT has been confirmed by Karnataka HC in CIT V. India Advantage Fund VII (2017) 78 taxmann.com 301 (Karnataka) (Case Law Paper book Page no...54...) ITA No. 198 /JP/2022 RVCF Trust 17 C. Income-tax Officer v. India Advantage Fund-I[2015] 62 taxmann.com 86 (Bangalore - Trib.) (Case law paper book page no. 37/50...) in which Hon’ble Bench has held as under: ‘The charge to tax in the hands of the representative-assessee has to be in accordance with section 161(1) of the Act and therefore the status of the assessee cannot be that of association of persons. Ground No. 9 raised by the Revenue is therefore held to be without any merit." D. In the case of Commissioner of Income Tax, Chennai v. TVS Shri Ram Growth Fund*[2020] 121 taxmann.com 238 (Madras), (Copy at Case law Paper book Page no...71 to 78..)Hon’ble Madras High Court has held as under: Section 161, read with section 164, of the Income-tax Act, 1961 - Representative assessee - Liability of (Applicability of) - Assessment years 2009-10 and 2010-11 - Assessing Officer assessed assessee-trust as AOP - Accordingly, it brought interest income earned from bank deposits in name of assessee instead of its beneficiaries - It was noted that Tribunal clearly found that shares of beneficiaries in assessee-trust were definite and determinate, thus, assessee was a determinate trust and, accordingly, said interest income would be assessed in hands of beneficiaries and not assessee - Whether no substantial question of law arose against impugned order of Tribunal and same was to be upheld - Held, yes [Paras 18 to 21] [In favour of assessee] E. In the case of Commissioner of Income-tax, Coimbatore v. P. Sekar Trust * [2009] 180 Taxman 277 (Madras) ,(Copy at Case law paper book page no...79 to 90..) the following was held by the Hon’ble Madras High Court: ITA No. 198 /JP/2022 RVCF Trust 18 Section 164 of the Income-tax Act, 1961 - Trust/trustees - Charge of tax where share of beneficiaries unknown - Assessment year 1989-99 to 1999-2000 - Whether section 164 gets attracted only when shares of beneficiaries are unknown - Held, yes - Assessee-trust was created for benefit of seven beneficiaries - Trust deed provided, inter alia, that 10 per cent of income of trust should be distributed to beneficiaries of trust and balance 90 per cent should be accumulated in corpus fund - Trust deed clearly prescribed beneficiaries and shares they were entitled to and also prescribed other terms relevant to share of interest in corpus on determination or termination of trust - For relevant assessment years, beneficiaries of assessee-trust had filed their returns of income admitting 10 per cent income distributed to them - Assessing Officer, however, treated trustees of assessee-trust as representative assessees in respect of 90 per cent of accumulated income and, accordingly, framed assessments under section 164 - Whether, on facts, it was clear that beneficiaries of assessee-trust and their shares were determinate and, therefore, trustees could not be assessed to tax and provisions of section 164 were not attracted - Held, yes F. Reliance is also placed on the following decisions in favour of the assessee: • CIT Kutch and Saurashtra Vs Indira Balkrishna (39 ITR 546) (SC) Whether an association of persons must be one in which two or more persons join in a common purpose or common action and as words occur in section which imposes a tax on income, association must be one object of which is to produce income, profits or gains – Held, yes • CIT Vs Marsons Beneficiary Trust (188 ITR 224) (Bom) ITA No. 198 /JP/2022 RVCF Trust 19 Section 4 of the Income-tax Act, 1961 - Association of persons - Assessability of - Whether on basis of facts mentioned under heading 'trustees' beneficiaries could be assessed in status of AOP when they had not come together with common purpose of earning income - Held, no Ground no 2 of the department: ‘Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in treating it as revocable trust.’ Submissions of the assessee: - That the assessee was a revocable trust: 1. It is submitted that as per provisions of Sec. 61 of Income tax Act, any income arising to any person in from revocable transfer of asset shall be chargeable to income tax as the income of the transferor and not as the income of the transferee. 2. The assessee trust had received some amounts under REVOCABLE TRANSFER OF ASSETS (within the meaning of Sec. 63 of income tax Act) from the contributors/beneficiaries. This constitutes the Trust Fund of the assessee. The share of each beneficiary/contributor is determinate. The assessee is holding this amount for the benefit of the contributors/beneficiaries only. 3. Therefore, the income received by the assessee trust was chargeable to tax in the hands of beneficiaries/contributors and not in the hands of the assessee. As per the Income Tax Act, provisions of Section 61, 62 and 63 are as follow Revocable transfer of assets. ITA No. 198 /JP/2022 RVCF Trust 20 61. All income arising to any person by virtue of a revocable transferof assets shall be chargeable to income-tax as the income of the transferor and shall be included in his total income. Transfer irrevocable for a specified period. 62. (1) The provisions of section 61 shall not apply to any income arising to any person by virtue of a transfer— (i) by way of trust which is not revocable during the lifetime of the beneficiary, and, in the case of any other transfer, which is not revocable during the lifetime of the transferee ; or (ii) made before the 1st day of April, 1961, which is not revocable for a period exceeding six years : Provided that the transferor derives no direct or indirect benefit from such income in either case. (2) Notwithstanding anything contained in sub-section (1), all income arising to anyperson by virtue of any such transfer shall be chargeable to income-tax as the income of the transferor as and when the power to revoke the transfer arises, and shall then be included in his total income. "Transfer" and "revocable transfer" defined. ITA No. 198 /JP/2022 RVCF Trust 21 63. For the purposes of sections 60, 61 and 62 and of this section,— (a) a transfer shall be deemed to be revocable if— (i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets ; (b) "transfer"includes any settlement, trust, covenant, agreement or arrangement . 4. It is submitted that the transfer of funds to the assessee trust was a revocable transfer of asset, within the meaning of Sec. 63 of Income tax Act, where the transferor had retained power to re-transfer the assets in its name. For this purpose, we want to draw your kind attention to the following documents: a. Kindly see the following clauses of The Trust Deed ( Copy at Paper book page no. 15 to 34) Clause No. Of the Trust deed Relevant page of Paper book 1.1.31 “Trust Period” means the period of the life of the Trust as referred to in Clause 12 Pb Page no. 18 – back page ITA No. 198 /JP/2022 RVCF Trust 22 4 ‘Trust Fund Vesting :The Trust Fund shall vest in the Trustee and the Trustee shall hold the same upon trust for the benefits of the Contributors subject to the powers, provisions, agreements and declarations herein contained.’ Pb Page no. 20- back page 12 Term and termination of the Trust 12.1 Term: The trust shall terminate upon winding up of the last and final Scheme of the Trust. 12.2 Premature termination of the Trust Scheme: 12.2.1 The trustee may at any time prior to the Term, terminate this Indenture upon winding up of all the schemes 12.2.2. The Trust may stand terminated upon failure to appoint a new trustee prior to the winding up of the Trustee, as contemplated in Clause 5.5.2.2. above 12.2.3 The Trustee may at any time prior to the term of the Scheme, wind up the Scheme upon such terms and conditions ass may be specified Pb page no 30 – back page ITA No. 198 /JP/2022 RVCF Trust 23 in the Memorandum. b. Kindly see the relevant clause of Private Placement Memorandum, (Copy at Paper Book page no 35 to 69) which reads as under: Paper book page no. ‘Term of the Fund and Investment Period The term of the Fund shall be eight (8) years from the date of the First closing. The term may be extended for two (2) additional one year periods upon the recommendation of the Investment Manager.’ Paper book page no. 44 c. Kindly see the relevant clause of the sample agreement executed with one of the contributors/beneficiaries namely RIICO Ltd ( Copy at Pb page no. 70 to 94) which reads as under: Clause No. Paper book page no. 2.5 2.5 Return of Contribution: 2.5.1 The contributor shall be entitled to return of its Capital Contribution upon: 2.5.1.1 distributions as per clause 8 2.5.1.2 dissolution of the Fund as per Clause 9 Pape book page no. 77 ITA No. 198 /JP/2022 RVCF Trust 24 d. From the above overwhelming documentary evidences, it is clear that: • The Trust was created for a limited life period and it was not a perpetual trust. • The Trustees were holding the funds for the benefit of contributories/beneficiaries only • The trust was to be terminated after winding up of all the schemes of the trust. • There was also a clause for premature termination of the Trust • The Term of the Trust Fund was 8 years from first closing. • The contributors/beneficiaries were entitled for the return of their capital contribution. 5. In the present case, we can deduce from the documents filed that each contributor to the Fund has made a contribution on the condition that the initial contribution along with any income or gains arising on the investments made from his contribution would be returned to the contributor upon the sale of the investments. In such a scenario, the contribution is nothing but a ‘revocable transfer’ as defined in section 63 of the Income Tax Act The entire assets will be distributed to the contributors on dissolution of the assessee trust after the expiry of pre-determined period. 6. As discussed above, as per section 63 of the Income tax Act, a transfer shall be deemed to be revocable if it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or assets to the transferor, or it in any way gives the transferor a right to re-assume power directly or indirectly over the whole or any part of the income or assets. Thus, where a contribution is made in a manner that the contributors are entitled to recover ITA No. 198 /JP/2022 RVCF Trust 25 their contributions over a specified period, and are entitled to the income from their contributions, the settlement of the trust should be disregarded for the purpose of tax, and the income thereof taxed as through it had directly arisen to the contributors. In the case of a revocable trust, income shall be chargeable to tax only in the hands of beneficiaries/contributors. 7. Discharge of tax obligation by Contributors: (i) It is submitted thatall the Contributors are well known Central / State government undertakings / banks / financial institutions as mentioned above. Their identity is fully disclosed and holding is fully proved. They have fully discharged their tax liability in respect of their share in the income of the assessee trust, by filing their respective income tax returns. (ii) The confirmation letters of following contributories/beneficiaries have been filed with AO/CIT (A) (copy enclosed at paper book page no.106 to 120) that they have paid due taxes on income passed on to them by the assessee trust: a. Rajasthan State Industrial Development and Investment Corp Ltd b. State Bank of Bikaner and Jaipur c. Andhra Bank d. Bank of Baroda e. United India Insurance Co Ltd f. Rajasthan Asset management Co P Ltd g. Technology Development Board h. Union Bank of India i. General Insurance Corp of India (iii) The assessee has also filed the proof of completion of assessment proceedings(Copy at Paper Book page 125 to 154) before AO/CIT(A)of the following contributors/beneficiaries: ITA No. 198 /JP/2022 RVCF Trust 26 a. Copy of assessment order passed u/s143(3) in the case of one of the Contributor namely M/s Rajasthan State Industrial Dev and Investment Corp Ltd for AY 2011-12. b. Confirmation letter of State Bank of Bikaner and Jaipur regarding completion of assessment proceedings for AY 2011-12. c. Assessment order of Technology Development Board for AY 2011-12 d. Assessment order of Andhra Bank Ltd for AY 2011-12 e. Assessment order of General Insurance Corp of India for AY 2011-12 f. Confirmation letter of Bank of Baroda for AY 2011-12 In view of above documentary evidences, it is submitted that all the contributors/beneficiaries have fully discharged their liability under the provisions of income tax act and the same income cannot again be taxed in the hands of the assessee. Reliance is placed on Circular No. 157 dated 26.12.1974: stating that Sec. 166 of Income tax Act give an option to the department to tax either the representative assessee or the beneficial owner of the income. Once the choice is made by the department to tax either the trustee or the beneficiary, it is no more open to the department to go behind it and assessee the other at the same time. 8. As mentioned in the foregoing paragraphs, the issue at hand is squarely covered by the decision of the Bangalore ITAT in the case of DCI v India Advantage Fund VII (50 taxmann.com 350) Ruling on the taxability of revocable trust, (Copy at Case Law Paper book page no..1/31..) “For the reasons given above we hold that Sec.61 read with Sec.63 of the Act which mandates that income arising to any person by virtue of a revocable ITA No. 198 /JP/2022 RVCF Trust 27 transfer of assets shall be chargeable to income tax as income of the transferor will apply to the facts and circumstances of the present case and therefore the assessment in the hands of the transferee/representative assessee was not proper”. 9. The above decision of Banglore ITAT has been confirmed by Karnataka HC in (2017) 78taxmann.com 301 (Karnataka) (Case Law Paper book Page no...54...) 10. We rely on the findings given by the learned CIT(A)/NFAC on this issue, in para 1.6.2 on page no. 38 to 40 of their order holding that the assessee had received some amounts under revocable transfer of assets (within the meaning of Sec. 61 to Sec. 63 of income tax act) from contributors/beneficiaries. Also, in view of conclusions drawn by ITAT Banglore, no income is chargeable to tax in the hands of the assessee but is chargeable to tax in the hands of the beneficiaries. 11. We also rely on the findings of the CIT(A)/NFAC in para no. 1.11.2 on page no. 51 of their order. The assessee relies on the following departmental circular in his favour: e. Circular: No. 14(XL-35), dated 11-4-1955 (Copy at paper book page no. 155 to 156) issued by the CBDT wherein it has been clarified that: a. Officers of the Department must not take advantage of ignorance of an assessee as to his rights. b.It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. c.This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the department. d. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should— ITA No. 198 /JP/2022 RVCF Trust 28 - draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other ; - freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.’ This circular supports the case of the assessee that all the legitimate reliefs and deductions should be given to the assessee while computing his return of income.” 9. In addition to the written submission the ld. Sr. DR opened the arguments with the definition of drawdown which is reproduced as under:- “(1)the investment manager on behalf of the Trustee, shall make calls for contributions or on an “as needed” basis on all the contributors of the fund. 2. The contributor shall make the contribution in the manner as detailed below: a) The investment Manager, in the name of and on behalf of the Trustee, will issue a Drawdown Notice 30 (thirty) calendar days in advance to the contributors. b) On or before the date notified in clause (1) above, the contributor shall pay the amount to the Investment Manager, If the contributor fails to pay such portion of its Capital Commitment on the date as notified by the by the Investment Manager in the Drawdown notice, the contributor shall then be required to pay a late payment fee to the trustee. The late fee shall equal the amount which would accrue on such contribution for the delay period at a rate of @ 18% PER ANNUM. The subscriber shall ITA No. 198 /JP/2022 RVCF Trust 29 pay the late payment fee on the date it finally pays the late contribution amount. c) The Commitment period for drawdown shall be 4 years from the date of final closing of the fund. d) The commitment period may be further extended by 6 months at the discretion of the investment manager with the prior approval of the Trustee.” 10. The ld. Sr. DR took us to the explanation of SME Tech Fund which is a confidential Private placement memorandum explained the definition of drawdown and the meaning of defaulting contributors where any contributor failing to contribute any portion of its capital commitment pursuant to a drawdown notice issued by the investment manager within thirty (30) calendar days from the date of drawdown notice, may at the discretion of the investment manager, be declared a “defaulting contributor”. As a consequence of such default, the units of the defaulting contributor may be forfeited at the discretion of the investment manager, as is more explicitly set forth in the contribution agreement. In the addition, the defaulting contributor may not be entitled to participate in any subsequent contributor vote, meeting, consent or decision to the made by the investment manager or trustee. The investment manager may take any or all of the following actions in respect of defaulting contributor to the extent permissible under the law and subject to the terms and conditions as the trustee may deem appropriate: ITA No. 198 /JP/2022 RVCF Trust 30 • Charge interest on the amount of default @ 18% p.a. or such other lesser rate as determined in the sole discretion of the Investment Manager (such default amount plus interest being the "'Default Amount") and offset amounts otherwise distributable to such Defaulting Contributor pursuant to the terms of the respective Contribution Agreement against the Default Amount • enforce the Defaulting Contributor's obligations through pursuing any rights and remedies the Fund may have against the Defaulting Contributor, including by taking legal or other action against the Defaulting Contributor as more fully set out in the Contribution Agreement and the Indenture • suspend or terminate the Defaulting Contributor's right to receive any Distribution. However, the Defaulting Contributor shall remain fully liable to the creditors of the Fund , to the extent permitted by law, for the amount payable by the Contributor as if such default had not occurred • suspend or terminate the Defaulting Contributor's obligation and right to make future payments towards its Capital Commitment • following the date of default, not allocate any items of income or gains to the Defaulting Contributor • prohibit the Defaulting Contributor from participating in any subsequent Contributor vote, meeting, consent or decision to be made by the Trustee; • recover or set off any cost incurred by the fund as a result of taking any of the actions set out above. In the event the units of a defaulting contributor are forfeited, such forfeiture shall include all gains and distributions declared but unpaid and all payments made by the defaulting contributor in respect of such units. Any units so ITA No. 198 /JP/2022 RVCF Trust 31 forfeited may be disposed off by the trust as it deems fit and the proceeds of disposal (if any) shall accrue to the fund. The contentions on the interpretation given by the ld. Sr. DR regarding drawdown and defaulting contributor where they cannot go out at their own will that they have to incur cost and the consequence of their act any units so forfeited may be disposed off by the trustee it deem fit and the proceeds of disposal if any shall accrue to the fund. The explanation given by the ld. Sr. DR that the trust is claiming whenever they can go and the trust is only managing funds. The defaulting contributor will not have in the case of suspend or terminate the defaulting contributor’s right to receive any distribution where the defaulting contributor shall remain fully liable to the creditors of the fund. The ld. Sr. DR submits from the above definitions and explanations from the some of the trust also it is not passed through entity. The ld. DR took us to paper books at page 67 for explaining that the passed through the status and the character in the income and the hand of the beneficiaries should be the same in the hands of the trust which are reproduced as under:- “Thus, as per the provisions of Sections 161 to 164 of the ITA, the Trust should, subject to the following paragraph, have a pass-through status and the character of income in the hands of the beneficiaries should be the same as in the hands of the trust. Thus, the assessment will be qua the beneficiaries and in the like manner and to the same extent as the beneficiaries. ITA No. 198 /JP/2022 RVCF Trust 32 As per the provisions of section 161 (1A) of the ITA, if income of a trust includes profits and gains of business, the entire income will be assessed in the hands of the trustees at the maximum marginal rate. Therefore, if the trust is construed to be carrying on business, the entire income received by trust shall be in the nature of business income and such income would be assessable in the hand of the trustee of the trust at the maximum marginal rate. It is possible at the tax authorities may consider the activity of the trust as a business activity and accordingly, even the gains received by the trust on sale shares may be characterized as business income of considered as proceeds from a business activity.” 11. If the trustee earned profit and the entire income of the trust will be taxed in the hands of the trust. The ld. Sr. DR wants to explain that any business activity or any proceeds from the business activity which has been received tax in the hands of the trustee, the trust should be consider in the income earned and taxed in the beneficiaries. The ld. Sr. DR has took us to section 161 of the I.T Act which defines the recoverable transfer of asset. The ld. DR contended that the assessee-trust is recoverable transfer of asset if the default in their commitment and the trust becomes to be seized but the ld. CIT(A) observed that the trust is recoverable trust and where it is not repaid to the beneficiaries. Taking us to section 162 where the ld. Sr. DR contended that it is not the case of the assessee trust according to section 161 and 162 of the Act the taxation of the contributors in India, term of beneficiary and contributors has been used interchangeably where the contributor is an individual, association of persons, body of individuals or a trust and his total ITA No. 198 /JP/2022 RVCF Trust 33 income is above Rs. 10,00,000/- then his total tax liability would be subject to a surcharge of 10%, otherwise no surcharge is applicable. The ld. Sr. DR submits that upholding the findings of the Assessing Officer that page 3 of the assessment order where the AO on examination of the details and reply submitted by ld. AR it is found that you derives income from investment other than venture capital undertaking as specified in section 10(23FB) of the IT act that the trust is not a charitable trust within the definition of section 2(15) of the I.T. Act . It is claimed that the income was passed through to the beneficiaries in accordance with the provisions of Section 161 to 164 of the I.T. Act, such income has been offered for taxation by the beneficiaries in their respective return of income and they have paid the due taxes on such income. The Sr. DR observed that reply filed by the ld. AR dated 18.03.2014 whatsoever proceedings was not acceptable in view of the following facts:- “A) Section 10 (23FB) provides specific exemption to the income of venture capital fund. Thus, venture capital fund is taxable entity and liable for tax under the provision of I.T. Act. Section 10 (23FB) which provides exemption in respect of investment made by venture capital fund in specified sector, it means that investment made by venture capital fund in other than specified sector is liable for tax under the normal provisions of I.T. Act. In the present case assessee has made all the investment in the scheme other than specified in section 10 (23FB) i.e. SME Tech Fund which is not falling under the list provided in section 10(23FB). Thus, the income of assessee which is not exempt u/s 10(23FB) is liable for tax under the provision of the I.T. Act, 1961. ITA No. 198 /JP/2022 RVCF Trust 34 Further, amendment made by Finance Act, 2007, w.e.f. 01/04/2008 in clause of section 10(23FB) i.e. meaning of venture capital undertaking also make it clear that prior to this amendment income on investment made by venture capital fund in all kind of venture capital undertaking is exempt under this section. After the amendment made by the Finance Act, 2007 this section provides exemption only in respect of income arising on investment made in venture capital undertaking engaged in specified sectors. Thus, it is very much clear that income of venture capital fund arising from investment made in other than specified sector venture capital undertaking is taxable in the hand of VCF. Thus, this amendment also support that all the income of the assessee is liable for tax. B) The assessee's submission that the income which is not arising out of specified sector is also not liable for tax due to the provision of section 161 to 166 read with section 61 to 63 of the IT. Act, 1961 are also not tenable. In this case, all the investors have transferred sum of money to RVCF Trust-II, assessee for subsequent investment as per RVCF Management. Out of this money all the investment were made by RVCF Trust-II, the assessee in its own name. Whatever profit earned from these investments the assessee has enjoyed the income. The assessee has further incurred administrative expenses and other expenses of Rs.2,94,76,248/-. Thus, the provisions of section 61 to 63 are not applicable as the investment made by the Investor is available for free use by assessee. So far as section 161 to 166 is concerned, these sections deal with the rate of taxes applicable to AOPs. Section 166 of the I.T. Act provides extra powers to the A.O. to assess income in certain circumstance directly in the hands of recipient of income.” 12. The ld. AR for the assessee explained that the trust is a representative assessee of beneficiaries and the assessee has not furnished for the purpose of ITA No. 198 /JP/2022 RVCF Trust 35 the Act where under the provisions of Section 160 of the I.T. Act, 1961 which provides the definition of Representative assessee:- ` "160. (1) For the purposes of this Act, "representative assessee" means- (i) in respect of the income a non-resident specified in [***1 sub-section (1) of section 9, the agent of the non- resident, including a person who is treated as an agent under section 163; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt or such income on behalf of such minor, lunatic or idiot; (iii) in respect of income which the Court of Wards, the Administrator- General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager; (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913) received or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; (v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees." ITA No. 198 /JP/2022 RVCF Trust 36 Explanation 1. - A trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act,1913 (6 of 1913),] shall be deemed, for the purposes of clause (iv), to be a trust declared by a duly executed instrument in writing i f a statement in writing, signed by the trustee or trustees, setting out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the [Assessing Officer,- (i) whether the trust has been declared before the 1 st day of June,1981, within a period of three months from that day; and (ii) in any other case, within three months from the date of declaration of the trust. Explanation 2. - For the purposes of clause (v), "oral trust" means a trust which is not declared by a duly executed instrument in writing [including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913),] and which is not deemed under Explanation I to be a trust declared by a duly executed instrument in writing.] In no clause of section 160, it is mentioned that the assessee is a representative assessee i.e. the assessee does not fall under any clause of section 160. Further, the ld AR also just mentioned that the assessee is a representative assessee but would not substantiate has to under which clause the assessee is representative assessee as a result, I am the considered view that assessee's contention that it is a representative assessee is not tenable.” ITA No. 198 /JP/2022 RVCF Trust 37 Taking into consideration of the facts and circumstances of the present case and the submissions made by the ld. Sr. DR and the ld. AR for the assessee, we are of the view that the RVCF is a close ended fund organized as a trust established under the Indian Trust act, 1882 where the fund is invested in securities of the portfolio companies to achieve long term capital appreciation and receives income from the sale of such investments. Going through the SME Tech Fund a trust organized of India and to be registered with Securities and Exchange Board of India as venture capital fund which is reproduced as under:- “This Confidential Private Placement Memorandum (this "Memorandum") is being furnished to prospective investors on 16 - 6 - nliffeararbasis, for them to consider an investment in SME Tech Fund (the "Fund"), a scheme of RVCF Trust- II ("Trust" or "RVCFT-II"), a contributory trust organized under the Indian Trusts Act, 1882 which shall apply to be registered with Securities and Exchange Board of India ("SEBI") as a Venture Capital Fund ("VCF") under the SEBI (Venture Capital Funds) Regulations, 1996 ("Regulations"), and may not be used for any other purpose. This Memorandum may not be reproduced or provided to others without the prior written permission of the RVCFT - II. The directors of the Investment Manager accept responsibility for the information contained in this Memorandum. To the best of the knowledge and belief of the directors of the Investment Manager (who have taken all reasonable care to ensure that such is the case) the information contained in this Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such ITA No. 198 /JP/2022 RVCF Trust 38 information. Unless otherwise indicated herein, the opinions expressed in this document are those of the directors of the Investment Manager. By accepting delivery of this Memorandum, each prospective investor agrees to the foregoing. SME Tech Fund (FUND) This Confidential Private Placement Memorandum ("Memorandum") is being furnished to you on a confidential basis so that you may consider an investment in the Units. The information contained in this Memorandum may not be provided to others who are not directly concerned with your decision regarding such investment. This Memorandum may not be reproduced or provided to others without the prior written consent of the Trustee. By accepting delivery of this Memorandum, you agree to the foregoing, and to return this Memorandum if you do not purchase Units in Fund. No person has been authorized in connection with this offering to give any information or make any representations other than as contained in this Memorandum. If given or made, such additional information or representations must not be relied upon as having been authorized. This Memorandum does not constitute an offer to sell or a solicitation of an offer to purchase the Units described herein in any state or other jurisdiction where, or to any person or entity to whom, it is unlawful to make such offer or solicitation. Investments in the Units of the Fund are being offered to Indian residents, which shall pool in monies from high net worth individuals, corporate and financial institutions in India. Investment in the Units will involve significant risks due, among other things, to the nature of Fund investments. See "Risk Factors" for a discussion of certain risk ITA No. 198 /JP/2022 RVCF Trust 39 factors that should be considered by prospective investors. Investors should have the financial ability and willingness to accept the risks and lack of liquidity which are characteristic of the investments described herein. There will be no public market for the Units and they will not, subject to certain limited exceptions, be transferable. In making an investment decision, investors must rely on their own examination of the Fund Documents (as defined hereinafter) and the terms of the offering, including the merits and risks involved. While the existing Trust will seek to register with the SEBI under the Regulations, the Units of the Fund will not be registered with any regulatory authority. Furthermore, the regulatory authorities have not confirmed the accuracy or determined the adequacy of this Memorandum. Contributors may request additional information by writing to RVCF TRUST - II, Attention: Girish Gupta, at 7th Floor, Ganga Heights, Bapu Nagar, Tonk Road, Jaipur-302 015 India by calling 91-141-4071680, 4071681 during normal business hours, faxing at 91-141-5101226 or emailing at [e-mail].” Amendment of section 160. In section 160 of the Income-tax Act, in sub-section (2), after clause (iv), the following clause and Explanations shall be inserted, namely:— '(v) in respect of income which a trustee appointed under an oral trust receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees. ITA No. 198 /JP/2022 RVCF Trust 40 Explanation 1.—A trust which is not declared by a duly executed instrument in writing (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913")(6 of 1913.) shall be deemed, for the purposes of clause (iv), to be a trust declared by a duly executed instrument in writing if a statement in writing, signed by the trustee or trustees, setting 'out the purpose or purposes of the trust, particulars as to the trustee or trustees, the beneficiary or beneficiaries and the trust property, is forwarded to the Income-tax Officer,— (i) where the trust has been declared before the 1st day of June, 1981, within a period of three months from that day; and (ii) in any other case, within three months from the date of declaration of the trust. Explanation 2—For the purposes of clause (v), "oral trust" means a trust which is not declared by a duly executed instrument in writing (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913) (6 of 1913) and which is not deemed under Explanation 1 to be a trust declared by a duly executed instrument in writing.'. Liability of representative assessee. Section 161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by ITA No. 198 /JP/2022 RVCF Trust 41 or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capacity only, and the tax shall, subject to the other provisions contained in this Chapter, be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and recoverable from the person represented by him. 53 [(1A) Notwithstanding anything contained in sub-section (1), where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, tax shall be charged on the whole of the income in respect of which such person is so liable at the maximum marginal rate : Provided that the provisions of this sub-section shall not apply where such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. Right of representative assessee to recover tax paid. Section 162. (1) Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid. (2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated liability ITA No. 198 /JP/2022 RVCF Trust 42 under this Chapter, and in the event of any disagreement between the principal and such representative assessee or person as to the amount to be so retained, such representative assesses or person may secure from the Income-tax Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount. (3) The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal. Section 163 of Income Tax Act "Who may be regarded as agent" 163. (1) For the purposes of this Act, "agent", in relation to a non-resident, includes any person in India- (a) who is employed by or on behalf of the non-resident; or (b) who has any business connection with the non-resident; or (c) from or through whom the non-resident is in receipt of any income, whether directly or indirectly; or (d) who is the trustee of the non-resident; and includes also any other person who, whether a resident or non-resident, has acquired by means of a transfer, a capital asset in India : Provided that a broker in India who, in respect of any transactions, does not deal directly with or on behalf of a non-resident principal but deals with or through a non-resident broker shall not be deemed to be an agent under this section in respect of such transactions, if the following conditions are fulfilled, namely:- (i) the transactions are carried on in the ordinary course of business through ITA No. 198 /JP/2022 RVCF Trust 43 the first-mentioned broker; and (ii) the non-resident broker is carrying on such transactions in the ordinary course of his business and not as a principal. Explanation.-For the purposes of this sub-section, the expression "business connection" shall have the meaning assigned to it in Explanation 2 to clause (i) of sub-section (1) of section 9 of this Act. (2) No person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the Assessing Officer as to his liability to be treated as such. Section 164 of Income Tax Act "Charge of tax where share of beneficiaries unknown" 164. (1) Subject to the provisions of sub-sections (2) and (3), where any income in respect of which the persons mentioned in clauses (iii) and (iv) of sub- section (1) of section 160 are liable as representative assessees or any part thereof is not specifically receivable on behalf or for the benefit of any one person or where the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable are indeterminate or unknown (such income, such part of the income and such persons being hereafter in this section referred to as "relevant income", "part of relevant income" and "beneficiaries", respectively), tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate : Provided that in a case where- (i) none of the beneficiaries has any other income chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income or part of relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by ITA No. 198 /JP/2022 RVCF Trust 44 him; or (iii) the relevant income or part of relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settler for their support and maintenance; or (iv) the relevant income is receivable by the trustees on behalf of a provident fund, superannuation fund, gratuity fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged on the relevant income or part of relevant income as if it were the total income of an association of persons: Provided further that where any income in respect of which the person mentioned in clause (iv) of sub-section (1) of section 160 is liable as representative assessee consists of, or includes, profits and gains of business, the preceding proviso shall apply only if such profits and gains are receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him. (2) In the case of relevant income which is derived from property held under trust wholly for charitable or religious purposes, or which is of the nature referred to in sub-clause (iia) of clause (24) of section 2, or which is of the nature referred to in sub-section (4A) of section 11, tax shall be charged on so much of the relevant income as is not exempt under section 11 or section 12, as if the relevant income not so exempt were the income of an association of ITA No. 198 /JP/2022 RVCF Trust 45 persons : Provided that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. (3) In a case where the relevant income is derived from property held under trust in part only for charitable or religious purposes or is of the nature referred to in sub-clause (iia) of clause (24) of section 2 or is of the nature referred to in sub-section (4A) of section 11, and either the relevant income applicable to purposes other than charitable or religious purposes (or any part thereof) is not specifically receivable on behalf or for the benefit of any one person or the individual shares of the beneficiaries in the income so applicable are indeterminate or unknown, the tax chargeable on the relevant income shall be the aggregate of- (a) the tax which would be chargeable on that part of the relevant income which is applicable to charitable or religious purposes (as reduced by the income, if any, which is exempt under section 11) as if such part (or such part as so reduced) were the total income of an association of persons; and (b) the tax on that part of the relevant income which is applicable to purposes other than charitable or religious purposes, and which is either not specifically receivable on behalf or for the benefit of any one person or in respect of which the shares of the beneficiaries are indeterminate or unknown, at the maximum marginal rate : Provided that in a case where- (i) none of the beneficiaries in respect of the part of the relevant income which is not applicable to charitable or religious purposes has any other income ITA No. 198 /JP/2022 RVCF Trust 46 chargeable under this Act exceeding the maximum amount not chargeable to tax in the case of an association of persons or is a beneficiary under any other trust; or (ii) the relevant income is receivable under a trust declared by any person by will and such trust is the only trust so declared by him; or (iii) the relevant income is receivable under a trust created before the 1st day of March, 1970, by a non-testamentary instrument and the Assessing Officer is satisfied, having regard to all the circumstances existing at the relevant time, that the trust, to the extent it is not for charitable or religious purposes, was created bona fide exclusively for the benefit of the relatives of the settlor, or where the settlor is a Hindu undivided family, exclusively for the benefit of the members of such family, in circumstances where such relatives or members were mainly dependent on the settlor for their support and maintenance, tax shall be charged on the relevant income as if the relevant income (as reduced by the income, if any, which is exempt under section 11) were the total income of an association of persons : Provided further that where the relevant income consists of, or includes, profits and gains of business, the preceding proviso shall apply only if the income is receivable under a trust declared by any person by will exclusively for the benefit of any relative dependent on him for support and maintenance, and such trust is the only trust so declared by him: Provided also that in a case where the whole or any part of the relevant income is not exempt under section 11 or section 12 by virtue of the provisions contained in clause (c) or clause (d) of sub-section (1) of section 13, tax shall be charged on the relevant income or part of relevant income at the maximum marginal rate. Explanation1.-For the purposes of this section,- ITA No. 198 /JP/2022 RVCF Trust 47 (i) any income in respect of which the persons mentioned in clause (iii) and clause (iv) of sub-section (1) of section 160 are liable as representative assessee or any part thereof shall be deemed as being not specifically receivable on behalf or for the benefit of any one person unless the person on whose behalf or for whose benefit such income or such part thereof is receivable during the previous year is expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and is identifiable as such on the date of such order, instrument or deed; (ii) the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is received shall be deemed to be indeterminate or unknown unless the individual shares of the persons on whose behalf or for whose benefit such income or such part thereof is receivable, are expressly stated in the order of the court or the instrument of trust or wakf deed, as the case may be, and are ascertainable as such on the date of such order, instrument or deed. 13. The ld. Sr. DR observed that the assessee trust is not a charitable trust since claiming of section 160 of the Income Tax Act, which is not the income according to the trust deed and the kind of the activity is not in the nature of trust where the entire fund is not eligible and the income is taxable in the hands of the uncertain income whether it is generated, but going through the organized and averment made by the ld. AR for the assessee trust is SEBI registered venture capital gain governed by the SEBI Venture Capital Regulations, 1996. The corpus fund is held by various central and state government undertaking and PSU banks for the purpose of financing venture capital undertakings. The whole idea of constitution of the trust is the pooling ITA No. 198 /JP/2022 RVCF Trust 48 of resources of various entities with a view to promote investing into venture capital undertakings, which supports entrepreneurship and innovations. 14. From the argument of the ld. AR for the assessee we observed that the assessee trust was constituted vide trust deed dated 2 nd June, 2008. The settlers of the trust are Rajasthan Asset Management Company Private Limited. It is submitted that the assessee is a SEBI registered Venture Capital Fund governed by SEBI Venture Capital Regulations, 1996. The corpus of the fund is held by various central and state government undertakings and PSU banks for the purpose of financing venture capital undertakings. The ld. AR for the assessee submits and explain the definition of what is venture capital, what is SME Tech fund, what is contributors/ beneficiaries and that is investment management agreement during the course of meaning venture in the written submissions. The ld. AR for the assessee submitted that the funds invested in securities of the portfolio companies to achieve long term capital appreciation and receives income from the sale of such investments. The ld. AR for the assessee submitted that the list of contributors where there are total number of 12 contributors / beneficiaries and details given in schedule, audited balance sheet before the ld. AO where these contributors have contributed different amounts to the assessee for the purpose of investing indenture of trust undertaking. The ld. AR for the assessee submitted that the assessee is only managing fund, the above 12 contributors who gave the funds to the assessee are beneficiaries the ITA No. 198 /JP/2022 RVCF Trust 49 assessee has produced documentary proof in paper book at page 200 to 203 where it is clearly explain that the accumulated fund is listed and unlisted shares this more or less like MU of trust which is reproduced as under:- Particulars Amount % Contribution a Rajasthan Asset Management Company P. Ltd 10,000 0.0017 b. Rajasthan Asset Management Company P. Ltd [880.31 (P.Y. 1000) Class B Units of Face Value Rs 100 each] 88,931 0.015 c. Union Bank of India [257560.92 )P.Y. 165000) Class A Units of Face Value ofRs 100 each] 2,57,56,092 4.35 d State Bank of Mysore [257901.15 (P.Y. Nil )Class A Units of Face Value Rs 100 each] 2,57,90.115 4.35 e State Bank of Bikaner & Jaipur [517201.82 (P.Y.3330000)Class A Units of Face Value Rs 100 each] 5,17,20,182 8.73 f United India Insurance Co. Ltd [517201.82 (P.Y.333000) Class A Units of Face Value ofRs 100 each] 5,17,20,182 8.73 g General InsuranceCorporation of India [514544.16 (P.Y. 330000)Class A Units of Face Value Rs 100 each] 5,14,54,416 8.68 h Small Industries Development Bank of India [514544.16 (P.Y.330000)Class A Units 5,14,54,416 8.68 ITA No. 198 /JP/2022 RVCF Trust 50 ofFace Value of Rs 100 each] i State Bank of Patiala [515121.84 (P.Y.3300000)Class A Units of Face Value of Rs 100/- each] 5,15,12,184 8.69 j Andhra Bank [515121.84 (P.Y.3300000)Class A Units of Face Value of Rs 100/- each] 5,15,12,184 8.69 k Bank of Baroda [515508.42 (P.Y. 330000) Class A Units of Face Value of Rs 100 each 5,15,50,842 8.70 l Technology Development Board [771816.24(P.Y.495000 ) Class A Units of Face Value of Rs 100 each] 7,71,81,624 13.02 m Rajasthan State Industrial Development& Investment Corp. [1029088.32 (P.Y.6600000) Class A Units of Face Value of Rs 100 each] 10,29,08,832 17.36 Total 59,26,60,000 100% The fund of assessee RVCF trust-II is created by a indenture of trust between Rajasthan Asset Management Company Private Limited (“Settler”) and Rajasthan Trustee company private Limited (“Trustee”). The trust is not doing any charitable activity define u/s 2(15) of the I.T. Act. The assessee has filed a detailed reply before the AO during the assessment proceedings dated 18.03.2014 .The ld. AR for the assessee further explain that as per section 63 of the Act the asset which are in the nature of revocable of the asset where the ITA No. 198 /JP/2022 RVCF Trust 51 assessee is only transferor. The ld. AO during the assessment proceedings failed to consider the submissions made by the assessee u/s 10(23FB) of the I.T. Act. The ld. DR relied upon the findings of the AO and does not agree with the assessee trust is a representative trust of beneficiaries according to section 160 of the I.T. Act. The ld. CIT(A) has recorded the findings in page 24 of his order where the ld. CIT(A) has considered the assessee’s case taking into consideration of the case laws and circulars which is directly applicable to the assessee’s case, the main issue is whether the assessee’s status to be treated as representative assessee or AOP. Taking into consideration the facts, circumstances, documents and orders of the lower authorities, the AO has wrongly given interpretation as AOP but section 160(1)(4) of the Act it is clearly covered that the assessee stated as representative. The Assessing Officer has failed to consider the submission where the definition of section 2(31) clause 4 where the association of persons have been defined. The ld. AR further submitted that the assessee has produced the contributors agreement of SME tech fund where there was no inter se agreement between the contribution and the assessee has individual agreement between trust and the contributor agreement SME tech fund in paper book at page 70 which is example shown by the assessee it is to be noted that looking into the scheme of beneficiaries that initial at the time of first closing of SME tech fund there were 6 beneficiaries, ITA No. 198 /JP/2022 RVCF Trust 52 at the present it has under 12 beneficiaries the assessee has produced the scheme of beneficiaries in page 34 and 35 which is reproduced as under:- Scheme Beneficiaries: SME Tech Fund: Name of the beneficiaries at the time of first closing Name of the contributor Committed Amount Rajasthan State Industrial Development and Investment corporation Limited 20 Crore Small Industries Development Bank of India Limited 10 Crore United India Insurance Co. Ltd. (UICL) 10 Crore General Insurance Corporation Ltd. (GIC) 10 Crore State Bank of Bikaner and Jaipur (SBBJ) 10 Crore Technology Development Board (TDB), Deptt. Of Sc & Tech, GOI 15 Crore SME Tech Fund (A Scheme of RVCF Trust-II, a trust organized in India and to be registered with securities and Exchange Board of India as a venture capital fund) Investment Manager: Rajasthan Asset Management Company Private Limited Note “This Confidential Private Placement Memorandum (this "Memorandum") is being furnished to prospective investors on 16 - 6 - nliffeararbasis, for them to consider an investment in SME Tech Fund (the "Fund"), a scheme of RVCF Trust- II ("Trust" or "RVCFT-II"), a ITA No. 198 /JP/2022 RVCF Trust 53 contributory trust organized under the Indian Trusts Act, 1882 which shall apply to be registered with Securities and Exchange Board of India ("SEBI") as a Venture Capital Fund ("VCF") under the SEBI (Venture Capital Funds) Regulations, 1996 ("Regulations"), and may not be used for any other purpose. This Memorandum may not be reproduced or provided to others without the prior written permission of the RVCFT - II. The directors of the Investment Manager accept responsibility for the information contained in this Memorandum. To the best of the knowledge and belief of the directors of the Investment Manager (who have taken all reasonable care to ensure that such is the case) the information contained in this Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information. Unless otherwise indicated herein, the opinions expressed in this document are those of the directors of the Investment Manager. By accepting delivery of this Memorandum, each prospective investor agrees to the foregoing. 15. The ld. AR for the assessee has relied upon the case laws which has been produced during the appellate proceedings where the assessee is AOP or representative of the assessee. The ld. CIT(A) has relied upon the following order:- • DCIT vs. India Advantage Fund-VII (50 taxmann.com 350)] • ITO vs. India Advantage Fund-I 62 taxmann.com 86 • CIT vs. P. Sekar Trust (2009) 180 Taxman 277 (Madras) ITA No. 198 /JP/2022 RVCF Trust 54 • CIT vs. TVS Shri Ram Growth Fund (2020) 121 taxmann.com 238 ( Madras and CBDT Circular No. 14(XL)-35), dated 11-4-1955 Taking into consideration, the Assessing Officer has not given any justification for treating the assessee-AOP has not found or satisfaction investing in this regard given of the assessee and the ld AO failed to observe that the assesee is a Representative Assessee within the meaning of Clause(IV) of sec 160(1) of IT Act. The Ld CIT(A) taking into consideration that the each beneficiary is an independently invested in RVCF-II without any association with any other beneficiary trust. Hence, ground No. 4 of the Revenue appeal is dismissed. 16. Regarding Ground No. 2, whether the assessee trust is revocable. Considering the facts and circumstances of the case, the ld. CIT(A) has rightly observed that the assessee trust is a revocable trust stood in section 63 of the I.T. Act. The ld. AR for the assessee submitted that the assessee filed number of documentary evidence before the ld. CIT(A) and before us it is to be noted that when the transactions has been expired then it may be restored and it is clear from the trust deed which is chartered documents. Going through the document indenture of trust where it is very crucial to mention that the trust has defined period and in paper book at page no. 30 that the term and termination of the trust which is reproduced as under:- ITA No. 198 /JP/2022 RVCF Trust 55 “12.1 Term: The trust shall terminate upon winding up of the last and final scheme of the trust. 12.2 Premature termination of the Trust Scheme: 12.2.1 The trustee may at any time prior to the Term, terminate this Indenture upon winding up of all the schemes. 12.2.2. The Trust may stand terminated upon failure to appoint a new trustee prior to the winding up of the Trustee, as contemplated in Clause 5.5.2.2. above. 12.2.3 The Trustee may at any time prior to the term of the Scheme, wind up the Scheme upon such terms and conditions ass may be specified in the Memorandum. 12.3 Procedure on termination: in the event of the Trust/scheme being terminated under clauses 12 and 12.2 above mentioned the trustee shall: 12.3.1 take all practical steps to sell all the non-cash assets of the Trust Fund in the manner the Trustee deems fit or advisable; 12.3.2 Shall commence arrangements to pay all the liabilities of the Trust/Scheme(s); 12.3.3 return to the extent of the available cash in the Contribution Fund, all outstanding interest in the Scheme in proportion to the percentage of the Capital Contribution held by the respect Contributors immediately prior to the date of termination of the Trust/Scheme; and 12.3.4 distribute Initial settlement, Accretions thereto to the Settlor or their respective nominees and assigns. 12.3.5 distribute the residual Fund Investments in specie as determined by the Trustee in consultation with the Investment Manager of the Trust.” ITA No. 198 /JP/2022 RVCF Trust 56 The ld. CIT(A) is justified in taking into view that the assessee trust is revocable trust which are supported and the definition of section 62 and 63 of the case, the case laws and paper book at page 20 which is clearly explain that the trust funds which is reproduced as under:- “4.1 Vesting: The trust fund shall vest in the trustee and the trustee shall hold the same upon trust for the benefits of the contributors subject to the powers, provisions, agreement and declarations here contained. 4.2 Investment restrictions” all investments made or to be made by the trustee or the investment manager on behalf of the trust or its schemes shall be subject to the restrictions specified in the memorandum and in accordance with the regulations and the provisions of the Investment Management Agreement. Provided further, no investment shall be made in portfolio companies and securities, which could subject the trust or its schemes to incur any unlimited liability. 4.3 Investments in the name of the Trustee: All investment of the trust or its schemes shall be registered in the name of the trustee or the trust or the scheme, if permissible, as soon as reasonably practicable. The voting powers under the investments shall vest with the trustee.” On perusing this memorandum of appreciation which is already been discussed from this documents, it is noted the trust was not created for limited time where the trustee is revocable and the funds were to be return back on the termination of the beneficiary. The ld. AR for the assessee further produced a few documents which show that the amount has been return to the assessee and where the trust is revocable the agreement. Going through the term of fund ITA No. 198 /JP/2022 RVCF Trust 57 investment period and commitment period it is very clear that funds were to be returned back on the termination of the contribution and the trust was not created for certain time so the trust is a revocable trust. The ld. AR further produced the few example whether the amount was received by the corporation is income from SME tech fund-RVCF-II where the owner are national bank example produce before us in Paper book at page No. 112 to 117. The ld. CIT(A) has discussed the Board circular which is related in section 166 and explain that the assessee trust is a revocable trust and in para 2 of the CBDT Circular explain that ‘option once’ that it will not be opened to the Income-tax Officer to assess the same income for that assessment year in the hands of the other person i.e. the beneficiary or the trustee. The ld. CIT(A) has rightly taken view that the assessee trust is received some amounts under revocable transfer of asset where the AO failed to note that no income is charitable to tax in the hands of the assessee but it is charitable to tax in the hands of the beneficiaries and any income arising to any other in such revocable transfer of AOP which charitable to income tax as the income of the transferor and not in the income transferee where the income received by the assessee trust was charitable to tax in the hands of contributors/beneficiaries and not in the hands of the assessee. The AO contentions that the investment was available for free use by the assessee is not correct. The ld. AR for the assessee pointed that the interest of the other beneficiary is the evident of default clause where the circular is to be ITA No. 198 /JP/2022 RVCF Trust 58 considered. In support, reliance was placed in the following decision in the case of CIT vs. SAE Head Office Monthly Paid Employees Welfare Trust (2004) 141 taxman 364 ( Delhi Trib.). It is a clear definition that the income arising to any person by virtue of revocable transfer of assets shall be chargeable to tax as income of the transferor will apply to the facts and circumstances of the present case and therefore, the assessment in the hands of the transferee/ representative assessee was not justified. In this regard, our reference was drawn to the decision of the case of DCIT vs. India Advantage Fund-VII reported in (2014) 50 taxmann.com 350 (Bangalore- Trib.) wherein the Bench has held in para 68 & 73 which are reproduced as under:- “68. It can thus be seen that the beneficiaries contributed their money to the assessee and a separate agreement was entered into between the assessee 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 beneficiaries joined in a common purpose or common action and therefore the tests for considering the assessee as AOP was satisfied. The beneficiaries have not set up the trust. Therefore 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 beneficiaries are mere recipients of the income earned by the trust. They cannot therefore be regarded as an AOP. Ground No. 8 raised by the Revenue is therefore held to be without any merit. 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 the relevant AY when the assessment was made by the AO on the present ITA No. 198 /JP/2022 RVCF Trust 59 Assessee. Circulars not in force in the relevant Assessment year cannot be applied as held by the Hon’ble Bombay High Court in the case of BASF (India) Ltd. & Anr. vs. W. Hasan, CIT & Ors. 280 ITR 136 (Bom). The decision of the Hon’ble Supreme in the case of Ch. Atchaiah (supra) on which the AO placed reliance in making assessment on the Assessee in our view is not applicable to the facts of the present 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 held that unlike under s. 3 of the 1922 Act, the ITO did not have an option under s. 4 of the IT Act, 1961, to assess either the AOP or the individual 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 assess 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 considered as representative assessee. Sec.161(1) by implication permits assessment of either the beneficiary or the Trustee. When the Trustee is assessed as representative assessee in respect of income received on behalf of the beneficiary, the section provides that tax shall be levied upon and recovered from him in like manner and to the same extent as it would be leviable upon and 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.” Taking into consideration of orders of lower authorities documentary evidence assessee trust is revocable trust. Hence, ground No. 2 of the Revenue appeal is dismissed and uphold the order of the ld. CIT(A) that the RVCF Trust is revocable trust. The trust was created for a definite time and the trust was ITA No. 198 /JP/2022 RVCF Trust 60 created for the last end of the final scheme of the trust. Taking into consideration of clause-4, the trust fund of the indenture of trust the assessee RVCF is just holding the fund of the beneficiaries and contributors of the private placement memorandum. Taking into consideration the memorandum in paper book at page- 35 and 44 which clearly explain the term of the fund and investment period and commitment period from the term of the fund shall be 8 years from the date of the first closing. Term may be extended for two additional lone year period upon the recommendation of the investment manager. The fund may be return back to the beneficiaries and taking into consideration of the contribution agreement where the assessee has been entered the agreement of RVCF trustee company limited. It is an example given by the ld. AR for the assessee where the trust is revocable trust and taking into consideration the contribution agreement in paper book at page 71 to 77 where in 2.4 the return of contribution clearly explains the dissolution of the funds where the contributor shall be entitled to return of its capital contribution upon the distributions or dissolution of the fund as per clause -9. The trust was created in the limited period of time and perpetuated the trust and the fund was hold by the assessee or the fund of contributors and beneficiaries which is revocable trust. Going through the number of documentary evidence produced before us it can thus been noted that the beneficiaries each from money to the assessee and his agreement were entered into between the ITA No. 198 /JP/2022 RVCF Trust 61 assessee and each beneficiaries there is not enter see arrangement between one contributor/ beneficiaries and the other contributors/beneficiaries as each of them entered into separate contribution arrangement with the assessee. The AO’s findings are baseless and unjustified that the investment was available for free use by the assessee is not correct and the AO’s action in the impugned assessment order for the year cannot be sustained in this regard and we uphold the order passed by the ld. CIT(A) where the assessee trust is revocable trust the assessee holding this amount for the benefit of the contributors and beneficiaries only the each distribution to the fund has made the contribution on the condition that the initial contribution along with any income or gain arising on the investment made from his contribution would be return to the contributor upon the sale of investment and the contribution is nothing to a revocable transfer has defined in section 63 of the Act and in the entire asset will be contributed to the contributors and dissolution of the assessee trust after expiry. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 31/10/2022. Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 31/10/2022. ITA No. 198 /JP/2022 RVCF Trust 62 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. vihykFkhZ@The Appellant- ITO, Jaipur. 2. izR;FkhZ@ The Respondent- RVCF Trust-II, Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur. 6. xkMZ QkbZy@ Guard File { ITA No. 198/JP/2022} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar