Appeal Details
Counselvise Citation
[2019] 116 COUNSELVISE.COM (IT) 1265 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 4 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
04-09-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Assessment Year
2012-2013
Appeal Filed On
13-04-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, J M ITA NO.2701/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) M/S. ISARC 14/2010 - 11 TRUST C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 VS. ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 PAN/GIR NO.AAATI8646N (APPELLANT ) .. (RESPONDENT ) ITA NO.3459/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) ITO 23(1)(2), ROOM NO.108, MATR U MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 VS. M/S. ISARC 14/2010 - 11 TRUST C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 PAN/GIR NO.AAATI8646N (APPELLANT ) .. (RESPONDENT ) ITA NO.2702/MUM/2017 ( ASSES SMENT YEAR :2012 - 13 ) M/S. ISARC - 12/2010 - 11 TRUST C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 VS. ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 PAN/GIR NO.AAATI8644Q ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 2 (APP ELLANT ) .. (RESPONDENT ) ITA NO.3458/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 VS. M/S. ISARC - 12/2010 - 11 TRUST C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 PAN/GIR NO.AAATI8644Q (APPELLANT ) .. (RESPONDENT ) ITA NO.2703/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) M/S. ISARC SIDBI 2/2009 - 10 TRUST, C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 VS. ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 PAN/GIR NO.AAATI7943N (APPELLANT ) .. (RESPONDENT ) ITA NO. 3456/ MUM/201 7 ( ASSESSMENT YEAR : 2012 - 13 ) ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MU MBAI 400 007 VS. M/S. ISARC SIDBI 2/2009 - 10 TRUST, C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 PAN/GIR NO. AAATI7943N (APPELLANT ) .. (RESPONDENT ) ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 3 ITA NO.2704/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) M/S. ISAR C BOB 1/2009 - 10 TRUST, C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 VS. ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 PAN/GIR NO.AAATI7942P (APPELLANT ) .. (RESPONDENT ) ITA NO.3460/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 VS. M/S. ISARC BOB 1/2009 - 10 TRUST C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 0 51 PAN/GIR NO.AAATI8646N (APPELLANT ) .. (RESPONDENT ) ITA NO.2705/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) M/S. ISARC UBI 1/2009 - 10 TRUST, C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 VS. ITO 23(1)(2), ROOM NO. 108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 PAN/GIR NO.AAATI7525E (APPELLANT ) .. (RESPONDENT ) ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 4 ITA NO.3457/MUM/2017 ( ASSESSMENT YEAR :2012 - 13 ) ITO 23(1)(2), ROOM NO.108, MATRU MANDIR, TARDEO ROAD GRANT ROAD, MUMBAI 400 007 VS. M/ S. ISARC U BI 1/2009 - 10 TRUST, C - 11, G BLOCK, SME DEVELOPMENT CENTRE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI 400 051 PAN/GIR NO.AAATI7525E (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI MALLIKARJUN UTTURE ASSESSEE BY SHRI VIPUL JOSHI & SHRI SHU BHAM RATHI DATE OF HEARING 08 / 08 /2019 DATE OF PRONOUNCEMENT 04 / 09 /2019 / O R D E R PER BENCH : TH ESE CROSS APPEAL S IN ITA NO. 3456/MUM/2017 , ITA NO.3457/MUM/2017 , 3458/MUM/2017 , ITA NO.2705/MUM/2017 FOR A.Y. 2012 - 13 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 32, MUMBAI IN APPEAL S NO S . CIT(A) - 32/IT - 219/23(1)(2)15 - 16, CIT(A) - 32/IT - 211/23(1)(2)15 - 16, CIT(A) - 32/IT208/23(1)(2)15 - 16 , CIT(A) - 32/IT - 193/23(1)(2)14 - 15 & CIT(A) - 32/IT - 210/23(1)(2)15 - 16 , RESPECTIVELY DATED 08/02/2017 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 24/03/2015 BY THE LD. INCOME TAX OFFICER - ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 5 23(1)(2), MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATE ORDER, FOR THE SAKE OF CONVENIENCE. 2. THE FACTS OF ISARC 14/2010 - 2011 TRUST IS TAKEN AS THE LEAD CASE WITH THE CONSENT OF BOTH THE PARTIES BEFORE US AND THE DECISION RENDERED THEREON WOULD APPLY WITH EQUAL FORCE FOR OTHE R ASSESSEES ALSO HEREINABOVE, EXCEPT WITH VARIANCE IN FIGURES. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - UNDER MENTIONED GROUND OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER 1. THE CIT (A) MUMBAI 32 ERRED IN CONCLUDING THAT SECTI ON 61 TO 63 OF INCOME TAX ACT DOES NOT APPLY TO THIS ASSESSEE AND FURTHER ERRED IN ASSESSING THE TRUST AT MMR OF 30%. 2. THE CIT (A) MUMBAI 32 ERRED IN CONSIDERING THAT THE SHARE OF BENEFICIARIES ARE NOT SPECIFIC. 3. THE CIT (A) MUMBAI 32 ERRED IN RE JECTING THE STATUS OF THE ASSESSEE AS TRUST, WHICH IS CREATED UNDER THE GUIDELINES OF RBI AND UNDER THE PROVISION OF THE SARFAESI ACT 2002. 4. THE CIT (A) MUMBAI 32 ERRED IN RECOGNIZING THE LEGAL POSITION OF THE TRUST UNDER LAW OF THE LAND AND ERRED IN TREATING THE ASSESSEE TRUST AS AN AOP. 5. THE CIT (A) MUMBAI 32 ERRED IN UPHOLDING THE ORDER OF THE I.T.O. WD 23 (1) (2) MUMBAI DT 24.03.2015 IN TREATING THE ASSESSEE TRUST AS AN AOP. THE APPELLANT PRAY FOR LEAVE TO ADD, TO AMEND AND/OR ALTER ALL OR AN Y GROUND OF APPEAL. 3.1. THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL : - 6. IT IS SUBMITTED THAT IN THE FACTS AND THE CIRCUMSTANCES OF THE CASE, AND IN LAW, NO INCOME ACCRUED TO THE APPELLANT AS THE INCOME STOOD DIVERTED IN ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 6 FAVOUR OF THE BENEFICIARIES / SECURITY RECEIPT HOLDERS ON ACCOUNT OF DIVERSION BY OVERRIDING TITLE. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUND AT THE TIME OF HEARING . 3.2. THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL : - 1. A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT THE SECTION 167B OF THE IT ACT IS APPLICABLE ON THE ASSESSEE INSTEAD OF SECTION 164(1) OF THE IT ACT. B)ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS IGNORED THE FACT THAT IN THIS CASE INVESTORS/CONTRIBUTORS ARE ALSO THE BENEFICIARIES AND AT THE DATE OF CREATION OF TRUST, BENEFICIARIES WERE NOT IDENTIFIABLE. (C) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS IGNORED THE FACT OF THE CIRCULAR NO. 13/2014, IN WHICH CBDT HAS CLARIFIED THAT THE TRUSTS WHICH ARE NON - CHARITABLE TRUSTS WHERE THE INVESTORS NAME AND BENEFICIAL INTEREST ARE NOT EXPLICITLY KNOWN ON THE DATE OF ITS CREA TION - SUCH INFORMATION BECOMING AVAILABLE ONLY WHEN THE FUNDS STARTS ACCEPTING CONTRIBUTION FROM INVESTORS, HAVE TO BE TREATED AS FALLING WITHIN SECTION 164 (1) OF THE ACT AND THE FUND SHOULD BE TAXED IN RESPECT OF THE INCOME RECEIVED ON BEHALF OF THE BEN EFICIARIES AT THE MAXIMUM MARGINAL RATE. 2. A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS. RS. 1,51,74,640/ - ON THE GROUND THAT THE AO DID NOT CONSIDER THE COST OF PURCHASES OF ASSETS SO LD DURING THE YEAR. B) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS IGNORED THE FACT THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE HAS FAILED TO SUBMIT THE DETAILS OF COST OF PURCHASES OF THE ASSETS SOLD EVEN AFTER ASKE D BY THE AO. C) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT AS PER THE GUIDELINES OF THE RBI, NO UPSIDE INCOME SHOULD BE RECOGNIZED TILL THE FULL REDEMPTION OF THE ENTIRE PRINCIPAL SECURITY RECEIPTS AND IGNORED THE FACT THAT AS PER THE IT ACT, THE ASSESSEE HAS TO OFFER FOR TAXATION ANY INCOME WHICH ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE IN INDIA DURING SUCH YEAR. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 7 4. THE APPELLANT CRAVES LEAVE TO ADD, DELETE, ALTER, AMEND AND MODIFY ANY OR ALL GROUNDS OF APPEAL.' 4. WE FIND THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE IS ONLY IN SUPPORT OF THE MAIN GROUND ALREADY RAIS ED BY THE ASSESSEE THAT INCOME IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE. SINCE THE ADDITIONAL GROUND RAISED IS PURELY LEGAL IN NATURE AND GOES TO THE ROOT OF THE MATTER, WE ARE INCLINED TO ADMIT THE SAME AND TAKE UP FOR ADJUDICATION. 5. THE BRIEF FAC TS ARE THAT THE ASSESSEE IS A SPECIFIC TRUST FORMED UNDER INDIAN TRUST ACT, 1882 UNDER THE GUIDELINES OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT IN SHORT) FOR THE BENEFIT OF HO LDERS OF SECURITY RECEIPTS (SRS) ISSUED BY THE TRUST. THE TRUST IS SET UP IN ACCORDANCE WITH CLAUSE 3(1)(XI) READ WITH CLAUSE 8(1) OF THE SECURITISATION COMPANIES AND RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND DIRECTIONS, 2003, ISSUED BY NOTIF ICATION DATED 23.04.2003. AS PER THE OFFER DOCUMENT ISSUED IN RESPECT OF PRIVATE PLACEMENT OF SECURITY RECEIPTS ISSUED BY ISARC 14/2010 - 11 TRUST (I.E THE ASSESSEE HEREIN) ACTING THROUGH THE TRUSTEE INDIA SME ASSET RECONSTRUCTION COMPANY LTD (ISARC) , IT IS FOUND THAT ISARC IS REGISTERED WITH THE RBI AS A SECURITISATION COMPANY AND AN ASSET RECONSTRUCTION COMPANY (ARC IN SHORT) , PURSUANT TO SARFAESI. ISARC PROPOSED TO ACQUIRE THE ASSETS BY RAISING FUNDS FOR SUCH ACQUISITION BY THE ISSUE OF SECURITY RECEI PTS TO THE PROSPECTIVE INVESTORS, UPON CONTRIBUTION BY THEM TO THE TRUST. THE SECURITISATION COMPANIES AND RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND DIRECTIONS, 2003 REQUIRE THAT ANY SECURITISATION COMPANY OR ASSET RECONSTRUCTION COMPANY PROPO SING TO ACQUIRE FINANCIAL ASSETS THROUGH THE ISSUE OF SECURITY RECEIPTS SHOULD SET UP A TRUST FOR THIS ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 8 PURPOSE. ACCORDINGLY, ISARC HAS DECLARED A TRUST IN RESPECT OF THE INITIAL TRUST FUND AND HAS EXECUTED A TRUST DEED FOR THIS PURPOSE, THEREBY CREATING T HE ISARC 14/2010 - 11 TRUST. THE TRANSACTION STRUCTURE REVEALS THAT ALL CONTRIBUTIONS MADE BY THE PROSPECTIVE INVESTORS SHALL BE PAID TO THE TRUSTEE AND SHALL BE UTILIZED BY THE TRUSTEE TO ACQUIRE THE ASSETS OR FOR SUCH OTHER PURPOSE AS MAY BE SPECIFIED IN THE OFFER DOCUMENT AND THE TRUST DEED, WHICH SHALL BE HELD IN TRUST FOR THE BENEFIT OF THE SECURITY RECEIPT HOLDERS. THE TRUSTEE SHALL ACQUIRE ALL RIGHTS, TITLE AND INTEREST OF THE SELLERS TO THE ASSETS, BY EXECUTING ASSIGNMENT AGREEMENTS WITH THE SELLER S AND THE CONFIRMING PARTY. THE PURCHASE PRICE OF EACH OF THE ASSETS, CONSTITUTING THE TRUST FUND, IS THE EQUIVALENT IN CASH OF THE FAIR MARKET VALUE OF SUCH ASSETS (INCLUDING ALL UNPAID INTEREST OR YIELD ACCRUED THEREON UP TO BUT EXCLUDING THE DATE OF AC QUISITION OF THE ASSETS BY THE TRUSTEE). 5.1. ISARC FLOATED THIS SCHEME, IN ORDER TO RAISE FUNDS FROM THE PROSPECTIVE INVESTORS, AND THE PROCEEDS OF THIS ISSUE WERE UTILIZED TO PAY THE PURCHASE CONSIDERATION FOR THE ASSETS WHICH HAVE BEEN AGREED TO BE ASSIGNED TO THE TRUSTEE BY THE SELLER UNDER THE ASSIGNMENT AGREEMENT WITH ISARC AS THE CONFIRMING PARTY. THE TRUST, PURSUANT TO THIS SCHEME, ISSUED SECURITY RECEIPTS TO THE PROSPECTIVE INVESTORS , REPRESENTING UNDIVIDED RIGHT, TITLE AND INTEREST IN THE AS SETS ACQUIRED, AND THE REMAINING TRUST FUND . THE SECURITY RECEIPT HOLDERS SHALL RECEIVE RETURNS ON THESE SECURITY RECEIPTS, AS SPECIFIED IN THE OFFER DOCUMENT. 5.2. THE ENTIRE PROCESS OF ACTIVITIES CARRIED OUT ARE AS UNDER: - A) BANKS / FINANCIAL INSTIT UTIONS (FIS) ANNOUNCE SALE OF NON PERFORMING ASSETS (NPAS) AND PROVIDES A LIST OF THE FINANCIAL ASSETS WHICH ARE TO BE SOLD TO ARC. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 9 B) ARC, AT ITS OWN COST, UNDERTAKES VALUATION, DUE DILIGENCE, ETC. TO ARRIVE AT A SPECIFIED COST AT WHICH THE NPAS CAN BE ACQUIRED. C) ARC BIDS FOR ACQUIRING NPAS AFTER EVALUATING THE ANALYZING THE PORTFOLIO / NPA BASED ON THE DUE DILIGENCE REPORT AND MAKES AN OFFER TO THE BANK / FI. D) THE BANK ASSIGNS THE ACCOUNT TO THE HIGHEST BIDDER, PROVIDED THE OFFER MATCHES THE RES ERVE PRICE FIXED BY BANK / FI. E) IF OFFER BY ARC IS ACCEPTED, ACQUISITION OF NPAS CAN BE DONE IN TWO WAYS I.E, WITH OR WITHOUT FORMATION OF TRUSTS : ACQUISITION WITHOUT FORMATION OF A TRUST (CASH BASIS) ARC PAYS PURCHASE CONSIDERATION TO THE BANK. THE RIGHT OF THE SAID NPAS IS VESTED WITH ARC. THE NPAS ACQUIRED ARE SHOWN AS FINANCIAL ASSETS IN THE BALANCE SHEET. ANY SURPLUS AMOUNT REALIZED I.E BETWEEN THE ACQUISITION COST AND THE REALIZATION VALUE IS SHOWN AS PROFIT IN THE PROFIT AND LOSS STATEMEN TS. ACQUISITION BY FORMATION OF TRUSTS (SRS BASIS) (I) A TRUST IS FORMED BY A DECLARATION OF TRUST TO ACQUIRE THE NPAS FROM BANKS. (II) TRUST IS SET - UP UNDER INDIAN TRUST ACT, 1882 AND SARFAESI. (III) ARC ACTS AS A TRUSTEE OF THE TRUST. (IV) THE TRUST ISSUES OFFER DOCUMENTS TO INVESTORS FOR SUBSCRIBING TO THE SRS OF THE TRUST. (V) IF ARC ACQUIRES NPAS ON 100% CASH BASIS BY AR, SRS ARE ISSUED TO ARC FOR THE ACQUISITION COST. (VI) ARC ACQUIRES THE NPAS BASED ON PART PAYMENT OF THE ACQUIS ITION COST, SRS ARE ISSUED TO ARC FOR THE AGREED PART. FOR THE BALANCE, THE SELLER BANK RECEIVES THE SRS. (VII) ARC AND SELLER BANKS / FIS / QIBS SUBSCRIBES SRS AND PAY PURCHASE CONSIDERATION TO TRUSTS, THEREAFTER TRUSTS PAYS PURCHASE CONSIDERATION TO SE LLER BANKS AND SIMULTANEOUSLY THE NPAS ARE TRANSFERRED BY THE BANK / FI TO ARC BY WAY OF ASSIGNMENT AGREEMENT. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 10 (F) POST ASSIGNMENT, THE ASSETS ACQUIRED ARE RESOLVED THROUGH VARIOUS REOVERY MEASURES LIKE SETTLEMENT WITH BORROWER, ENFORCEMENT OF SECURITY U NDER SARFAESI ACT, RDDBFI ACT, RESTRUCTURING / RESCHEDULEMENT OF DUES, ETC. (G) AS ASSET MANAGER, ISARC MANAGES AND RESOLVES THE ASSETS OVER A PERIOD OF TIME. FOR ASSET MANAGEMENT, ISARC RECEIVES MANAGEMENT FEE AS AN AGREED % OF THE VALUE OF OUTSTANDING SRS. (H) THE REALIZATION / RECOVERY FROM RESOLUTION OF THE ACQUIRED NPAS ARE APPROPRIATED IN AGREED WATERFALL AS UNDER: ( I ) FIRST TO PAY THE EXPENSES INCURRED ( II ) SECOND TO PAY THE ACCRUED MANAGEMENT FEES ( III ) THIRD TO REDEEM THE SRS ( IV ) FOURTH TO PAY AGREED YIELD, IF A NY TO SR HOLDERS AND ( V ) FINALLY, BALANCE SURPLUS TO BE SHARED AS UPSIDE IN THE AGREED RATIO. 5.3. THE DETAILS OF ASSETS TAKEN OVER BY EACH TRUST ARE AS UNDER: - 5.4. AS STATED ABOVE, AFTER ACQUISITION OF FINANCIAL ASSETS, THE TRUST OFFERS AND THEN ISSUES SECURITY RECEIPTS TO QUALIFIED INSTITUTIONAL BUYERS (QIBS) AS PER SECTION 7 OF THE SARFAESI ACT. QIBS ARE FIS/ INSURANCE COMPANIES / BANKS / STATE INDUSTRIAL DEVELOPMENT CORPORATION, TRUSTEE, SC / RC WHICH HAS BEEN GRANTED REGISTRATION U/S 3(4) OF SARFAE SI ACT, OR AMC / FII, ETC. AS DEFINED IN SECTION 2 OF THE SARFAESI ACT. THEREFORE, ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 11 ALL BENEFICIARIES / INVESTORS ARE CLEARLY IDENTIFIABLE / TRACEABLE / ACCOUNTABLE / ASSESSABLE. THE DETAILS OF THE SAME ARE AS UNDER: - ISARC - UBI 1/2009 - 10 TRUST SELLING BANK : UNITED BANK OF INDIA DETAILS OF NAME, RATIO AND ADDRESS OF BENEFICIARIES NAME OF THE BENEFICIARIES RATIO OF BENEFICIARIES/ INVESTMENTS ADDRESS UNITED BANK OF INDIA 95% 11, HEMANTA BASU SARANT, KOLKATA 700 001 INDIA SME ASSET RECONSTRUCTIO N COMPANY LIMITED 5% C 11, G BLOCK. MSME DEVELOPMENT CENTRE - BKC, BANDRA (E) ISARC SIDBI 2/200 9 - 10 TRUST SELLING BANK : SMALL INDUSTRIAL DEVELOPMENT BANK OF INDIA NAME OF THE BENEFICIARIES RATIO OF BENEFICIARIES/ INVESTMENTS ADDRESS SMALL INDUSTRIAL DEVELOPMENT BANK OF INDIA 95% MSME DEVELOPMENT CENTRE, BANDRA KURLA COMPLEX, BANDRA (E) MUMBAI 400 051 INDIA SME ASSET RECONSTRUCTION COMPANY LIM ITED 5% C 11, G BLOCK. MSME DEVELOPMENT CENTRE - BKC, BANDRA (E) ISARC - BOB 1/2009 - 10 TRUST SELLING BANK : BANK OF BARODA NAME OF THE BENEFICIARIES RATIO OF BENEFICIARIES/ INVESTMENTS ADDRESS INDIA SME ASSET RE CONSTRUCTION COMPANY LIMITED 100% C 11, G BLOCK. MSME DEVELOPMENT CENTRE - BKC, BANDRA (E) ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 12 ISARC - 14/2010 - 11/ TRUST SELLING BANK : UCO NAME OF THE BENEFICIARIES RATIO OF BENEFICIARIES /INVESTME NTS ADDRESS INDIA SME ASSET RECONSTRUCTION COMPANY LIMITED 100% C 11, G BLOCK. MSME DEVELOPMENT CENTRE - BKC, BANDRA (E) ISARC - 12/2010 - 11 TRUST SELLING BANK : UCO NAME OF THE BENEFICIARIE S RATIO OF BENEFICIARIES/INVESTMENTS ADDRESS INDIA SME ASSET RECONSTRUCTION COMPANY LIMITED 100% C 11, G BLOCK. MSME DEVELOPMENT CENTRE - BKC, BANDRA (E) 5.5. THE DETAILS OF ASSIGNMENT DEED EXECUTED IN FAVOUR OF EACH TRUST , DATE OF ISSUE OF OFFER DOCUMENT, DATE OF ISSUE OF SECURITY RECEIPTS , AMOUNTS RECEIVED FROM SECURITY RECEIPT HOLDERS AND AMOUNTS PAID TO SELLING BANKS ARE AS UNDER: - NAME OF TRUST TRUST DEED ASSIGNMENT DEED OFFER DOCUMENT SR ISSUE DATE AMOUNT RECEIVED FROM SRH AMOUNT PAID TO SELLING BANK ISARC OTHERS ISARC - 14/2010 - 11/ TRUST 30.03.2011 26.05.2011 01.06.2011 01.06.2011 16.06.2011 14.07.2011 14.07.2011 31.03.2011 31.03.2011 05,31,09,000 30.03.2011 - 5,31,09,000 30.03.2011 ISARC - 12/2010 - 11 TRU ST 30,03.2011 31.03.2011 13.06.2011 31.03.2011 31.03.2011 6,97,80,000 10.03.2011 - 6,97,80,000 30.03.2011 ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 13 ISARC SIDB1 2/2009 - 10 TRUST 31.03.2010 15.04.2010 16.04.2010 16.04.2010 23.04.2010 03.05.2010 03.05.2010 03.05.2010 03.05.2010 04.05.2010 0 5.05.2010 07.05.2010 28.05.2010 03.06.2010 29.03.2011 31.03.2010 31.03.2010 19,53,35,000 31.03.2010 8,61,65,000 31.03.2010 28,15,00,000 31.03.2010 ISARC - UBI 1/2009 - 10 TRUST 14.09.2009 17.09.2 009 17.09.2009 2,77,60,000 14.09.2009 8,30,61,000 14.09.2009 11,08,21,000 14.09.2009 ISARC - BOB 1/2009 - 10 TRUST 29.03.2010 23.04.2010 04.05.2010 05.05.2010 14.05.2010 28.05.2010 5,45,57,000 29.03.2010 - 5,45,57,000 29.03.2010 5.6. THE A SSESSEE TRUST (I.E ISARC - 14/2010 - 11 TRUST) ACQUIRED 16 NPA ACCOUNTS OF SELLER (I.E UCO BANK) FOR A LUMPSUM CONSIDERATION OF RS 5,31,09,000/ - . THE TRUST ISSUED SECURITY RECEIPTS TO ISARC, WHO IS 100% INVESTOR IN THE TRUST. 6. THE ASSESSEE TRUST OFFERED N IL INCOME FOR THE ASST YEAR 2012 - 13 IN ITS COMPUTATION OF TOTAL INCOME WITH THE FOLLOWING NOTE ATTACHED THEREON: - TRUST IS SET UP UNDER INDIAN TRUST ACT, 1882 AND SARFAESI ACT BY INDIA SME ASSET RECONSTRUCTION COMPANY LIMITED, A COMPANY DULY REGISTERED U NDER SECTION 3 BY RESERVE BANK OF INDIA UNDER SARFAESI ACT. IT IS ALSO THE TRUSTEE OF THE TRUST. THE OBJECT OF THE TRUST IS ACQUISITION OF NON - PERFORMING ASSETS / DISTRESSED FINANCIAL ASSETS FOR THE PURPOSE OF RECONSTRUCTION AND REALIZATION. THE INVESTOR S IN SECURITY RECEIPTS (SR) ISSUED BY THE TRUST HAVE INVESTED THE AMOUNTS WHICH TRANSFER IS REVOCABLE UNDER THE PROVISIONS OF THE TRUST DEED AND THE OFFER DOCUMENT. IN VIEW OF THIS, UNDER THE PROVISIONS OF SECTION 61 OF THE INCOME TAX ACT, 1961, INCOME / LOSS OF THE TRUST IS INCLUDIBLE IN THE TOTAL INCOME OF THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 14 TRANSFERORS I.E INVESTORS IN SECURITY RECEIPTS. THE REALIZATION FROM THE NON - PERFORMING / STRESSED ASSETS IS FIRST UTILIZED FOR REDEEMING THE SECURITY RECEIPTS . AMOUNT REALIZED IN EXCESS OF AMOUN T OF SECURITY RECEIPTS WILL BE RECOGNIZED AS INCOME. DURING THE YEAR, THE EXCESS OF EXPENDITURE OVER INCOME AMOUNTED TO RS 14,22,346/ - . THIS HAS BEEN ALLOCATED TO THE INVESTORS IN SECURITY RECEIPTS IN PROPORTION TO THEIR INVESTMENT I.E REVOCABLE TRANSFE R MADE BY THEM. ACCORDINGLY, THE TRUST HAS FILED NIL RETURN. 6.1. THE ASSESSEE TRUST ALSO REFLECTED THE SAME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION AS UNDER: - NET PROFIT AS PER PROFIT & LOSS ACCOUNT - 1422346 ADD: ITEMS DISAL LOWABLE / CONSIDERED SEPARATELY - EXPENSES RELATED TO EXEMPTED INCOME 1422346 --------------- TAXABLE BUSINESS INCOME NIL --------------- 6.2. THE FINANCIAL STATEMENTS OF ISARC - 14/ 2010 - 11 TRUST (I.E ASSESSEE TRU ST) AS AT 31.3.2012 IS AS UNDER: - ISARC - 14/2010 - 11 TRUST BALANCE SHEET AS AT 31 ST MARCH, 2012 AMOUNT (IN RS.) LIABILITIES AS AT 31.03.2012 AS AT 31.03.2 011 ASSETS AS AT 31.03.201 AS AT 31.03.2012 CAPITAL FUND FINANCIAL ASSETS (SCH 2) BANK BALANCE 39,385,559 10,108 53,334,086 CORPUS FUND {SECURITY RECEIPTS) (SEN 1) ISARC LTD. 40,527,880 53,109,000 (53109 SECURITY RECE IPTS OF '763/ - EACH) (P.Y.5 3109 SECURITY RECEIPTS OF 1,000/ - EACH) UNSECURED LOAN 46,572 . ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 15 ISARC CURRENT LIABILITIES: 18,637 6,881 EXCESS OF EXPENDITURE OVER INCOME 1,445,772 23,426 SUNDRY CREDITORS AUDIT FEES PAYABLE 23,596 16,545 TDS PAYABLE 194J 23,594 ' EXPENSES PAYABLE 201,160 225,086 TOTAL : 40,841,439 53,357,512 TOTAL 40,841,439 53,357,512 ISARC - 14/2010 - 11 TRUST INCOME AND EXPENDITURE ACCOUNT FO R THE YEAR ENDED 31 ST MARCH 2012 PARTICULARS AMOUNT 31.03.2012 AMOUNT 31.03.2011 PARTICULARS AMOUNT AMOUNT TO MANAGEMENT FEES TO AUDIT FEES TO PROFESSIONAL FEES TO CONVEYANCE TO TRAVELLING EXPENSES TO MISCELLANEOUS EXPENSES 1,050,415 23,596 74, 074 23,452 231,687 19,122 6,881 16,545 BY EXCESS OF EXPENDITURE OVER INCOME 1,422,346 23,426 TOTAL 1,422,346 23,426 TOTAL 1,422,346 23,426 SR POSITION AS ON 31 ST MARCH 2012 PARTICULARS SRS % NO. OF SR NAV PER SR (AMOUNT IN RS.) SR AMOUNT 2011 - 12 2010 - 11 2011 - 12 2010 - 11 2011 - 12 2010 - 11 OPENING BALANCE LESS: PARTIAL REDEMPTION DURING THE YEAR 53,109 53,109 53,109 - 1,000 237 1,000 - 53,109,000 12,581,120 53,109,000 - CLOSING BALANCE 100 53,109 53,109 763 1,000 40,527,8 80 53,109,000 BALANCE OF FINANCIAL ASSET AS AT 31ST MARCH 2012 (F.Y. 2011 - 12) (AMOUNT IN RS ) PARTICULARS AS AT 31.03.2012 AS AT 31.03.2011 ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 16 OPENING BALANCE OF FINA NCIAL ASSET 53,334,086 - ADD PURCHASE OF FINANCIAL ASSETS - 53,334,086 ACQUISITION EXPENSES DURING YEAR 2,627,751 - COMMISSION ON RECOVERY 20,708 - 55,982,545 53,334,086 LESS RECEIPT / RECOVERY DURING THE YEAR 16,596,986 CLO SING BALANCE OF FINANCIAL ASSETS 39,385,559 53,334,086 6.3. IN THE SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS OF THE ASSESSEE TRUST AS AT 31.3.2012 WITH REGARD TO REVENUE RECOGNITION IS AS UNDER: - A. SIGNIFICANT ACCOU NTING POLICIES 3. REVENUE RECOGNITION A ) INCOME ON REALIZATION OF FINANCIAL ASSETS IS RECOGNIZED ON REALIZATION OF ENTIRE BLOCK OF FINANCIAL ASSETS. B ) INTEREST INCOME ON BANK DEPOSIT IS RECOGNIZED ON ACCRUAL BASIS. B. NOTES TO THE FINANCIAL STATEMENTS 1. TRUST IS SET - UP UNDER INDIAN TRUST ACT, 1882 AND SARFAESI ACT BY INDIA SME ASSET RECONSTRUCTION COMPANY LIMITED, A COMPANY DULY REGISTERED UNDER SECTION 3 BY RESERVE BANK OF INDIA UNDER SARFAESI ACT. IT IS ALSO THE TRUSTEE OF THE TRUST. THE OBJECT OF THE TRUST IS ACQUISITION OF NON - PERFORMING ASSETS/ DISTRESSED FINANCIAL ASSETS FOR THE PURPOSE OF RECONSTRUCTION AND REALIZATION. 2. THE INVESTORS IN SECURITY RECEIPTS ISSUED BY THE TRUST HAVE INVESTED THE AMOUNTS WHICH TRANSFER IS REVOCABLE UNDER THE PROVIS IONS OF THE TRUST DEED AND THE OFFER DOCUMENT. IN VIEW OF THIS, UNDER THE PROVISIONS OF SECTION 61 OF THE INCOME TAX ACT, 1961 INCOME / LOSS OF THE TRUST IS INCLUDIBLE IN THE TOTAL INCOME OF THE TRANSFERORS I.E INVESTORS IN SECURITY RECEIPTS. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 17 3. THE REA LIZATION FROM THE NON - PERFORMING / STRESSED ASSETS IS FIRST UTILIZED FOR REDEEMING THE SECURITY RECEIPTS. AMOUNT REALIZED IN EXCESS OF AMOUNT OF SECURITY RECEIPTS WILL BE RECOGNIZED AS INCOME. DURING THE YEAR, THE EXCESS OF EXPENDITURE OVER INCOME AMOUNTE D TO RS 14,28,751/ - . THIS HAS BEEN ALLOCATED TO THE INVESTORS IN SECURITY RECEIPTS IN PROPORTION TO THEIR INVESTMENT I.E REVOCABLE TRANSFER MADE BY THEM. ACCORDINGLY, THE TRUST HAS FILED NIL RETURN. 6.4. THE ABOVE NOTES TO THE FINANCIAL STATEMENTS IS ALSO ENDORSED BY THE TAX AUDITOR IN QUESTION NO. 7 TO FORM 3CD , WHEREIN IT HAD BEEN SPECIFICALLY STATED THAT THE INVESTORS IN SECURITY RECEIPTS ISSUED BY THE TRUST HAVE INVESTED THE AMOUNTS WHICH IS A REVOCABLE TRANSFER UNDER THE PROVISIONS OF TRUST DEED AND OFFER DOCUMENT AND ACCORDINGLY, AS PER SECTION 61 OF THE INCOME TAX ACT, 1961, THE INCOME / LOSS OF THE TRUST IS INCLUDIBLE IN THE TOTAL INCOME OF THE INVESTORS IN SECURITY RECEIPTS AND NOT IN THE HANDS OF THE ASSESSEE TRUST. 7. THE ASSESSEE SUBMITTE D BEFORE THE LD AO THE FOLLOWING DOCUMENTS AND SUBMISSIONS : - A) COPY OF TRUST DEED B) COPY OF FINANCIAL STATEMENTS FOR ASST YEARS 2011 - 12 & 2012 - 13 TOGETHER WITH THE COMPUTATION OF TOTAL INCOME THEREON. C) BRIEF HISTORY OF THE ACTIVITY CARRIED OUT BY TH E TRUST. D) DETAILS OF NPAS TAKEN OVER BY THE TRUST. E) DETAILS OF NAME AND ADDRESS OF BENEFICIARIES OF THE TRUST. F) SPECIFIC REASONING FOR NON - TAXABILITY OF INCOME OF THE TRUST SINCE THE SHARES OF BENEFICIARIES ARE KNOWN AND ACCORDINGLY THE SAME IS TAXA BLE ONLY IN THEIR HANDS AND NOT IN THE HANDS OF THE TRUST. G) SUBMISSION THAT NO INTEREST IS RECEIVED OR PAID DURING THE YEAR. H) COPY OF BANK STATEMENT AND BANK BOOK. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 18 I) SPECIFIC SUBMISSION THAT ASSESSEE TRUST IS ONLY A PASS THROUGH ENTITY AND AS SUCH THE RECEIPT IS NOT AT ALL AN INCOME OF THE TRUST. J) SPECIFIC SUBMISSION THAT SINCE THE BENEFICIARIES OF THE TRUST ARE DEFINITE AND IDENTIFIABLE WITH DEFINI TE SHA R E S, THE QUESTION OF MAKING THE TRUST LIABLE FOR TAX, DOES NOT ARISE. THE ASSESSEE SUB M ITTE D THAT IT BEING A SPECIFIC TRUST WITH SPECIFIED SHARES OF EACH BENEFICIARY, THE BENEFICIARIES ARE LIABLE TO INCOME TAX FOR THE GAINS MADE AND NOT THE ASSESSEE. K) DETAILS OF INCOME TAX ASSESSMENT PARTICULARS TOGETHER WITH THE PAN OF THE BENEFICIARIES. L) THE ASSESSEE REQUESTED THE LD AO TO MAKE ENQUIRIES WITH THE BENEFICIARIES OF THE ASSESSEE TRUST, AS TO WHETHER THEY HAD DECLARED INCOME IN THEIR RETURNS OR NOT WITH REGARD TO THE TRANSACTIONS WITH THE ASSESSEE TRUST. M) THE ASSESSEE AGAIN REITERATED THA T INDIA SME ASSET RECONSTRUCTION COMPANY LTD IS THE 100% BENEFICIARY OF THE ASSESSEE TRUST. N) THE ASSES S EE FURNISHED THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA UNDER SARFAESI ACT. 8. THE LD AO OBSERVED THAT THE ASSESSEE HAS DECLARED ITSELF AS A PRI VATE TRUST CREATED THROUGH A TRUST DEED DATED 30.3.2011 BY ITS TRUSTEE ISARC. THE LD AO OBSERVED THAT AS PER THE DEED OF DECLARATION OF TRUST, ISARC HAS BEEN APPOINTED AS A SETTLOR AS WELL AS TRUSTEE. THE BENEFICIARIES IN THIS TRUST ARE THE VARIOUS QIBS / PERSONS WHO CONTRIBUTED FUNDS IN THE TRUST. THE LD AO OBSERVED THAT AS PER THE PROVISIONS OF INDIAN TRUST ACT, 1882 , THE FUNDAMENTAL PRINCIPLE OF A TRUST IS THAT THE TRUSTEES OF THE TRUST ACT IN A FIDUCIARY CAPACITY FOR THE BENEFIT OF THE BENEFICARIES. IN AN IDEAL CONDITION TRUSTS ARE CREATED BY A SETTLOR AND THE SETTLOR OUGHT TO CONTRIBUTE ITS ASSETS / PROPERTY IN THE TRUST CALLED THE TRUST PROPERTY FOR THE BENEFITS OF THE PERSONS, REFERRED TO AS THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 19 BENEFICIARIES. HERE THERE IS NO TRUST PROPERTY TO WHICH THE TRUSTEE NEEDS TO MANAGE. A TRUSTEE IS APPOINTED TO MANAGE THE AFFAIRS OF THE TRUST. THUS IN THE CASE OF A REAL TRUST, THE SETTLOR, TRUSTEE AND THE BENEFICIARIES WOULD NEVER BE THE SAME PERSONS. IN THE INSTANT CASE, THE SETTLER AND THE BENEFICI ARIES ARE THE SAME AND IDENTICAL. THIS SO CALLED TRUST HAS BEEN CREATED FOR THE SOLE MOTIVE TO THE BENEFIT OF THE SETTLER / CONTRIBUTOR. THE LD AO OBSERVED THAT THE INVESTORS COMPRISING OF TWO OR MORE PERSONS HAD COME TOGETHER FOR CONTRIBUTION OF SUFFICIE NT FUNDS INTO AN ENTITY IN ORDER TO INVEST IN THE SPECIFIC ENTITIES WITH A SOLE INTENTION TO EARN PROFITS AND ACCORDINGLY THE SAID ENTITY SHOULD BE CONSTRUED AS AN ASSOCIATION OF PERSONS (AOP) AND NOT TRUST. HENCE THE LD AO OBSERVED THAT THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION FROM TAX. 8.1. THE LD AO OBSERVED THAT THE TRUST CREATED HEREIN IS A SPECIAL PURPOSE VEHICLE FOR DOING COMMERCIAL TRANSACTIONS AND FURTHER OBSERVED THAT THE TRUST IS NOT A REVOCABLE TRUST WITHIN THE MEANING OF SECTIONS 61 TO 63 OF THE INCOME TAX ACT. ACCORDINGLY, THE LD AO INVOKED THE PROVISIONS OF SECTION 161(1A) OF THE ACT BY TREATING THE ASSESSEE AS AN AOP AS AGAINST THE STATUS OF TRUST CLAIMED BY THE ASSESSEE. THE LD AO OBSERVED THAT MERELY BECAUSE THE CONTRIBUTORS HA D PAID TAXES IN THEIR RETURNS WITH REGARD TO THE SUBJECT MENTIONED TRANSACTIONS WITH THE ASSESSEE TRUST CANNOT EXONERATE THE ASSESSEE TRUST FROM ITS TAXATION. THE LD AO FURTHER OBSERVED THAT THE ASSESSEE HAD NOT SHOWN THAT THE INCOME EARNED BY THE BENEFI CIARIES HAVE BEEN OFFERED FOR TAXATION BY EACH OF THE BENEFICIARIES IN THEIR RESPECTIVE RETURNS OF INCOME AT THE CORRECT RATES. 8.2. THE LD AO SUMMARIZED HIS VARIOUS OBSERVATIONS IN PARA 8 OF HIS ORDER AS UNDER: - A)WHEREAS IN THE CASE OF THE TRUST , SET TLER , CONTRIBUTOR AND BENEFICIARIES , ALL HAVE TO BE INDEPENDENT AND DISTINCT. IN THE CASE OF THE ASSESSEE, THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 20 CONTRIBUTORS ARE THE BENEFICIARIES THEMSELVES, THEREFORE, THE ASSESSEE CANNOT BE TREATED AS A TRUST, BUT AS AN AOP HAVING 19 MEMBERS IN THE FO RM OF QIBS AND FINANCIAL INSTITUTION. B) AFTER ITS CREATION, THE SO - CALLED TRUST ENTERED INTO CONTRIBUTION ASSIGNMENT THROUGH OFFER DOCUMENT DATED 30.03.2011 FOR THE SOLE PURPOSE OF TAKING NPAS FOR SALE AT A PROFIT. SUCH AN ENTITY CAN BE AT BEST BE CLAS SIFIED AS AN AOP CREATED JOINTLY BY SEVERAL PERSONS FOR EARNING PROFITS. C) CAPITAL CONTRIBUTION IS A REVOCABLE TRANSFER BY THE TRANSFERORS, BUT THE INCOME ARISING OUT OF THE ACTIVITIES OF THE FUND IS AN ASCERTAINED INCOME AND THE CONTRIBUTORS HAVE NO C ONTROL OVER IT, AND IN THE STRICT SENSE OF THE TERMS, THE PROVISIONS OF SECTION 61 & 63 OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEES CASE. D) THE CLAUSE RELIED UPON BY THE ASSESSEE MAKES IT CLEAR THAT INDIVIDUAL CONTRIBUTORS CANNOT REVOKE THEIR CONTRIB UTION ON THEIR OWN AND REVOCATION CAN OCCUR ONLY IF THE CONTRIBUTORS HOLDING 75% OF THE UNITS CONSENT TOGETHER, THEN ONLY CAN THE CONTRIBUTIONS BE REVOKED. SUCH RESTRICTIONS POINT OUT TO THE FACT THAT THE ENTITY IS NOT A REVOCABLE TRUST. THE MEMBERS LAC K ANY DIRECT POWER OR REVOCATION UNDER THE INSTRUMENT OF TRANSFER. E) ANY CLAIM OF ASSESSEE TO THE EFFECT THA T THE INCOME HAS BEEN TAXED IN THE HAND OF THE BENEFICIARIES WOULD NOT HELP. INCOME HAS TO BE TAXED IN THE RIGHT HANDS, AT THE RIGHT RATES OF TA XATION. THE SUMS EARNED BY THE ASSESSEE ON ACCOUNT OF VARIOUS INVESTMENT/ ACTIVITIES HAS BEEN SHOWN AS ITS INCOME, THEREFORE, IT IS RIGHTLY AND APPROPRIATELY TAXABLE IN ITS OWN HANDS AND THE TRUST IS LEGALLY BOUND TO INCLUDE IN THE SAME IN THE COMPUTATION OF ITS INCOME. 8.3. WITH THESE OBSERVATIONS, THE LD AO TREATED THE GAINS IN THE HANDS OF THE ASSESSEE BY TREATING IT AS AOP AND AS PER SECTION 161(1A) OF THE ACT TAXED THE GAINS AT MAXIMUM MARGINAL RATE IN THE SUM OF RS 1,51,74,640/ - UNDER THE HEAD INCO ME FROM BUSINESS AND PROFESSION. 9. THE ASSESSEE REITERATED THE VARIOUS SUBMISSIONS MADE AS ABOVE BEFORE THE LD CITA. IT WAS SPECIFICALLY PLEADED BEFORE THE LD CITA WITH FACTS AND FIGURES AS UNDER: - (1) PURCHASE CONSIDERATION RS 5,31,09,000/ - ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 21 (2) REALISATION TILL AY 2012 - 13 RS 1,65,96,986/ - (3) EXPENSES FOR AY 2012 - 13 RS 14,22,346/ - (4) EXPENSES TILL AY 2011 - 12 RS 23,426/ - (5) REALISATION NET OFF EXPENSES FOR AY 2012 - 13 [ (2) (3) ] RS 1,51,74,640/ - (6) REALISATION NET OFF TOTAL EXPENSES TILL AY 2012 - 13 [ (2) (3) - (4) ] RS 1,51,51,214/ - (7) EXCESS / (SHORTFALL) RECOVERY OVER PURCHASE CONSIDERATION TILL AY 2012 - 13 [ (6) (1) ] (RS 3,79,57,786/ - ) IT WAS PLEADED THAT THE ASSESSEE TRUST HAD A SHORTFALL IN R ECOVERY OF RS 3,79,57,786/ - TILL ASST YEAR 2012 - 13. INSTEAD OF TAKING THIS FIGURE INTO CONSIDERATION, THE LD AO HAD WRONGLY TAKEN THE FIGURE MENTIONED AT SERIAL NUMBER 5 ABOVE I.E RS 1,51,74,640/ - . IT WAS PLEADED THAT THERE WAS NO INCOME DURING ASST YEAR 2012 - 13 WHICH COULD BE CHARGEABLE TO TAX. 9.1. THE LD CITA REITERATED THE OBSERVATIONS OF THE LD AO AND HELD THAT THE LD AO WAS RIGHT IN TREATING THE ASSESSEE AS AN AOP AND NOT A TRUST. THE LD CITA OBSERVED THAT THE PROV I SIONS OF SECTION 164 OF THE ACT CANNOT BE APPLIED IN THE PRESENT CASE IN AS MUCH AS TAXABILITY OF AOP ARE GOVERNED BY THE PROVISIONS OF SECTION 167B OF THE ACT. HE OBSERVED THAT AS PER SECTION 167B OF THE ACT, WHERE SHARES OF MEMBERS IN AOP IS INDETERMINATE OR UNKNOWN, IN WHICH CASE THE TAX IS LEVIED AT MAXIMUM MARGINAL RATE. ON THE OTHER HANDS, WHERE THE SHARE OF MEMBERS IN AOP IS DETERMINATE OR KNOWN, SUCH INCOME IS COMPUTED IN THE HANDS OF MEMBERS OF AOP AS PER PROVISIONS OF SECTION 67A OF THE ACT. IN THE PRESENT CASE, THE ASSES SEE HAS EXPLAINED THE BASIS OF DISTRIBUTION OF INCOME AS UNDER: - THE TRUST IS NOT EXPECTED TO RETAIN THE SALES PROCEEDS OR THE AMOUNTS RECOVERED FROM NPAS, BUT DISTRIBUTE THE SAME AS PER AGREED PRIORITIES ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 22 MENTIONED ABOVE, I.E FOR MEETING EXPENSES, PAYMEN T OF MANAGEMENT FEE, REDEMPTION OF SRS, AND DISTRIBUTION OF SURPLUS IF ANY AS PROFIT IN THE FORM OF YIELD OR UPSIDE TO THE SR HOLDERS PRO - RATA OF THEIR HOLDINGS. THUS THE TRUST IS NEVER LEFT WITH ANY FUNDS AFTER DISTRIBUTION. THE LD CITA OBSERVED THA T THE ABOVE BASIS OF DISTRIBUTION OF INCOME CANNOT TANTAMOUNT TO THE SHARE OF MEMBERS TO BE DETERMINATE OR KNOWN. THE SR HOLDERS I.E BANKS / FIS WHO SELL NPAS TO THE ASSESSEE IN AUCTION ARE ALLOTTED THE SRS IN THEIR CAPACITY AS CREDITORS, AND NOT IN THE F ORM OF THEIR CAPITAL CONTRIBUTION. HENCE, ANY UPSIDE GIVEN TO SUCH SR HOLDERS CANNOT BE TREATED AS DISTRIBUTION OF PROFITS TO AOP MEMBERS. THEREFORE, THE PROVISIONS OF SECTION 167B WOULD APPLY FOR CHARGE OF TAX IN ASSESSEES HANDS. 9.2. THE LD CITA H OWEVER AGREED WITH THE CONTENTION OF THE ASSESSEE THAT IT IS ELIGIBLE FOR DEDUCTION OF PURCHASE CONSIDERATION OF RS 5,31,09,000/ - OF ACQUIRED NPAS . 9.3. THE LD CITA AFTER VERIFICATION OF RBI CIRCULAR NO. RBI/2013 - 14/571 DNBS(PD) CC.NO. 38/SCRC/26.03.0 01/2013 - 14 DATED 23.04.2014, OBSERVED THAT THE SAME IS REGARDING UNIFORM ACCOUNTING STANDARDS APPLICABLE TO ARCS. THE RBI HAS GIVEN THE FOLLOWING GUIDELINES BY WAY OF SAID CIRCULAR : - REVENUE RECOGNITION (I) YIELD SHOULD BE RECOGNIZED ONLY AFTER THE FUL L REDEMPTION OF THE ENTIRE PRINCIPAL AMOUNT OF SECURITY RECEIPTS. (II) UPSIDE INCOME SHOULD BE RECOGNIZED ONLY AFTER FULL REDEMPTION OF SECURITY RECEIPTS. (III) MANAGEMENT FEES MAY BE RECOGNIZED ON ACCRUAL BASIS. THE LD CITA OBSERVED THAT THOUGH THE A FORESAID CIRCULAR WAS ISSUED BY RBI AFTER THE RELEVANT FINANCIAL YEAR, THE SAME COULD BE REFERRED TO UNDERSTAND THE GUIDING PRINCIPLE FOR ARCS FOR REVENUE RECOGNITION . HE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 23 HELD THAT ARCS AS PER THE AFORESAID CIRCULAR ARE SUPPOSED TO RECOGNIZE UPSIDE INCOME ONLY AFTER FULL REDEMPTION OF SECURITY RECEIPTS AND SINCE IN THE PRESENT CASE, THE REDEMPTION OF RELEVANT SRS HAD NOT TAKEN PLACE TILL 31.03.2012, HENCE NO UPSIDE INCOME CAN BE RECOGNIZED IN THE HANDS OF THE ASSESSEE. 9.4. THE LD CITA FINALLY HELD THAT THE ASSESSEE IS TO BE TREATED AS AN AOP AND THERE IS NO UPSIDE INCOME ACCRUED TO THE ASSESSEE DURING THE YEAR AND HENCE THE ASSESSEES INCOME IS TO BE ASSESSED AT NIL. 10. AGGRIEVED BY THE ORDER OF THE LD CITA, BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEALS BEFORE US ON THE GROUNDS REPRODUCED HEREINABOVE. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS A SPECIFIC TRUST FORMED UNDER INDIAN TRUST ACT, 1882 UNDER THE GUIDELINE S OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT IN SHORT) FOR THE BENEFIT OF HOLDERS OF SECURITY RECEIPTS (SRS) ISSUED BY THE TRUST. THE TRUST IS SET UP IN ACCORDANCE WITH CLAUSE 3(1)(XI) READ WITH CLAUSE 8(1) OF THE SECURITISATION COMPANIES AND RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND DIRECTIONS, 2003, ISSUED BY NOTIFICATION DATED 23.04.2003. AS PER THE OFFER DOCUMENT ISSUED IN RESPECT OF PRIVATE PLACEMENT OF SECU RITY RECEIPTS ISSUED BY ISARC 14/2010 - 11 TRUST (I.E THE ASSESSEE HEREIN) ACTING THROUGH THE TRUSTEE INDIA SME ASSET RECONSTRUCTION COMPANY LTD (ISARC) , IT IS FOUND THAT ISARC IS REGISTERED WITH THE RBI AS A SECURITISATION COMPANY AND AN ASSET RECONSTRUCTI ON COMPANY (ARC IN SHORT) , PURSUANT TO SARFAESI. ISARC PROPOSED TO ACQUIRE THE ASSETS ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 24 BY RAISING FUNDS FOR SUCH ACQUISITION BY THE ISSUE OF SECURITY RECEIPTS TO THE PROSPECTIVE INVESTORS, UPON CONTRIBUTION BY THEM TO THE TRUST. THE SECURITISATION COMPANIE S AND RECONSTRUCTION COMPANIES (RESERVE BANK) GUIDELINES AND DIRECTIONS, 2003 REQUIRE THAT ANY SECURITISATION COMPANY OR ASSET RECONSTRUCTION COMPANY PROPOSING TO ACQUIRE FINANCIAL ASSETS THROUGH THE ISSUE OF SECURITY RECEIPTS SHOULD SET UP A TRUST FOR THI S PURPOSE. ACCORDINGLY, ISARC HAS DECLARED A TRUST IN RESPECT OF THE INITIAL TRUST FUND AND HAS EXECUTED A TRUST DEED FOR THIS PURPOSE, THEREBY CREATING THE ISARC 14/2010 - 11 TRUST. 11.1. IT WOULD BE PERTINENT TO REITERATE THE ENTIRE PROCESS OF ACTIVITIES CARRIED OUT AS UNDER FOR BETTER CLARITY : - A) BANKS / FINANCIAL INSTITUTIONS (FIS) ANNOUNCE SALE OF NON PERFORMING ASSETS (NPAS) AND PROVIDES A LIST OF THE FINANCIAL ASSETS WHICH ARE TO BE SOLD TO ARC. B) ARC, AT ITS OWN COST, UNDERTAKES VALUATION, DUE D ILIGENCE, ETC. TO ARRIVE AT A SPECIFIED COST AT WHICH THE NPAS CAN BE ACQUIRED. C) ARC BIDS FOR ACQUIRING NPAS AFTER EVALUATING THE ANALYZING THE PORTFOLIO / NPA BASED ON THE DUE DILIGENCE REPORT AND MAKES AN OFFER TO THE BANK / FI. D) THE BANK ASSIGNS THE ACCOUNT TO THE HIGHEST BIDDER, PROVIDED THE OFFER MATCHES THE RESERVE PRICE FIXED BY BANK / FI. E) IF OFFER BY ARC IS ACCEPTED, ACQUISITION OF NPAS CAN BE DONE IN TWO WAYS I.E, WITH OR WITHOUT FORMATION OF TRUSTS : ACQUISITION BY FORMATION OF TRUS TS (SRS BASIS) (I) A TRUST IS FORMED BY A DECLARATION OF TRUST TO ACQUIRE THE NPAS FROM BANKS. (II) TRUST IS SET - UP UNDER INDIAN TRUST ACT, 1882 AND SARFAESI. (III) ARC ACTS AS A TRUSTEE OF THE TRUST. (IV) THE TRUST ISSUES OFFER DOCUMENTS T O INVESTORS FOR SUBSCRIBING TO THE SRS OF THE TRUST. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 25 (V) IF ARC ACQUIRES NPAS ON 100% CASH BASIS BY AR, SRS ARE ISSUED TO ARC FOR THE ACQUISITION COST. (VI) ARC ACQUIRES THE NPAS BASED ON PART PAYMENT OF THE ACQUISITION COST, SRS ARE ISSUED TO ARC FOR T HE AGREED PART. FOR THE BALANCE, THE SELLER BANK RECEIVES THE SRS. (VII) ARC AND SELLER BANKS / FIS / QIBS SUBSCRIBES SRS AND PAY PURCHASE CONSIDERATION TO TRUSTS, THEREAFTER TRUSTS PAYS PURCHASE CONSIDERATION TO SELLER BANKS AND SIMULTANEOUSLY THE NPAS ARE TRANSFERRED BY THE BANK / FI TO ARC BY WAY OF ASSIGNMENT AGREEMENT. (F) POST ASSIGNMENT, THE ASSETS ACQUIRED ARE RESOLVED THROUGH VARIOUS REOVERY MEASURES LIKE SETTLEMENT WITH BORROWER, ENFORCEMENT OF SECURITY UNDER SARFAESI ACT, RDDBFI ACT, RESTRUCT URING / RESCHEDULEMENT OF DUES, ETC. (G) AS ASSET MANAGER, ISARC MANAGES AND RESOLVES THE ASSETS OVER A PERIOD OF TIME. FOR ASSET MANAGEMENT, ISARC RECEIVES MANAGEMENT FEE AS AN AGREED % OF THE VALUE OF OUTSTANDING SRS. (H) THE REALIZATION / RECOVERY F ROM RESOLUTION OF THE ACQUIRED NPAS ARE APPROPRIATED IN AGREED WATERFALL AS UNDER: ( I ) FIRST TO PAY THE EXPENSES INCURRED ( II ) SECOND TO PAY THE ACCRUED MANAGEMENT FEES ( III ) THIRD TO REDEEM THE SRS ( IV ) FOURTH TO PAY AGREED YIELD, IF ANY TO SR HOLDERS AND ( V ) FINALLY, BALANCE SURPLUS TO BE SHARED AS UPSIDE IN THE AGREED RATIO. 11.1.1. THE PROCESS OF ACTIVITIES CARRIED OUT AS DETAILED HEREINABOVE ARE NOT IN DISPUTE. WE FIND FROM THE TRUST DEED AND ITS VARIOUS CLAUSES TOGETHER WITH THE PROCESS OF ACTIVITIES CARRIED OUT AS DET AILED ABOVE THAT THE ASSESSEE TRUST AND ISARC ARE TWO DIFFERENT ENTITIES. THUS IT COULD BE SAFELY CONCLUDED THAT THE ASSESSEE CANNOT BE TREATED AS AN AOP AND IS AN INDEPENDENT TRUST FORMED FOR A SPECIFIC PURPOSE AS DETAILED HEREINABOVE. 11.2. WE FIND THAT THE PREDOMINANT OBJECT OF THE TRUST IS ACQUISITION OF NON - PERFORMING ASSETS / DISTRESSED FINANCIAL ASSETS FOR THE PURPOSE OF ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 26 RECONSTRUCTION AND REALISATION THEREON. WE FIND THAT THE ASSESSEE TRUST IS CREATED BY AN ARC UNDER THE GUIDANCE OF RESERVE B ANK OF INDIA AND THE TRUST IS THE SPECIAL PURPOSE VEHICLE PERMITTED UNDER THE GUIDELINES OF RBI AND SARFAESI ACT TO ADDRESS THE ISSUES OF NON - PERFORMING ASSETS /DISTRESSED ASSETS FACED BY BANKS. HENCE THE ENTIRE OBSERVATION MADE BY THE LD AO THAT THE TRUST WAS CREATED AS A COLOURABLE DEVICE TO EVADE TAX IS TO BE IGNORED AS THERE IS NO MALIGN INTENT IN THE MINDS OF THE ASSESSEE TRUST HEREIN, IN AS MUCH AS THE ASSESSEE WAS CREATED PURSUANT TO STATUTORY GUIDELINES AND STATUTORY ACTS. 11.3. THE NEXT ISSUE TO BE DECIDED AS TO WHETHER THE TRUST IS A REVOCABLE TRUST OR NOT. IN THIS REGARD, IT WOULD BE PERTINENT TO REPRODUCE THE FOLLOWING CLAUSES IN THE TRUST DEED : - A) THE TERM CONTRIBUTIONS IS DEFINED IN THE TRUST DEED AS UNDER: - CONTRIBUTIONS MEANS, COLLECT IVELY, THE CONTRIBUTIONS PAID TO THE TRUST BY ALL THE SECURITY RECEIPT HOLDERS, FROM TIME TO TIME, IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THE OFFER DOCUMENTS ISSUED BY THE TRUST FOR THIS PURPOSE, SUCH CONTRIBUTIONS BEING REVOCABLE IN ACCORDANCE WIT H THE TERMS SET FORTH HEREIN AND CONTRIBUTION MEANS INDIVIDUALLY EACH OF SUCH REVOCABLE CONTRIBUTIONS, PAID BY EACH SECURITY RECEIPT HOLDER TO THE TRUST, IN ACCORDANCE WITH THE RELEVANT OFFER DOCUMENT. B) THE TERM OFFER DOCUMENT IS DEFINED IN THE TRUST DEED AS UNDER: - OFFER DOCUMENT MEANS AN OFER DOCUMENT(S) ISSUED BY THE TRUSTEE, FROM TIME TO TIME, PURSUANT TO WHICH THE TRUSTEE PROPOSES TO ISSUE SECURITY RECEIPTS TO QUALIFIED INSTITUTIONAL BUYERS, BY WAY OF PRIVATE PLACEMENT, IN ACCORDANCE WITH THIS DE ED, ON THE TERMS AND CONDITIONS CONTAINED IN SUCH OFFER DOCUMENT AND IN THIS DEED. C) THE TERM SECURITY RECEIPT HOLDERS IS DEFINED IN THE TRUST DEED AS UNDER: - SECURITY RECEIPT HOLDERS MEANS THE HOLDERS, FROM TIME TO TIME, OF THE SECURITY RECEIPTS ISSUE D BY THE TRUSTEE PURSUANT TO THIS DEED AND THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 27 RELEVANT OFFER DOCUMENT AND INCLUDES THE ORIGINAL SECURITY RECEIPT HOLDERS AND THE NEW SECURITY RECEIPT HOLDERS. D) THE TERM TRANSACTION DOCUMENTS IS DEFINED IN THE TRUST DEED AS UNDER: - TRANSACTION DOCUMEN TS MEANS THIS DEED, THE ASSIGNMENT AGREEMENTS, THE RELEVANT OFFER DOCUMENTS AND ANY OTHER DOCUMENTS THAT ARE EXECUTED BY OR IN FAVOUR OF THE TRUSTEE, IN ITS CAPACITY AT TRUSTEE. E) THE TERM TRUST IS DEFINED IN THE TRUST DEED AS UNDER: - TRUST MEANS THE T RUST DECLARED, AND ACCEPTED BY THE TRUSTEE, PURSUANT TO THE TERMS AND CONDITIONS CONTAINED IN THIS DEED. F) THE TERM TRUST ACCOUNT IS DEFINED IN THE TRUST DEED AS UNDER: - TRUST ACCOUNT MEANS THE BANK ACCOUNT ESTABLISHED BY THE TRUSTEE IN ACCORDANCE WITH SECTION 2.4 (TRUST ACCOUNT) BELOW. G) THE TERM TRUST FUND IS DEFINED IN THE TRUST DEED AS UNDER: - TRUST FUND MEANS THE INITIAL TRUST FUND, THE CONTRIBUTIONS, THE LOANS AND OTHER FINANCIAL ASSETS RELATING TO THE BORROWER ACQUIRED BY THE TRUST FROM TIME TO TIME, THE TRUST ACCOUNT AND ALL SUB ACCOUNTS OF THE SAME, ALL INVESTMENTS OF THE TRUST , ALL INCOME AND REALIZATIONS INCLUDING ANY RESOLUTION SERVICES REVENUE AND ANY OTHER ASSETS OR PROPERTY OF THE TRUST. CLAUSE 2.1. DECLARATION OF TRUST (A) THE DE CLARANT HEREBY DECLARES, AGREES, ASSURES AND CONFIRMS THAT THE DECLARANT SHALL HEREINAFTER HAVE AND HOLD A SUM OF RS 1000/ - (RUPEES ONE THOUSAND ONLY) (HEREINAFTER REFERRED TO AS THE INITIAL TRUST FUND) TOGETHER WITH ALL ADDITIONS OR ACCRETIONS THERETO AND THE INVESTMENTS REPRESENTING THE SAME IN TRUST AND SUBJECT TO THE POWERS, PROVISIONS, AGREEMENTS AND DECLARATIONS HEREIN CONTAINED, THE RECEIPT OF WHICH THE TRUSTEE HEREBY ADMITS AND ACKNOWLEDGES AND WHICH INITIAL TRUST FUND TOGETHER WITH ALL ADDITIONS OR ACCRETIONS THERETO AND THE INVESTMENTS REPRESENTING THE SAME HAVE TO BE APPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THIS DEED AND THE TRUSTEE HAS CONSENTED TO ACT ON THE TERMS AND CONDITIONS SET OUT HEREIN. (B) THE TRUSTEE HEREBY FURTHER DECL ARES AND CONFIRMS THAT THE TRUST FUND SHALL BE HELD AND POSSESSED BY THE TRUSTEE, IN TRUST FOR THE SECURITY RECEIPT HOLDERS UPON ACCEPTANCE OF THE CONTRIBUTIONS FROM THE SECURITY RECEIPT ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 28 HOLDERS AND IN WHOSE FAVOUR SECURITY RECEIPTS SHALL BE ISSUED BY THE TRUSTEE. CLAUSE 2.2. ACCEPTANCE OF TRUST 2.2.1. THE TRUSTEE HEREBY DECLARES AND CONFIRMS THAT IT SHALL HOLD AND STAND POSSESSED OF THE INITIAL TRUST FUND TOGETHER WITH ALL ADDITIONS OR ACCRETIONS THERETO AND THE INVESTMENTS REPRESENTING THE SAME IN T RUST FOR THE BENEFIT OF THE SECURITY RECEIPT HOLDERS AND SUBJECT TO THE POWERS, PROVISIONS, AGREEMENTS AND DECLARATIONS HEREIN CONTAINED. 2.2.2.. CLAUSE 2.3. CONTRIBUTIONS OF THE TRUST THE TRUSTEE MAY ACCEPT CONTRIBUTIONS FROM TIME TO TIME F ROM INVESTORS PURSUANT TO AN OFFER DOCUMENT ISSUED BY THE TRUSTEE FOR THIS PURPOSE. UPON THE ACCEPTANCE OF SUCH CONTRIBUTIONS FROM THE INVESTORS, THE TRUST SHALL ISSUE ONE OR MORE SECURITY RECEIPTS IN FAVOUR OF SUCH INVESTORS, ON THE TERMS AND CONDITIONS M ENTIONED IN THE OFFER DOCUMENT, THE SECURITY RECEIPTS OR IN ANY AGREEMENT THAT THE TRUSTEE MAY (IN ITS SOLE DISCRETION AND IN ACCORDANCE WITH THE TERMS OF THIS DEED) ENTER INTO WITH THE SECURITY RECEIPT HOLDERS IN ACCORDANCE WITH THE TERMS AND CONDITIONS S TIPULATED IN THE OFFER DOCUMENT. CLAUSE 2.7. DATE OF TERMINATION OF THE TRUST 2.7.1. THE TRUST WILL STAND TERMINATED ON SUCH DATE AS THE SECURITY RECEIPT HOLDERS HOLDING MORE THAN 75% OF THE OUTSTANDING SECURITY RECEIPTS IN CONSULTATION WITH THE TRUST EES MAY DETERMINE HAVING REGARD TO THE MAXIMIZATION OF RETURNS ON THE SECURITY RECEIPTS ISSUED PURSUANT TO THIS DEED, WHICH SHALL, IN NO EVENT, BE LATER THAN THE PERIOD SPECIFIED UNDER THE SARFAESI IN THIS REGARD. THE TRUST MAY ALSO BE TERMINATED BY THE TR USTEE ON ANY PRIOR DATE WHEN ALL FINANCIAL ASSETS FORMING PART OF THE TRUST FUND HAVE BEEN LIQUIDATED/REALIZED , INCLUDING BY TRANSFER OF SUCH FINANCIAL ASSETS TO ANY OTHER TRUST / SCHEME, IN ACCORDANCE WITH THE TERMS OF THIS DEED. 2 . 7 . 2 . . CLAUSE 3.7. D ISTRIBUTION OF AMOUNTS RECEIVED BY THE TRUSTEE 3.7.1. ALL AMOUNTS DEPOSITED IN THE TRUST ACCOUNT SHALL BE UTILIZED BY THE TRUSTEE TO MAKE THE FOLLOWING PAYMENTS IN THE FOLLOWING ORDER: - ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 29 (A) FIRSTLY, FOR PAYMENT OF ALL STATUTORY AND REGULATORY DUES, IF ANY. (B) SECONDLY, FOR THE SERVICING OF ANY DEBT INCURRED BY THE TRUST. (C ) THIRDLY, FOR PAYMENT OF REIMBURSABLE COSTS AND EXPENSES INCURRED BY THE TRUSTEE AND CHARGEABLE INTERESTS THEREON, IN ACCORDANCE WITH SECTION 3.6. (EXPENSES CHARGEABLE TO THE TRUST F UND) ON THE DATE ON WHICH THE TRUSTEE MAKES A CLAIM ON THE TRUST FUND FOR SUCH REIMBURSABLE COSTS AND EXPENSES INCURRED BY THE TRUSTEE AND CHARGEABLE INTERESTS THEREON, AND ANY FEES OR REMUNERATION OF THE TRUSTEE IN ACCORDANCE WITH SECTION 4.9. (TRUSTEES R EMUNERATION) , WHEN DUE; AND (D) FINALLY, ON EACH PAYMENT DATE, FOR PAYMENT OF THE AMOUNTS TO BE DISTRIBUTED AMONGST THE SECURITY RECEIPT HOLDERS, LISTED IN THE REGISTER OF SECURITY RECEIPT HOLDERS, AS ON THE RECORD DATE CORRESPONDING TO SUCH PAYMENT DAT E, IN ACCORDANCE WITH THE TERMS OF THE RESPECTIVE SECURITY RECEIPTS, THIS DEED AND THE RELEVANT OFFER DOCUMENT. (EMPHASIS SUPPLIED BY US) PROVIDED THAT 3.7.2. THE TRUSTEE SHALL HAVE THE POWER TO ALTER THE PRIORITY OR MANNER OF DISTRIBUT ION , AS SET OUT ABOVE, IF THE TRUSTEE , IN ITS SOLE DISCRETION DETERMINES SUCH AN AMENDMENT TO BE NECESSARY PROVIDED THAT NO SUCH ALTERATION SHALL BE MADE WHICH IS , IN THE OPINION OF THE TRUSTEE, DETRIMENTAL TO THE INTERESTS OF THE SECURITY RECEIPT HOLDE RS. THE TRUSTEE SHALL INTIMATE THE SECURITY RECEIPT HOLDERS OF ANY SUCH ALTERATION THAT IT HAS MADE. 3.7.3. NOTWITHSTANDING ANYTHING MENTIONED ABOVE OR CONTAINED IN THIS DEED, THE ACTUAL DISTRIBUTION OF MONIES AND THE FREQUENCY OF DISTRIBUTION OF THE MO NIES TO THE SECURITY RECEIPT HOLDERS , IS PROVISIONAL ON AND SHALL ENTIRELY DEPEND ON THE ACTUAL REALISATION OF THE LOANS OR OTHER FINANCIAL ASSETS WHICH FORM PART OF THE TRUST FUND. IT IS HEREBY CLARIFIED AND CONFIRMED THAT THERE SHALL BE NO OBLIGATION O N THE TRUSTEE TO MAKE ANY PAYMENTS TO THE SECURITY RECEIPT HOLDERS UNLESS AND UNTIL SUCH REALIZATIONS HAVE BEEN MADE BY THE TRUSTEE. CLAUSE 5.1. CONTRIBUTIONS 5.1.1. UPON THE MAKING OF THE CONTRIBUTION, AND WITHIN A PERIOD OF NINETY (90) DAYS FROM THE DATE OF CLOSURE OF THE RESPECTIVE ISSUE OF SECURITY RECEIPTS UNDER THE RELEVANT OFFER DOCUMENT, THE TRUSTEE SHALL CREDIT THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 30 DEPOSITORY ACCOUNT OF EACH SECURITY RECEIPT HOLDER WITH, OR ISSUE PHYSICAL CERT I FICATES IN THE FORM PRESCRIBED IN THE RELEVANT OFFE R DOCUMENT, THE SECURITY RECEIPTS AS ARE ISSUED TO SUCH SECURITY RECEIPT HOLDER IN ACCORDANCE WITH THE TERMS OF THIS DEED AND THE RELEVANT OFFER DOCUMENT , WHICH SHALL BE CREDITED AS FULLY PAID, AND THE TRUSTEE SHALL ENTER THE SECURITY RECEIPT HOLDERS NAM E IN THE REGISTER OF SECURITY RECEIPT HOLDERS AS THE HOLDER OF THESE SECURITY RECEIPTS. 5.1.2. UPON THE MAKING OF THE CONTRIBUTION, EACH SECURITY RECEIPT HOLDER SHALL BE ENTITLED TO THE UNDIVIDED RIGHT, TITLE AND INTEREST IN THE TRUST FUND EVIDENCED BY THE SECURITY RECEIPTS ISSUED TO IT, ON THE TERMS AND CONDITIO NS CONTAINED IN THE SECURITY RECE IPTS AND THE RELEVANT OFFER DOCUMENT. (EMPHASIS PROVIDED BY US) 5.1.3. THE TRUSTEE SHALL ACCEPT CONTRIBUTIONS UNDER THIS DEED, ONLY FROM PERSONS WHO ARE QUALIFIED INSTITUTIONAL BUYERS FOR THE PURPOSE OF SARFAESI AND ONLY UPON THE FOLLOWING CONDITIONS PRECEDENT BEING SATISFIED: (A) ALL THE TRANSACTION DOCUMENTS ARE DULY AND VALIDLY EXECUTED ; AND (B) THE TRUST ACCOUNT IS DULY ESTABLISHED. 5.1.4. THIS DE ED SHALL TAKE EFFECT ON THE COMMENCEMENT DATE AND CONTINUE IN FULL FORCE AND EFFECT UNTIL FULL REDEMPTION / EXTINGUISHMENT OF ALL THE SECURITY RECEIPTS ISSUED PURSUANT TO THIS DEED, IN ACCORDANCE WITH THEIR TERMS. CLAUSE 5.2. REVOCATION OF CONTRIBUTIONS 5.2.1. THE SECURITY RECEIPT HOLDERS SHALL BE ENTITLED TO REVOKE THE CONTRIBUTIONS MADE BY THEM, AT ANY TIME DURING THE TERM OF THIS DEED, IN ACCORDANCE WITH THE TERMS AND CONDITIONS CONTAINED HEREIN, FOR ANY REASON, INCLUDING BUT NOT LIMITED TO CIRCUMST ANCES RESULTING FROM ANY ADVERSE TAX CONSEQUENCES (FOR EITHER THE TRUST OR THE SECURITY RECEIPT HOLDERS) OR ANY DIRECTION OF ANY STATUTORY AUTHORITY, PROVIDED THAT NO SUCH REVOCATION SHALL TAKE EFFECT UNLESS THE CONSENT OF THE SECURITY RECEIPT HOLDERS HOLD ING SECURITY RECEIPTS REPRESENTING NOT LESS THAN 75% OF THE TOTAL FACE VALUE OF THE THEN OUTSTANDING SECURITY RECEIPTS, ISSUED PURSUANT TO THIS DEED HAS BEEN OBTAINED. IN THIS BEHALF, PROVIDED THAT A NOTICE OF ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 31 NOT LESS THAN 60 DAYS OF THE INTENTION TO REV OKE THE CONTRIBUTION IS GIVEN TO THE TRUSTEE. 5.2.2. IN THE EVENT THAT THE TRUSTEE, AT ANY TIME DURING THE TERM OF THIS DEED, FACES ANY ADVERSE TAX CONSEQUENCES OR UPON ANY DIRECTION OF ANY STATUTORY AUTHORITY, THE TRUSTEE SHALL HAVE THE RIGHT TO CALL UP ON THE SECURITY RECEIPT HOLDERS TO REVOKE THEIR CONTRIBUTIONS AND THEREUPON THE SECURITY RECEIPT HOLDERS SHALL BE OBLIGED TO REVOKE THEIR CONTRIBUTIONS. 5.2.3. IN THE EVENT THAT THE CONTRIBUTIONS ARE REVOKED IN TERMS OF THIS SECTION 5.2. THE TRUST FUND SHALL AUTOMATICALLY STAND TRANSFERRED AND SHALL AUTOMATICALLY AND WITHOUT ANY FURTHER ACT, DEED OR WRITING, OPERATE AS AN ASSIGNMENT VESTING THE TRUST FUND JOINTLY IN FAVOUR OF EACH OF THE SECURITY RECEIPT HOLDERS (IN PROPORTION TO THEIR CONTRIBUTIONS) OR TO ANY PERSON DESIGNATED BY THE SECURITY RECEIPT HOLDERS IN THIS BEHALF PROVIDED THAT THE TRUSTEE HAS RECEIVED PAYMENT OF ALL AMOUNTS DUE OR ACCRUED TO THE TRUSTEE IN FULL, IN ACCORDANCE WITH THE TERMS OF THIS DEED. UPON SUCH TRANSFER ALL THE PROVISIONS OF THE RELEVANT FINANCING DOCUMENTS AND THE ASSIGNMENT AGREEMENTS SHALL APPLY MUTATIS MUTANDIS TO THE SECURITY RECEIPT HOLDERS OR THEIR DESIGNEE, AND THE SECURITY RECEIPT HOLDERS OR THEIR DESIGNEE SHALL BE ENTITLED TO ALL RIGHTS AND REMEDIES OF THE TRUSTEE AND SHALL BE OBLIGED TO PERFORM ALL ITS DUTIES AND OBLIGATIONS UNDER THE RELEVANT FINANCING DOCUMENTS AND THE ASSIGNMENT AGREEMENTS, AS IF THE SECURITY RECEIPT HOLDERS OR THEIR DESIGNEE WERE PARTY TO THE FINANCING DOCUMENTS AND THE ASSIGNMENT AGREEEMENTS AS OF THE DATE THEREOF. (EMPHASIS PROVIDED BY US) 11.4. FROM THE PERUSAL OF THE AFORESAID CLAUSES IN THE TRUST DEED AND MORE PARTICULARLY, THE CLAUSES 5.2. AND 5.3. TOGETHER WITH THE AUDITED ANNUAL ACCOUNTS ATTACHED WITH THE RETURN OF INCOME WHIC H CLEARLY SHOW THAT ISARC IS THE SOLE INVESTOR (SECURITY RECEIPT HOLDER) IN THE TRUST AND ENTITLED TO CERTAIN RATE OF INTEREST ON INVESTMENT, UPSIDE INCOME AND / OR PROFIT ON THE SECURITY RECEIPTS. THE ENTIRE PROFIT / (LOSS) OF THE TRUST, ON COMPLETE REAL ISATION OF THE ACQUIRED NPAS, BELONGS TO THE SAID INVESTOR. WE FIND THAT THE INVESTORS ARE EITHER PUBLIC SECTOR BANKS OR FINANCIAL INSTITUITIONS OR RBI REGISTERED ARCS OR QIBS AND HENCE IT IS VERY EASY FOR ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 32 THE LD AO TO FIND OUT WHETHER THESE INVESTORS H AD PAID TAX ON THEIR FULL INCOME OR NOT INCLUDING THE TRANSACTIONS WITH THE ASSESSEE TRUST. WE ARE INCLINED TO APPRECIATE THE ARGUMENTS OF THE LD AR THAT THE INVESTORS HAD ALSO PAID THEIR TAXES IN THEIR RESPECTIVE RETURNS AND AGAIN TAXING THE SAME IN THE HANDS OF THE ASSESSEE TRUST WOULD AMOUNT TO DOUBLE TAXATION. THE SECURITY RECEIPT HOLDERS HAVE INVESTED IN SECURITY RECEIPTS ISSUED BY THE TRUST WHICH IS A REVOCABLE TRANSFER UNDER THE PROVISIONS OF THE TRUST DEED AND OFFER DOCUMENT. IN VIEW OF THIS, UNDE R THE PROVISIONS OF SECTION 61 OF THE ACT, INCOME / LOSS OF THE TRUST IS INCLUDIBLE IN THE TOTAL INCOME OF THE SECURITY RECEIPT HOLDERS AND THAT THE TRUST IS ONLY A PASS THROUGH ENTITY. 11.5. WE FIND THAT THE ASSESSEE HAD EXPLAINED THE BASIS OF DISTRIBUTI ON OF INCOME AS UNDER: - THE TRUST IS NOT EXPECTED TO RETAIN THE SALES PROCEEDS OR THE AMOUNTS RECOVERED FROM NPAS, BUT DISTRIBUTE THE SAME AS PER AGREED PRIORITIES MENTIONED ABOVE, I.E FOR MEETING EXPENSES, PAYMENT OF MANAGEMENT FEE, REDEMPTION OF SRS, A ND DISTRIBUTION OF SURPLUS IF ANY AS PROFIT IN THE FORM OF YIELD OR UPSIDE TO THE SR HOLDERS PRO - RATA OF THEIR HOLDINGS. THUS THE TRUST IS NEVER LEFT WITH ANY FUNDS AFTER DISTRIBUTION. IT IS NOT IN DISPUTE THAT THE FULL REALISATION OF NPAS ACQUIRED B Y THE ASSESSEE HAD NOT HAPPENED AS ON 31.3.2012 AND THAT THE SAME HAD HAPPENED IN SUBSEQUENT YEARS. ACCORDINGLY, IN THE YEAR OF REDEMPTION OF SECURITY RECEIPTS, THE INCOME / LOSS THAT IS REMAINING, WOULD BE DISTRIBUTED BY THE ASSESSEE TO ITS SECURITY RECE IPT HOLDERS / BENEFICIARIES. HENCE IT COULD BE SAFELY CONCLUDED THAT NO INCOME WOULD EVER ACCRUE TO THE ASSESSEE AS THE INCOME STOOD DIVERTED IN FAVOUR OF THE BENEFICIARIES / SECURITY RECEIPT HOLDERS. 11.6. WE FIND THAT ALL THE BENEFICIARIES / INVESTORS ARE CLEARLY IDENTIFIABLE / TRACEABLE / ASSESSABLE WITH THEIR RESPECTIVE SHARES BEING DETERMINATE AND ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 33 KNOWN. IN THIS REGARD, THE LD AR SUBMITTED THE DETAILS OF INCOME OFFERED BY THE INVESTORS IN THEIR RETURNS OF INCOME FOR VARIOUS YEARS AS UNDER: - INCOM E OFFERED BY ISARC ( SECURITY RECEIPTS HOLDERS) FOR TAXATION YEILD BOOKED IN THE BOOKS OF ISARC FY 2012 - 13 INDIA SMF, ASSET RECONSTRUCTION CO. LTD. ISARC - UBI 1/2009 - 10 TRUST ISARC SIDBI 2/2009 - 10 TRUST DATES 31 - 12 - 2012 31 - 12 - 2012 31 - 03 - 2013 AMO UNT 51,82,050 1,42,79,598 11,48,087 1,94,61.648 SPECIFIED YIELD 2,06,09,735 2,06,09,735 REFER ANNEXURE 1 DIFFERENCE - FY 20 13 - 1 4 INDIA SME ASSET RECONSTRUCTION CO. LTD. ISARC SIDBI 2/2009 - 10 TRUST ISARC 13/20 10 - 11 TRUST DATES 29 - 06 - 2013 30 - 09 - 2013 31 - 12 - 2013 31 - 03 - 2014 AMOUNT 1,31,46,260 1,49,55,802 2,30,94,141 20,31,743 5,32,27,946 38,57,253 SPECIFIED YIELD 5,70,85,199 5,70,85,199 REFER ANNEXURE 1 DIFFERENCE - FY 20 14 - 1 5 INDIA SME ASSET RECONSTRUCTION CO. LTD. ISARC SIDBI 2/2009 - 10 TRUST ISARC AXIS 3/2012 - 13 TRUST ISARC FA 30 1/2012 - 13 TRUST DIFFERENCE DATES 14 - 01 - 2015 31 - 03 - 2015 AMOUNT 4,55,212 1,34,651 5,89,863 25,16,724 1,34 ,64,173 YIELD / PROBABLE YIELD 1,65,70,760 1,65,70,760 REFER ANNEXURE 2 DIFFERENCE - ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 34 FY 20 15 - 16 INDIA SME ASSET RECONSTRUCTION CO. LTD. ISARC SIDBI 2/2009 - 10 TRUST ISARC 13/2010 - 11 TRUST DATES 30 - 06 - 2015 31 - 12 - 2015 31 - 03 - 2016 31 - 03 - 2016 31 - 03 - 2016 31 - 03 - 2016 AMOUNT 1,31,526 16,732 39,020 1,42,697 3,29,975 1,96,09,870 98,62,992 YIELD / PROBABLE YIELD 2,98,02,837 2,98,02,837 REFER ANNEXURE 2 DIFFERENCE - FY 20 16 - 17 INDIA SM E ASSET RECONSTRUCTION CO. LTD. ISARC SIDBI 2/2009 - 10 TRUST ISARC 13/2010 - 11 TRUST DATES 30 - 06 - 2016 30 - 09 - 2016 31 - 12 - 2016 31 - 03 - 2017 AMOUNT 8,90,979 15,14,246 2,59,346 11,37,776 38,02,347 80,93,246 YIELD / PROBABLE YIELD 2,98,02,837 1,18,95,593 REFER ANNEXURE 3 DIFFERENCE - FY 20 16 - 17 INDIA SME ASSET RECONSTRUCTION CO. LTD. ISARC SIDBI 2/2009 - 10 TRUST ISARC 13/2010 - 11 TRUST DATES 31 - 12 - 2017 30 - 06 - 2017 30 - 09 - 2017 31 - 12 - 2017 31 - 03 - 2018 AMOUNT 87,73,837 18,90,9 98 11,18,074 8,73,200 4,18,300 1,26,56,109 YIELD / PROBABLE YIELD 1,30,74,409 1,30,74,409 REFER ANNEXURE 3 DIFFERENCE - WE FIND FROM THE DETAILS OF INCOME OFFERED BY ISARC (SECURITY RECEIPT HOLDERS) FOR TAXATION AS DETAILED IN THE TABLE HEREINABOVE DURING THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 35 FINANCIAL YEARS 2012 - 13 TO 2017 - 18, THAT THOSE SECURITY RECEIPT HOLDERS HAD DULY CONSIDERED THE GAINS ARISING FROM REALISATION OF ACQUIRED NPAS AS THEIR INCOME / GAINS IN THEIR RESPECTIVE RETURNS IN THE YEAR OF REDEMPTI ON OF SECURITY RECEIPTS. 11.7. IN VIEW OF THE AFORESAID OBSERVATIONS, IT COULD BE SAFELY CONCLUDED THAT THE TRUST IS REVOCABLE AND HENCE THE OBSERVATIONS MADE BY THE LOWER AUTHORITIES CONTRARY TO THIS IS DISMISSED. 11.8. IN ANY CASE, WE FIND THAT THE LD AO HAD NOT EVEN BOTHERED TO DEDUCT THE PURCHASE CONSIDERATION OF ACQUIRED NPAS IN THE SUM OF RS 5,31,09,000/ - WHILE DETERMINING THE INCOME, WHICH HAD BEEN RIGHTLY GRANTED RELIEF BY THE LD CITA. 11.9. WE FIND THAT THE SIMILAR ISSUE HAD AROSE BEFORE THE CO - ORDINATE BENCH OF BANGALORE TRIBUNAL IN THE CASE OF DCIT VS INDIAN ADVANTAGE FUND VII REPORTED IN (2015) 67 SOT 5 (BANGALORE - TRIB.) . IN THAT CASE, THE ASSESSEE WAS AN INVESTMENT MANAGEMENT ENTITY FORMED UNDER THE TRUST DEED. THE TRUSTEE WAS EMPOWER ED TO CALL FOR CONTRIBUTIONS FROM THE CONTRIBUTORS WHICH WILL BE INVESTED BY THE TRUSTEE IN ACCORDANCE WITH THE OBJECTS OF THE TRUST. THE OBJECTIVE OF CREATION OF THE TRUST WAS TO INVEST IN CERTAIN SECURITIES CALLED MEZANNINE INSTRUMENTS AND TO ACHIEVE CO MMENSURATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FROM THE CONTRIBUTORS TOGETHER WITH THE INITIAL CORPUS WAS TO BE HANDED OVER TO THE TRUSTEES UNDER THE PROVISIONS OF THE INDIAN TRUST ACT, 1882. THE TRUST WAS TO FACILITATE INVESTMENT BY THE CON TRIBUTORS WHO SHOULD BE RESIDENT IN INDIA AND ACHIEVE RETURNS TO SUCH CONTRIBUTORS. THE TRUST DEED PROVIDES THAT THE CONTRIBUTORS TO THE FUND WILL ALSO BE ITS BENEFICIARIES. THE INITIAL CONTRIBUTION WAS RS 10,000/ - . THE TRUSTEE HAD POWER TO APPOINT INVEST MENT MANAGERS TO MANAGE THE TRUST FUND. THE SETTLOR WAS TO BE APPOINTED AS THE INVESTMENT MANAGER. THE TERMS OF THE APPOINTMENT OF THE SETTLOR AS INVESTMENT MANAGER ARE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 36 SET OUT IN AN INVESTMENT MANAGEMENT AGREEMENT DATED 25 - 9 - 2006 BETWEEN THE ASSESSEE RE PRESENTED BY THE TRUSTEE AND SETTLOR. THE SETTLOR AS INVESTMENT MANAGER ISSUED MEMORANDUM TO PROSPECTIVE INVESTORS ON A CONFIDENTIAL BASIS FOR THEM TO CONSIDER AN INVESTMENT IN MEZZANINE FUND. AN INVESTOR WHO WISHES TO CONTRIBUTE TO THE FUND ENTERS INTO A SEPARATE AND INDIVIDUAL CONTRIBUTION AGREEMENT WITH THE TRUST, THE TRUSTEES ACTING ON BEHALF OF THE TRUST AND THE SETTLOR ACTING IN HIS CAPACITY AS INVESTMENT MANAGER. IN THE RETURN OF INCOME, INCOME WAS DECLARED AT RS 1.84 CRORES. HOWEVER, BY WAY OF NOTE, IT WAS MENTIONED THAT IN PURSUANCE TO THE PROVISIONS OF SECTIONS 61 TO 63 OF THE ACT, THE INCOME HAS BEEN INCLUDED IN THE RETURN OF INCOME OF THE BENEFICIARIES AND OFFERED TO TAX DIRECTLY BY THEM AS SHORT TERM CAPITAL GAIN. CONSEQUENTLY, THE EFFECTI VE INCOME TAXABLE IN THE HANDS OF THE FUND IS TO BE CONSIDERED AS NIL. SINCE, THE PROVISIONS OF THE ACT MANDATE THAT THE INCOME ARISING FROM REVOCABLE TRANSFERS ARE TO BE TAXED IN THE HANDS OF THE TRANSFERORS I.E CONTRIBUTORS, THE FUND HAS NOT OFFERED THE SAME TO TAX AGAIN IN ITS HANDS. THE ASSESSING OFFICER TAXED THAT ASSESSEE AS AN AOP LEVYING TAX AT MAXIMUM MARGINAL RATE. THE COMMISSIONER (APPEALS) AFTER CALLING FOR REMAND REPORT, ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING THAT : - A ) THE TRUST IS A RE VOCABLE TRUST B ) THE TRUST CANNOT BE TAXED AS AOP C ) TRUST SHOULD NOT BE SUBJECTED TO TAX, AS THE TAX OBLIGATIONS HAVE BEEN DISCHARGED BY THE BENEFICIARIES OF THE TRUST D ) THE ISSUE OF DISALLOWANCE OF EXPENDITURE MADE BY THE AO IS NOT CONSIDERED AS THE APPEAL IS AL LOWED ON THE FIRST ISSUE THE DEPARTMENT PREFERRED APPEAL AGAINST THIS ORDER OF CITA. HELD AS UNDER: - 64. ON THE ASPECT OF IDENTIFICATION OF THE BENEFICIARIES, IT IS THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SO LONG AS THE TRUST DEED GIVES TH E DETAILS OF THE BENEFICIARIES AND THE DESCRIPTION OF THE PERSON WHO IS TO BE BENEFITED, THE BENEFICIARIES CANNOT BE SAID TO BE UNCERTAIN. CBDT CIRCULAR NO.281 DATED 22.9.1980 WHEREIN THE CBDT HAS EXPLAINED THE SCOPE OF SEC.164 WITH REGARD TO STATING THE N AME OF THE BENEFICIARIES IN THE TRUST DEED. IN THE SAID CIRCULAR THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 37 PROVISIONS OF EXPLN. - 1 TO SEC.164 OF THE ACT REGARDING IDENTIFICATION OF BENEFICIARIES HAS BEEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATION OF BENEFICIARIES IT IS NOT NECESSARY THAT T HE BENEFICIARY IN THE RELEVANT PREVIOUS YEAR SHOULD BE ACTUALLY NAMED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED, ALL THAT IS NECESSARY IS THAT THE BENEFICIARY SHOULD BE IDENTIFIABLE WITH REFERENCE TO THE ORDER OF THE COURT OR THE IN STRUMENT OF TRUST OR WAKF DEED ON THE DATE OF SUCH ORDER, INSTRUMENT OR DEED. WE FIND THAT CLAUSE 1.1.13 OF THE TRUST DEED CLEARLY LAYS DOWN THAT BENEFICIARIES MEANS THE PERSONS, EACH OF WHOM HAVE MADE OR AGREED TO MAKE CONTRIBUTIONS TO THE TRUST IN ACCORD ANCE WITH THE CONTRIBUTION AGREEMENT. WE ARE OF THE VIEW THAT THE ABOVE CLAUSE IS SUFFICIENT TO IDENTIFY THE BENEFICIARIES. 65. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BENEFICIARIES, WE FIND THAT ARTICLE 6.5 OF THE TRUST DEED CLEARLY SPECIFIES THE MANNER IN WHICH THE INCOME OF THE ASSESSEE IS TO BE DISTRIBUTED. THE SAID CLAUSE DETAILS FORMULA WITH RESPECT TO THE SHARE OF EACH BENEFICIARY. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IT IS NOT THE REQUIREMENT OF LAW THAT TRUST DEED SHOULD ACTUALLY PRESCRIBE THE PERCENTAGE SHARE OF THE BENEFICIARY IN ORDER FOR THE TRUST TO BE DETERMINATE. IT IS ENOUGH IF THE SHARES ARE CAPABLE OF BEING DETERMINED BASED ON THE PROVISIONS OF THE TRUST DEED. IN THE CASE OF THE ASSESSEE THE TRUSTEE HAVE NO DISCRETION TO DECIDE THE SHARE OF EACH BENEFICIARY AND ARE BOUND BY THE PROVISIONS OF THE TRUST DEED AND IS DUTY BOUND TO FOLLOW THE DISTRIBUTION MECHANISM SPECIFIED IN THE TRUST DEED. THE FURTHER ASPECT THAT MAY REQUIRE CONSIDERATION IN THE PRESENT CASE IS WITH REGARD TO THE CLAUSE IN THE TRUST DEED WHICH AUTHORISES ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TIME IN ADDITION TO INITIAL CONTRIBUTORS. FROM THIS CLAUSE CAN IT BE SAID THAT SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR K NOWN FROM THE TRUST DEED. ON THE ABOVE ASPECT, WE FIND THE AAR IN THE CASE OF COMPANIES INCORPORATED IN MAURITIES IN RE ( SUPRA ) HAS CONSIDERED SIMILAR CLAUSE IN A TRUST DEED WITH SPECIFIC REFERENCE TO THE PROVISIONS OF SEC.164(1) OF THE ACT AND HAS HELD TH AT IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND ALSO THE SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHOUT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DEED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE INDETERMINATE. THE PERSONS AS WELL AS THE SHARES MUST BE CAPABLE OF BEING DEFINITELY PIN - POINTED AND ASCERTAINED ON THE DATE OF THE TRUST DEED ITSELF WITHOUT LEAVING THESE TO BE DECIDED UPON AT A FUTURE DATE BY A PERSON OTHER THAN THE AUTHOR EITHER AT HIS DISCRETION OR IN A MANNER NOT ENVISAGED IN THE TRUST DEED. EVEN IF THE TRUST DEED AUTHORISES ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TIME, IN ADDITION TO INITIAL CONTRIBUTORS, THAN THE SAME WOULD NOT MAKE THE BENEFICIARIES UNKNOWN OR THEIR SHARE INDETERMINATE. EVEN IF THE SCHEME OF COMPUTATION OF INCOME OF BENEFICIARIES IS COMPLICATED, IT IS NOT POSSIBLE TO SAY THAT THE SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FROM THE TRUST DEED. IN VIEW OF THE AFORESAID DECISION OF THE AAR, WITH WHICH WE RESPECTFULLY AGREE, WE HOLD THAT THE PROVISIONS OF SEC.164(1) OF THE ACT WOULD NOT BE ATTRACTED IN THE PRESENT CASE. WE ALSO FIND THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF P.SEKAR TRUST ( SUPR A )AND MANILAL BAPALAL ( SUPRA )HAS TAKEN A VIEW THAT IDENTITY BY REFERENCE TO THE TERMS OF THE TRUST DEED IS SUFFICIENT AND IT IS NOT NECESSARY THAT THE BENEFICIARIES SHOULD BE SPECIFICALLY NAMED IN THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 38 DEED OF TRUST. CONSEQUENTLY GROUNDS 4 TO 7 RAISED BY TH E REVENUE ARE HELD TO BE WITHOUT MERIT. 66. IN GROUND NO.8, THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) HELD THAT THE ASSESSEE CANNOT BE ASSESSED AS AN 'AOP'. IN GROUND NO.9 THE REVENUE HAS CONTENDED THAT THERE IS NO SEPARATE STA TUS OF TRUST FOR MAKING ASSESSMENT ENVISAGED UNDER THE ACT. IN THIS REGARD THE DEFINITION OF PERSON U/S. 2(31) OF THE ACT WHICH DOES NOT SPECIFICALLY REFER TO 'TRUST' IS BEING HIGHLIGHTED IN THE GROUNDS RAISED BY THE REVENUE. THESE GROUNDS CAN BE CONVENIEN TLY DEALT WITH TOGETHER. 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 TEST S 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. 69. ANOTHER REASON ASSIGNED BY THE AO FOR TREATING THE STATUS OF THE ASSESSEE AS AOP WAS THAT IN THE RETURN OF INCOME FILED BY THE ASSESSEE THE STATUS WAS SHOWN IN RETURN OF INCOME. IN THIS REGARD IT IS NOT IN DISPUTE BEFORE US THAT THE FORM OF RETURN OF INCOME AS IT EXISTED FOR THE RELEVANT ASSESSMENT YEAR D ID NOT CONTAIN A CLAUSE FOR FILING RETURN OF INCOME BY A 'TRUST' IN THE STATUS OTHER THAN AOP. THE CBDT REALISED THIS DIFFICULTY FACED BY 'PRIVATE DISCRETIONARY TRUSTS' HAVING TOTAL INCOME EXCEEDING TEN LAKH RUPEES FACING PROBLEM IN FILING THEIR RETURN OF INCOME ELECTRONICALLY IN CASES WHERE THEY ARE FILING THEIR RETURN IN THE STATUS OF AN INDIVIDUAL BECAUSE STATUS OF A PRIVATE DISCRETIONARY TRUST HAS BEEN HELD IN LAW AS THAT OF AN 'INDIVIDUAL' GAVE INSTRUCTIONS IN CIRCULAR NO.6/2012 DATED 3.8.2012 TO THE E FFECT THAT IT WILL NOT BE MANDATORY FOR 'PRIVATE DISCRETIONARY TRUSTS', IF ITS TOTAL INCOME EXCEEDS TEN LAKH RUPEES, TO ELECTRONICALLY FURNISH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2012 - 13. FORM NO.49A WHICH WAS THE PRESCRIBED FORM OF APPLICATION FOR AL LOTMENT OF PERMANENT ACCOUNT NUMBER (PAN) ALSO DID NOT CONTAIN A SEPARATE STATUS 'TRUST' BUT CONTAINED A COLUMN 'AOP (TRUST)'. THE REVISED FORM NO.49A LATER NOTIFIED CONTAINS A COLUMN FOR STATUS AS 'TRUST'. THEREFORE THE ARGUMENT OF THE REVENUE THAT ALL 'T RUSTS' ARE AOPS IS NOT CORRECT. IF THE CONTENTION OF THE REVENUE AS RAISED IN GROUND NO.9 IS ACCEPTED THAN THE PROVISIONS OF SEC.161(1) OF THE ACT WOULD BECOME REDUNDANT. THE CHARGE TO TAX IN THE HANDS OF THE REPRESENTATIVE ASSESSEE HAS TO BE IN ACCORDANCE WITH SEC.161(1) OF THE ACT AND THEREFORE THE STATUS OF THE ASSESSEE CANNOT BE THAT OF AOP. GROUND NO.9 RAISED BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 39 11.10. WE FIND THAT THE LD DR PLACED HEAVY RELIANCE ON THE CIRCULAR NO. 13/2014 DATED 28.7.2014 IN SUPPORT OF HIS CONTENTIONS. WE FIND THAT THIS CIRCULAR HAS BEEN DULY CONSIDERED IN THE AFORESAID BANGALORE TRIBUNAL DECISION IN PARA 72 OF ITS ORDER. HENCE THE RELIANCE ON THE SAID CIRCULAR DOES NOT ADVANCE THE CASE OF THE REVENUE. 11.11. WE FIND THAT THE AFORESAID DECISION OF BANGALORE TRIBUNAL HAS BEEN SUBSEQUENTLY APPROVED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ANOTHER VS INDIA ADVANTAGE FUND VII AND ICICI EMERGING SECTORS FUND REPORTED IN (2017) 392 ITR 209 (KAR) , WHEREIN THE QUESTION RAISED BEFORE THE HONBLE KARNATAKA HIGH COURT WAS AS UNDER: - 'WHETHER, THE TRIBUNAL, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE WAS RIGHT IN HOLDING THAT THE ASSESSEE TRUST CANNOT BE ASSESSED AS ON AOP EVEN THOUGH THE REQUIREME NTS OF SECTION 164(1) WERE NOT MET, INASMUCH AS THE SHARES OF THE BENEFICIARIES WERE INDETERMINATE/UNKNOWN AND HENCE THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 164(1) OF THE ACT AND MAKE THE ASSESSEE LIABLE TO BE ASSESSED AT THE MAXIMUM MARGINAL RATE IN THE STATUS OF AOP. HENCE, IT IS NOT RELEVANT WHETHER THE NECESSARY INGREDIENTS FOR FORMATION OF AN AOP ARE FULFILLED BY THE ASSESSEE OR NOT?' HELD AS UNDER: - 6. AS SUCH, IN OUR VIEW THE MATTER SHOULD REST AS THE FINDING OF FA CT FOR THE SIMPLE REASON THAT WHETHER THE TRUST DEED PROVIDES FOR SHARES OF THE BENEFICIARIES WHICH ARE DETERMINABLE OR NON - DETERMINABLE WOULD VARY FROM FACTS TO FACTS OF EACH TRUST INCLUDING THAT OF THE DEED OF TRUST ETC. SUCH FINDING OF FACT CAN BE ARRIV ED AT AFTER INTERPRETATION OF THE TERMS AND CONDITIONS OF THE TRUST DEED AS WELL AS THE OTHER FACTS AND CIRCUMSTANCES WHICH MAY BE GERMANE TO REACH THE CONCLUSION ON THE FINDING OF FACT. IF THE MATTER IS TO REST ON THE QUESTION OF FINDING OF FACT, IN OUR V IEW, SUCH QUESTION OF FINDING OF FACT WOULD BE OUTSIDE THE SCOPE OF JUDICIAL REVIEW IN THE PRESENT APPEALS WHICH WOULD BE LIMITED TO SUBSTANTIAL QUESTIONS OF LAW. 10. IN OUR VIEW, THE CONTENTION IS WHOLLY MISCONCEIVED FOR THREE REASONS. ONE IS THAT BY NO INTERPRETATIVE PROCESS THE EXPLANATION TO SECTION 164 OF THE ACT, WHICH IS PRESSED IN SERVICE CAN BE READ FOR DETERMINABILITY OF THE SHARES OF THE BENEFICIARY WITH THE QUANTUM ON THE DATE WHEN THE TRUST DEED IS EXECUTED AND THE SECOND REASON IS THAT THE RE AL TEST IS THE DETERMINABILITY OF THE SHARES OF THE ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 40 BENEFICIARY AND IS NOT DEPENDENT UPON THE DATE ON WHICH THE TRUST DEED WAS EXECUTED IF ONE IS TO CONNECT THE SAME WITH THE QUANTUM. THE REAL TEST IS WHETHER SHARES ARE DETERMINABLE EVEN WHEN EVEN OR AFTER THE TRUST IS FORMED OR MAY BE IN FUTURE WHEN THE TRUST IS IN EXISTENCE. IN THE FACTS OF THE PRESENT CASE, EVEN THE ASSESSING AUTHORITY FOUND THAT THE BENEFICIARIES ARE TO SHARE THE BENEFIT AS PER THEIR INVESTMENT MADE OR TO SAY IN OTHER WORDS, IN PROPORTI ON TO THE INVESTMENT MADE. ONCE THE BENEFITS ARE TO BE SHARED BY THE BENEFICIARIES IN PROPORTION TO THE INVESTMENT MADE, ANY PERSON WITH REASONABLE PRUDENCE WOULD REACH TO THE CONCLUSION THAT THE SHARES ARE DETERMINABLE. ONCE THE SHARES ARE DETERMINABLE AM ONGST THE BENEFICIARIES, IT WOULD MEET WITH THE REQUIREMENT OF THE LAW, TO COME OUT FROM THE APPLICABILITY OF SECTION 164 OF THE ACT. 11. UNDER THE CIRCUMSTANCES, WE CANNOT ACCEPT THE CONTENTION OF THE REVENUE THAT THE SHARES WERE NON - DETERMINABLE OR THE V IEW TAKEN BY THE TRIBUNAL IS PERVERSE. ON THE CONTRARY, WE DO FIND THAT THE VIEW TAKEN BY THE TRIBUNAL IS CORRECT AND WOULD NOT CALL FOR INTERFERENCE SO FAR AS DETERMINABILITY OF THE SHARES OF THE BENEFICIARIES ARE CONCERNED. 12. ONCE THE SHARES OF THE BEN EFICIARIES ARE FOUND TO BE DETERMINABLE, THE INCOME IS TO BE TAXED OF THAT RESPECTIVE SHARER OR THE BENEFICIARIES IN THE HANDS OF THE BENEFICIARY AND NOT IN THE HANDS OF THE TRUSTEES WHICH HAS ALREADY BEEN SHOWN IN THE PRESENT CASE. 13. UNDER THE CIRCUMSTA NCES, IN ANY CASE, IT CANNOT BE SAID THAT THE TRIBUNAL HAS COMMITTED ERROR. ACCORDINGLY, THE QUESTION IS ANSWERED IN AFFIRMATIVE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 14. IF THE ASSESSMENT UNDER SECTION 164(1) OF THE ACT IS NOT MAINTAINED IN T HE HANDS OF THE TRUSTEES, THE OTHER QUESTION RAISED BY THE REVENUE, IN OUR VIEW, WOULD NOT ARISE. THE EXAMINATION OF SUCH QUESTIONS INSPITE OF OUR ANSWER TO THE ABOVE REFERRED QUESTION WOULD ONLY BE A MERE ACADEMIC EXERCISE WHICH COURT WOULD NOT UNDERTAKE AND COURT WOULD RATHER DECIDE THE QUESTIONS WHICH ARE REALLY REQUIRED TO BE DECIDED. HENCE, WE FIND THAT THE OTHER QUESTIONS WHICH ARE RAISED IN THE APPEALS, AS SUCH, WOULD NOT ARISE NOR WOULD BE REQUIRED TO BE CONSIDERED. 15. IN VIEW OF THE ABOVE, ALL APP EALS ARE DISMISSED. 11.12. WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PCIT VS M/S MILESTONE ARMY NAVY TRUST IN ITA NO. 1826 OF 2016 DATED 27.2.2019 HAD SUBSEQUENTLY FOLLOWED THE AFORESAID DECISION OF HONBLE KARNATAKA HIGH COUR T, WHEREIN THE ENTIRE ORDER IS REPRODUCED HEREUNDER: - 1 THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 23/12/2015 OF THE INCOME TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUNAL), RAISING THE FOLLOWING QUESTIONS FOR OUR CONSIDERATION: ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 41 ( I) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE ITAT ERRED IN HOLDING THAT THE INCOME OF THE ASSESSEE IS TAXABLE IN THE HANDS OF CONTRIBUTORS AND NOT IN THE HANDS OF THE AOP? (II) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE ITAT ERRED IN HOLDING THAT ACTIVITIES OF THE ASSESSEE ARE NOT COMMERCIAL IN NATURE EVEN THOUGH THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITY IN THE SPIRIT OF TRUST? 3 THE RESPONDENT ASSESSEE IS A TRUST. THIS APPEAL ARISES OUT OF THE INCOME T AX RETURNS FILED FOR THE ASSESSMENT YEAR 2009 - 2010. PERUSAL OF THE IMPUGNED ORDER OF THE TRIBUNAL SHOWS THAT WHILE DECIDING THE APPEAL IN FAVOUR O F THE RESPONDENT - ASSESSEE, THE TRIBUNAL HAD PLACED RELIANCE ON A DETAILED JUDGMENT OF THE BANGALURU BENCH OF KARNATAKA HIGH COURT IN THE CASE OF M/S. INDIA ADVANTAGE FUND VII DATED 17/10/2014 IN WHICH UNDISPUTEDLY THESE QUESTIONS WERE INVOLVED. 4 THE LEARNED COUNSEL FOR THE PARTIES BROUGHT TO OUR NOTICE THE FACT THAT SUCH A JUDGMENT OF THE BANGALURU WAS CARRIED IN APPEAL BY THE REVENUE BEFORE THE KARNATAKA HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX AND ANOTHER V/S INDIA ADVANTAGE FUNDVII REPORTED IN (2017) 392 ITR 209 (KARN) . THE KARNATAKA HIGH COURT HAD DISMISSED THE APPEAL OF THE REVENUE. THE HIGH COURT I N A DETAILED JUDGMENT WHILE DISMISSING THE APPEAL OF THE REVENUE HAD CONCLUDED AS UNDER : 11 UNDER THE CIRCUMSTANCES, WE CANNOT ACCEPT THE CONTENTION OF THE REVENUE THAT THE SHARES WERE NON - DETERMINABLE OR THE VIEW TAKEN BY THE TRIBUNAL IS PERVERSE. ON THE CONTRARY, WE DO FIND THAT THE VIEW TAKEN BY THE TRIBUNAL IS CORRECT AND WOULD NOT CALL FOR INTERFERENCE SO FAR AS DETERMINABILITY OF THE SHARES OF THE BENEFICIARIES ARE CONCERNED. 12 ONCE THE SHARES OF THE BENEFICIARIES ARE FOUND TO BE DETERMINABLE, T HE INCOME IS TO BE TAXED OF THAT RESPECTIVE SHARER OR THE BENEFICIARIES IN THE HANDS OF THE BENEFICIARY AND NOT IN THE HANDS OF THE TRUSTEES WHICH HAS ALREADY BEEN SHOWN IN THE PRESENT CASE. 5 IN THE RESULT THE APPEAL IS DISMISSED. 11.13. IN VIEW OF THE AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE ASSESSEE CANNOT BE TAXED AS AN AOP AND THAT THE SHARES OF EACH BENEFICIARIES ARE DETERMINATE AND KNOWN AND ACCORDINGLY THE INCOME SHALL ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 42 BE TAXED ONLY IN THE HANDS OF SUCH BENEFICIARIES AND NOT IN THE HANDS OF THE ASSESSEE TRUST. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED AND GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. 11.14. IN VIEW OF OUR AFORESAID FINDING, THE ADJUDICATION OF ADDITIONAL GROUND RAISED BY THE ASSESSEE BECOMES ACADEMIC IN NATURE. 11.15. IN THE RESULT, THE APPEAL OF THE ASSESSEE I.E ISARC - 14/2010 - 11 TRUST IN ITA NO. 2701/MUM/2017 IS PARTLY ALLOWED AND APPEAL OF THE REVENUE IN ITA NO. 3459/MUM/2017 IS DISMISSED. 12. THE DECISION RENDERED HEREINABOVE IS FOR THE ASSESSEE ISARC - 14/2010 - 11 TRUST AND THE SAME WOULD APPLY FOR OTHER ASSESSEES ALSO LISTED IN THE CAUSE LIST HEREINABOVE EXCEPT WITH VARIANCE IN FIGURES AND IN THE NAM E OF BENEFICIARIES. 13. TO SUM UP, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AND ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 04 / 09 /201 9 SD/ - ( AMARJIT SINGH ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 0 4 / 09 / 2019 KARUNA , SR.PS ITA NO.3456/MUM/2017 AND OTHER APPEALS ISARC SIDBI 2/2009 - 10 TRUST 43 COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//
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