ACIT, Bangalore V. M/s ICICI emerging Sector Fund, Bangalore

ITA 505/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0181 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEERA MALHOTRA; MRS P RENUGADEVI
• Assessee Lawyers: S E DASTUR SENIOR
• Keywords: Business income; Charitable institution; Maximum Marginal Rate; Advance ruling; Revocable transfer; Revised return
• Section: 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K.GARODIA, ACCOUNANT MEMBER ITA NOS. A.Y. APPELLANT VS RESPONDENT 1 505(BANG)/2013 2009-10 ACIT, CIRCLE-9(1), BANGALORE M/S ICICI EMERGING SECTOR FUND, NO.3, KASTURBA ROAD, BANGALORE 2 TO 4 533,534 & 535(BANG)/2014 2011-12 ITO, WARD-9(1), BANGALORE M/S INDIA ADVANTAGE FUND - IV, BANGALORE 5 633(BANG)/2013 2009-10 ITO, WARD-9(1) BANGALORE M/S INDIA ADVANTAGE FUND-I, BANGALORE 6 634(BANG)/2013 2009-10 ITO, WARD-9(1), BANGALORE M/S INDIA ADVANTAGE FUND-II, BANGALORE 7 635(BANG)/2013 2009-10 ITO, WARD-9(1), BANGALORE M/S INDIA ADVANTAGE FUND-III, BANGALORE 8 636(BANG)/2013 2009-10 ITO, WARD 9(1), BANGALORE M/S INDIA ADVANTAGE FUND-IV, BANGALORE 9 637(BANG)/2013 2009-10 ITO, WARD-9(1), BANGALORE M/S INDIA ADVANTAGE FUND - V, BANGALORE 10 638(BANG)/2013 2009-10 ITO, WARD-9(1), BANGALORE M/S INDIA ADVANTAGE FUND-VI, BANGALORE 11 697(BANG)/2015 2010-11 ITO, WARD-1(2)(1) BANGALORE M/S ICICI EMERGING SECTOR FUND, BANGALORE 12 836(BANG)/2013 2009-10 ACIT, CIRCLE-9(1), BANGALORE M/S ICICI ECONET & INTERNET TECH. FUNDS, BANGALORE 13 837(BANG)/2013 2009-10 ACIT, CIRCLE-9(1) BANGALORE M/S INDIA ADVANTAGE FUND-VII, BANGALORE APPELLANT BY : SHRI S.E.DASTUR, SENIOR ADVOCATE REVENUE BY : MRS. NEERA MALHOTRA, CIT & MRS. P.RENUGADEVI, JCIT DATE OF HEARING : 29-06-2016 DATE OF PRONOUNCEMENT : 27-07-2016 O R D E R PER BENCH ALL THESE THIRTEEN APPEALS ARE FILED BY THE REVENUE IN RESPECT OF VARIOUS ASSESSEES FOR VARIOUS ASSESSMENT YEARS AS NOTED ABO VE. SINCE THE ISSUES ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 2 INVOLVED ARE COMMON IN ALL THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AT THE OUTSET, IT WAS SUBMITTED BY THE LD. COUNS EL FOR THE ASSESSEE THAT ONE OF THE APPEAL OF THE REVENUE IN THE CASE O F M/S ICICI EMERGING SECTOR FUND FOR THE ASSESSMENT YEAR : 2009-10 IN IT A NO.505(B)/2013 IS A DUPLICATE APPEAL FILED BY THE REVENUE BECAUSE FOR T HE SAME ASSESSMENT YEAR, IN THE CASE OF THE SAME ASSESSEE, ONE MORE AP PEAL WAS FILED BY THE REVENUE IN ITA NO.475(B)/2013 AND THIS APPEAL WAS D ISMISSED BY THE TRIBUNAL AS PER ITS ORDER DATED 13-02-2015. HE S UBMITTED A COPY OF THIS TRIBUNAL ORDER AND CONTENDED THAT UNDER THESE FACTS , THIS APPEAL OF THE REVENUE BEING ITA NO.5059B)/2013 SHOULD BE DISMISSE D AS DUPLICATE APPEAL. 3. REGARDING REMAINING APPEALS OF THE REVENUE, HE S UBMITTED THAT THE ISSUE INVOLVED IN THESE APPEALS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDERS AS PER DETAILS BELO W; A) ITO VS INDIA ADVANTAGE FUND-I 39 ITR(T) 60. B) DCIT VS INDIA ADVANTAGE FUND-VII 67 SOT 5, 36 ITR (T) 304. C) ITA NO.179 & 177(B)/12, 348(B)/2011 AND 475(B)/2 013 AND ITA NO.375(B)/2011 DATED 13-02-2015 IN THE CASE OF IND IA ADVANTAGE FUND-I. M/S ICICI EMERGING SECTOR FUND AND M/S ICICI ECONET & INTERNET TECH. FUNDS, BANGALORE. HE SUBMITTED COPIES OF THESE TRIB UNAL ORDERS. AS AGAINST THIS, THE LD,. DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. HE ALSO SUBMITTED THAT IF THESE ASSESSEES ARE TO BE TREATED AS NON-TAXABLE ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 3 ENTITIES THEN SUITABLE DIRECTIONS SHOULD BE GIVEN W ITH REGARD TO THE CORRESPONDING TREATMENT/APPORTIONMENT OF EXPENDITUR E CLAIMED IN THE RESPECTIVE RETURNS OF INCOME ALONG WITH THE MANNER OF DEDUCTION/CLAIM OF REFUND IN THE RIGHTFUL HANDS AS PER PROVISIONS OF S EC.199 OF THE IT ACT, 1961 FROM YEAR TO YEAR. 4. AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENC H FROM LD. DR OF THE REVENUE AS TO WHETHER THERE IS ANY DIFFERENCE I N FACTS IN THE PRESENT CASES IN COMPARISON TO THE FACTS IN THE CASES CITED BY THE LD. AR OF THE ASSESSEE. IN REPLY, LD. DR OF THE REVENUE COULD N OT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT CASE. THEREFORE , WE FIND NO REASON TO TAKE A CONTRARY VIEW IN THE PRESENT CASES. FOR TH E SAKE OF READY REFERENCE, WE REPRODUCE PARA 5 TO 24 OF THE TRIBUNA L ORDER REPORTED IN 39 ITR (T) 360(SUPRA). 5. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE IN I .T.A. NO. 177/BANG/ 2012, ICICI EMERGING SECTORS FUND, FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 3,46,18,77,243 . ALONG WITH THE RETURN OF INCOME THE ASSESSEE FILED A LETTER DA TED OCTOBER 13, 2008, INTIMATING THE ASSESSING OFFICER THAT THE INC OME OF THE ASSESSEE IS INCLUDED IN THE TOTAL INCOME OF THE BEN EFICIARIES AND OFFERED TO TAX DIRECTLY BY THEM IN THEIR RETURN OF INCOME. A REVISED RETURN OF INCOME WAS FILED ON MARCH 29, 2010, IN WH ICH THE TOTAL INCOME DECLARED WAS REDUCED TO RS. 3,43,27,09,174 W ITH TAX LIABILITY AS NIL CLAIMING REFUND OF TDS. 6. FOR THE ASSESSMENT YEAR 2009-10, THE ASSESSEE IN I .T.A. NO.475/BANG/ 2013, ICICI EMERGING SECTORS FUND, FIL ED RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 4,30,52,648. T HEREAFTER THE ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 4 AFORESAID RETURN OF INCOME WAS REVISED UNDER SECTIO N 139(5) OF THE ACT, DECLARING 'NIL' INCOME AND CLAIMING A REFUND O F RS. 21,51,930 TOWARDS TAX DEDUCTION AT SOURCE. ALONG WITH THE REV ISED RETURN OF INCOME A LETTER DATED MAY 4, 2011, INTIMATING THAT THE INCOME OF THE ASSESSEE IS INCLUDED IN THE TOTAL INCOME OF THE BENEFICIARIES AND OFFERED TO TAX DIRECTLY BY THEM IN THEIR RETURN OF INCOME, WAS ALSO FILED. 7. IN THE ASSESSMENT OF THE ASSESSEES IN I.T.A. NOS. 177/BANG/12 AND 179/ BANG/12 FOR THE ASSESSMENT YEAR 2008-09, T HE ASSESSING OFFICER WAS OF THE VIEW THAT THE INDIVIDU AL SHARES OF THE PERSONS ON WHOSE BEHALF OR FOR WHOSE BENEFIT INCOME IS RECEIVED OR RECEIVABLE BY THE ASSESSEE OR PART THEREOF ARE INDE TERMINATE OR UNKNOWN. IN THIS REGARD, THE ASSESSING OFFICER REFE RRED TO THE TRUST DEED DATED SEPTEMBER 25, 2006 AND OBSERVED THAT THE SHARES OF THE BENEFICIARIES ARE NOT MENTIONED THEREIN. HE WAS ALSO OF THE VIEW THAT THE FACT THAT THE DEED MENTIONS THAT SHAR E OF THE BENEFICIARIES WOULD BE ALLOCATED ACCORDING TO THEIR INVESTMENTS IN THE FUND DOES NOT MAKE THE SHARE DETERMINATE OR KNO WN. THE ASSESSING OFFICER WAS THEREFORE OF THE VIEW THAT TH E PROVISIONS OF SECTION 164(1) OF THE ACT WOULD APPLY AND THE ASSES SEE WOULD BE LIABLE TO BE ASSESSED AT THE MAXIMUM MARGINAL RATE WHICH WAS 30 PER CENT. PLUS SURCHARGE, IF ANY, AND EDUCATION CES S, IF ANY. THE BENEFICIARIES HAD HOWEVER DECLARED INTEREST INCOME AT THE APPLICABLE RATES AND SHORT-TERM CAPITAL GAINS ON SA LE OF MUTUAL FUND UNITS AT 10 PER CENT. WHICH IS THE RATE AS PER THE PROVISIONS OF SECTION 111A OF THE ACT. THERE IS NO DISPUTE WITH R EGARD TO THE FACT THAT THE BENEFICIARIES HAVE DECLARED INCOME ALLOCAT ED BY THE TRUST TO THEM AND HAVE BEEN ASSESSED IN RESPECT OF THE SH ARE OF THEIR INCOME. THE ASSESSING OFFICER ALSO OBSERVED THAT TH E SAME INCOME CANNOT BE TAXED TWICE, ONCE IN THE HANDS OF THE TRU ST AND AGAIN IN THE HANDS OF THE BENEFICIARIES IN VIEW OF THE PROVI SIONS OF SECTION ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 5 86 OF THE ACT WHICH PROVIDES THAT WHERE THE ASSESSE E IS A MEMBER OF AN ASSOCIATION OF PERSONS, INCOME-TAX SHALL NOT BE PAYABLE BY THE ASSESSEE IN RESPECT OF HIS SHARE IN THE INCOME OF THE ASSOCIATION, IF THE ASSOCIATION IS CHARGEABLE TO TA X ON ITS TOTAL INCOME AT THE MAXIMUM MARGINAL RATE OR ANY HIGHER R ATE UNDER ANY OF THE PROVISIONS OF THIS ACT. THE ASSESSING OF FICER ALSO HELD THAT THE ASSESSEE AND THE BENEFICIARIES JOINED IN A COMMON PURPOSE OR COMMON ACTION, THE OBJECT OF WHICH WAS T O PRODUCE INCOME, PROFITS AND GAINS AND THEREFORE CONSTITUTED AN ASSOCIATION OF PERSONS. THE ASSESSING OFFICER ALSO REFERRED TO THE FACT THAT THE ASSESSEE HAD OBTAINED PERMANENT ACCOUNT NUMBER IN T HE STATUS OF AN ASSOCIATION OF PERSONS (TRUST) AND FILED ITS E-R ETURN OF INCOME BY QUOTING THE STATUS AS ASSOCIATION OF PERSONS/BODY O F INDIVIDUALS. CONSEQUENTLY THE INCOME IN QUESTION HAS TO BE BROUG HT TO TAX IN THE HANDS OF ASSOCIATION OF PERSONS AT THE MAXIMUM MARG INAL RATE. IN THIS REGARD, THE ASSESSING OFFICER MADE REFERENCE T O THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO V. CH. ATCHAIAH [1996] 218 ITR 239/84 TAXMAN 630 WHEREIN, IN THE CONTEXT OF ASSESSMENT OF INCOME OF AN ASSOCIATION OF PERSONS, IT WAS HELD BY THE HON'BLE SUPREME COURT THAT INCOME HAS TO BE BRO UGHT TO TAX IN THE HANDS OF RIGHT PERSON. THE ASSESSEE HAD BEFORE THE ASSESSING OFFICER RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEM ENTS IN SUPPORT OF ITS STAND THAT THERE WAS NO ASSOCIATION OF PERSO NS IN EXISTENCE AND THEREFORE THE ASSESSEE SHOULD NOT BE TAXED AT T HE MAXIMUM MARGINAL RATE. (1) A. K. GOPALA PILLAI V. AGRICULTURAL ITO [1970] 75 ITR 120 (MAD); (2) CWT V. TRUSTEES OF H.E.H. NIZAM'S FAMILY (REMAI NDER WEALTH) TRUST [1977] 108 ITR 555 (SC) ; (3) CIT V. K. SHYAMARAJU (TRUSTEES) [1991] 189 ITR 392 (KAR); AND (4) LAXMIPAT SINGHANIA V. CIT [1969] 72 ITR 291 (SC) . ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 6 8. THE ASSESSING OFFICER WITHOUT DISCUSSING THE FACTS OF THOSE CASES AND THE RATIO LAID DOWN IN THOSE DECISIONS AN D AS TO HOW THE FACTS OF THE ASSESSEES CASE ARE DIFFERENT FROM THOS E CASES, HELD THAT THE CASES CITED ARE NOT APPLICABLE TO THE FACT S OF THE ASSESSEES CASE. 9. THE ASSESSING OFFICER ALSO OBSERVED AS FOLLOWS: 'IT IS NOT DENIED THAT THE BUSINESS WAS CARRIED ON BY THE FUND ON BEHALF OF THE BENEFICIARIES OF THE TRUST (ASSOCIATI ON OF PERSONS) AND THAT CONSIDERABLE PROFITS WERE EARNED FROM THE BUSI NESS. THE CONTROL AND MANAGEMENT OF THE BUSINESS WAS IN THE H ANDS OF THE FUND. THE CONTROL AND MANAGEMENT WAS A UNIFIED ONE. THE BENEFICIARIES HAD JOINED IN A COMMON PURPOSE AND TH EY ACTED JOINTLY. WHEN THEY DID SO, THEY ACTED ON BEHALF OF THE PERSONS WHO ARE THE OWNERS OF THE BUSINESS. THE FUND DID NOT AN D COULD NOT HAVE REPRESENTED THE INDIVIDUAL INTEREST OF THE VAR IOUS BENEFICIARIES. IF THEY HAD DONE SO, THERE WOULD HAV E BEEN CHAOS IN THE BUSINESS. THE PROFITS TO WHICH THOSE OWNERS LAY CLAIM AND WHICH THEY WERE NOT AVERSE TO POCKED, WERE EARNED O N BEHALF OF AN ASSOCIATION OF PERSONS. RELIANCE IS PLACED ON THE D ECISION OF THE SUPREME COURT IN THE CASES OF N.V. SHANMUGHAM AND C O. V. CIT [1971] 81 ITR 310 (SC) AND CIT V. MANAGING TRUSTEES, NAGORE DURGHA [1965] 57 ITR 321 (SC) .' 10. THE ASSESSING OFFICER, FOR THE ABOVE REASONS, BROU GHT TO TAX THE ENTIRE INCOME IN THE HANDS OF THE ASSESSEE AT T HE MAXIMUM MARGINAL RATE. 11. IN THE ASSESSMENT YEAR 2009-10 IN THE CASE OF THE ASSESSEE IN I.T.A. NO. 475/BANG/13, THE ASSESSING OFFICER FOLLO WED HIS REASONING AS GIVEN IN THE ORDER OF ASSESSMENT IN TH E ASSESSMENT YEAR 2008-09 IN THE CASE OF THE VERY SAME ASSESSEE, WHICH ORDER ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 7 IS SUBJECT MATTER OF APPEAL FOR THE ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 177/BANG/12. 12. AGAINST THE AFORESAID ASSESSMENTS, THE ASSESSEES P REFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (AP PEALS), WHO HELD THAT: ( I ) THAT THE ASSESSEE TRUST, IS A REVOCABLE TRUST AND IT NEED NO T BE SUBJECTED TO TAX, AS THE TAX OBLIGATION HAVE BEEN F ULLY DISCHARGED BY THE BENEFICIARIES OF THE ASSESSEE-TRUST; ( II ) THE NAMES OF THE BENEFICIARIES ARE IDENTIFIABLE AND THAT THE BENEFICIARIES AND THE SHARES OF THE BENEFICIARIES A RE DETERMINABLE; (III) THAT THE ASSESSEE TRUST CANNOT BE ASSESSED AS AN 'A SSOCIATION OF PERSONS'. 13. AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCO ME-TAX (APPEALS), THE REVENUE HAS FILED I.T.A. NO. 179/BAN G/2012, I.T.A. NO. 177/BANG/ 2012 AND I.T.A. NO. 475/BANG/2 013. 14. THE GROUNDS OF APPEAL RAISED BY THE REVENUE WHICH IS IDENTICAL IN ALL THE APPEALS READS THUS : '1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS) IS OPPOSED TO FACTS OF THE CASE. 2. THE COMMISSIONER OF INCOME-TAX (APPEALS) SHOULD HAVE APPRECIATED THE FACT THAT THE ASSESSEE, AN ASSET MA NAGEMENT ENTITY CAME INTO EXISTENCE BY VIRTUE OF A TRUST DEE D. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERR ED IN HOLDING THAT THE ASSESSEE-TRUST, IS A REVOCABLE TRU ST AND IT NEED NOT BE SUBJECTED TO TAX, AS THE TAX OBLIGATION HAVE BEEN FULLY DISCHARGED BY THE BENEFICIARIES OF THE ASSESSEE-TRU ST. ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 8 4. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT T O HAVE APPRECIATED THE FACT, THAT THE NAMES OF THE BENEFIC IARIES ARE NOT IDENTIFIABLE IN THE ORIGINAL TRUST DEED. 5. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT T O HAVE APPRECIATED THE FACT, THAT THE BENEFICIARIES AND TH E SHARES OF THE BENEFICIARIES ARE NOT MENTIONED IN THE TRUST DE ED. 6. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT T O HAVE APPRECIATED THE FACT THAT, THE SHARES OF THE BENEFI CIARIES ARE NOT DETERMINATE ON THE BASIS OF THE TRUST DEED. HEN CE, THE INCOME OF THE TRUST HAS TO BE ASSESSED IN THE HANDS OF THE TRUST AND NOT IN THE HANDS OF THE BENEFICIARIES. 7. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT T O HAVE APPRECIATED THE FACT THAT THE SHARES OF THE BENEFIC IARIES ARE NOT DISTRIBUTED EXACTLY AS PER THE FORMULA DETERMINABLE FROM THE TRUST DEED RATHER THE SHARES VARY DEPENDING UPON TH E AMOUNT CONTRIBUTED BY THE BENEFICIARIES FOR ASSET MANAGEME NT. 8. THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED I N HOLDING THAT THE ASSESSEE-TRUST CANNOT BE ASSESSED AS AN 'A SSOCIATION OF PERSONS'. 9. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT T O HAVE APPRECIATED THE FACT THAT SECTION 2(31) OF THE INCO ME-TAX ACT GIVES AN INCLUSIVE DEFINITION FOR THE WORD 'PERSON' . THERE IS NO SEPARATE STATUS OF TRUST ENVISAGED IN THE DEFINITIO N OF PERSON. ALL THE TRUSTS ARE ASSESSED ON THE STATUS OF ASSOCI ATION OF PERSONS. THIS BEING THE CASE, THE ASSESSMENT OF THE ASSESSEE IN THE STATUS OF ASSOCIATION OF PERSONS IS IN ORDER . ACCORDINGLY, WHATEVER PROVISIONS OF THE ACT APPLIES TO ASSOCIATI ON OF PERSONS WILL APPLY TO THE ASSESSEE ALSO. HENCE IT IS NOT RE LEVANT WHETHER THE NECESSARY INGREDIENTS FOR FORMATION OF AN ASSOCIATION OF PERSONS ARE FULFILLED BY THE ASSESSE E OR NOT. THE ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 9 ASSESSEE WHO IS A TRUST IS RIGHTLY ASSESSED IN THE STATUS OF ASSOCIATION OF PERSONS SINCE THERE IS NO SPECIFIC S TATUS OF TRUST IS AVAILABLE IN SECTION 2(31). 10. THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT THE INCOME-TAX ACT ENVISA GES THAT THE INCOME OF A PERSON HAS TO BE ASSESSED IN THE CORREC T AND APPROPRIATE STATUS. MERELY, BECAUSE SOMEONE ELSE HA S BEEN ASSESSED AND HAS PAID TAX, THOUGH BY MISTAKE ON THE SAME INCOME, THE ENTITY IN WHOSE HANDS THE INCOME IS ACT UALLY ASSESSABLE CANNOT BE EXCLUDED FROM ASSESSMENT. 11. THE APPELLANT CRAVES FOR PERMISSION TO ADD OR D ELETE THE GROUNDS OF APPEAL AT THE TIME OF HEARING THE CASE.' 15. AT THE TIME OF HEARING OF THESE APPEALS, THE PARTI ES AGREED THAT IDENTICAL ISSUE ON IDENTICAL SET OF FACTS WAS CONSIDERED BY THIS TRIBUNAL IN THE CASE OF INDIA ADVANTAGE FUND-V II (SUPRA) UPHELD IDENTICAL ORDER OF THE COMMISSIONER OF INCOM E-TAX (APPEALS). THE PARTIES ALSO AGREED THAT THE TERMS O F THE TRUST DEED ARE IDENTICAL IN SUBSTANCE AND FORM IN THESE C ASES AS WELL AS THE CASE OF INDIA ADVANTAGE FUND-VII (SUPRA ) ALREADY DECIDED BY THIS TRIBUNAL. THE GROUNDS OF APPEAL RAI SED BY THE REVENUE IN THE APPEAL DECIDED BY THE TRIBUNAL AND I N THESE THREE APPEALS ARE ALSO SAME. 16. THE GIST OF THE DECISION RENDERED BY THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE FUND-VII (SUPRA) ARE SET OU T FOR READY REFERENCE. 17. THE TRIBUNAL FIRSTLY CONSIDERED THE QUESTION WHETH ER THERE COULD BE A CONTRIBUTORY TRUST IN LAW AS HAS BEEN CR EATED BY THE ASSESSEES IN THESE CASES. ON THE ABOVE QUESTION THE TRIBUNAL HELD AS FOLLOWS: ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 10 '44. WE WERE INITIALLY DOUBTFUL, WHETHER A PERSON W HO CONTRIBUTES TO THE TRUST IN ACCORDANCE WITH THE TER MS OF A CONTRIBUTION AGREEMENT COULD BE SAID TO BE 'BENEFIC IARY' OF THE TRUST. IT IS NO DOUBT TRUE THAT THE BENEFICIARIES A RE IDENTIFIABLE IN TERMS OF THE TRUST DEED AS PERSONS WHO CONTRIBUT E UNDER THE CONTRIBUTION AGREEMENT. BUT CAN THE BENEFICIARIES B E MADE TO CONTRIBUTE TO THE TRUST? BENEFICIARIES ARE GENERALL Y RECIPIENTS OF BENEFITS UNDER THE DEED OF TRUST. CAN THE TRUST HOL D THE MONEY SO CONTRIBUTED IN TRUST FOR THE CONTRIBUTORS AND CA N SUCH CONTRIBUTORS BE CALLED 'BENEFICIARIES'? IT APPEARED TO US TO BE A VENTURE UNDERTAKEN BY THE TRUST, AUTHOR OF THE TRUS T AND THE IDENTIFIED BENEFICIARY AT THE TIME OF CREATION OF T HE TRUST WHO HAPPENS TO BE THE BENEFICIARY AND THE INVESTMENT MA NAGER TO WHOM WITHOUT ANY OPTION THE MANAGEMENT OF THE TRUST FUND HAD TO BE ENTRUSTED. IT IS LIKE ANY OTHER FORM OF B USINESS ORGANISATION MOBILISING FUNDS FOR INVESTMENTS AND P ROMISING RETURNS TO THE CONTRIBUTORS. CAN SUCH OBJECTIVE BE ACHIEVED BY FORMING A TRUST? 45. SIMILAR QUESTIONS AROSE FOR CONSIDERATION BEFOR E THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF ADVANC E RULING P. NO. 10 OF 1996, IN RE 1997] 224 ITR 473 (AAR) . WE NEED TO LOOK AT THE FACTS OF THE SAID CASE BEFORE WE SET OUT THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS. AN AMERICAN C OMPANY IN COLLABORATION WITH AN INDIAN FINANCIAL SERVICES COM PANY PROPOSED TO SET UP ANOTHER FUND. FOR THIS PURPOSE A TRUST WAS CREATED WHEREBY THE INDIAN FINANCIAL SERVICES COMPA NY WAS THE AUTHOR OF THE TRUST AND ANOTHER INDIAN TRUST CO MPANY WAS APPOINTED AS TRUSTEE. THE FUNDS OF THE TRUST WERE T O BE INVESTED IN INDIAN COMPANIES AND PROJECTS IN INDIA. THE INDIAN FINANCIAL SERVICE COMPANY WAS TO ACT AS THE PRINCIP AL INVESTMENT ADVISER IN INDIA TO THE TRUST UNDER AN A DVISORY ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 11 AGREEMENT. BY AN INDENTURE OF TRUST, THE INDIAN FIN ANCIAL SERVICE COMPANY MADE AN INITIAL SETTLEMENT OF RS. 1 LAKH ON THE TRUSTEES ON TRUST. THIS ALONG WITH CONTRIBUTIONS TH AT MAY BE MADE TO THE TRUST FUND BY OTHERS IS REFERRED TO AS 'CONTRIBUTION FUND'. THE INDIAN FINANCIAL SERVICES COMPANY WAS TH E ONLY CONTRIBUTOR AND ALSO THE ONLY BENEFICIARY UNDER THE TRUST DEED. CLAUSE 7 OF THE TRUST DEED CONTAINS A PROVISION TO THE FOLLOWING EFFECT: 'POWER OF ADDITION 7. (A) THE TRUSTEE SHALL HAVE THE POWER AT ANY TIME OR TIMES DURING THE TRUST PERIOD TO ADD AS BENEFICIARIES SUC H ONE OR MORE PERSONS OR CLASS OF PERSONS AS THE TRUSTEE SHA LL IN THEIR ABSOLUTE DISCRETION DETERMINE. (B) ANY SUCH ADDITION SHALL BE MADE BY DEED SIGNED BY THE TRUSTEE AND: (I) NAMING OR DESCRIBING THE PERSON OR PERSONS OR C LASS OF PERSONS TO BE ADDED AS BENEFICIARIES ; (II) SPECIFYING THE DATE (NOT BEING EARLIER THAN TH E DATE OF THE DEED BUT DURING THE TRUST PERIOD) FROM WHICH SUCH PERSON OR PERSONS TO BE THEREBY ADDED AS BENEFICIARIES ; AND (C) IT IS HEREBY CLARIFIED THAT SUCH BENEFICIARIES WILL BE ENTITLED TO ONLY SUCH SHARE THAT IS IN PROPORTION TO THE CONTRIBUTIO N MADE BY THEM AND IN ACCORDANCE WITH THE CONTRIBUTION AGREEMENT.' 46. ON THE ABOVE FACTS, WHICH ARE ON PAR WITH THE F ACTS OF THE PRESENT CASE BEFORE US, THE AUTHORITY FOR ADVANCE RULINGS H ELD AS FOLLOWS (PAGE 487): ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 12 'AT THE TIME OF HEARING, A DOUBT WAS EXPRESSED BY T HE AUTHORITY AS TO HOW FAR A PROVISION CONFERRING AN ABSOLUTE DI SCRETION ON THE TRUSTEES TO ADD NAMES OF BENEFICIARIES TO THE T RUST WOULD BE JUSTIFIED IN LAW. THOUGH THE AUTHORISED REPRESENTAT IVE OF THE APPLICANT (AR) CONTENDED THAT THIS CLAUSE WAS PERFE CTLY IN ORDER (CITING O. P. AGARWALLA ON TRUST, PAGE 220-2) , HE ALSO EXPRESSED HIS WILLINGNESS TO MODIFY CLAUSE 7(A) AS FOLLOWS IN ORDER TO OBVIATE ANY KIND OF OBJECTION : '7. (A) THE TRUSTEE SHALL DURING THE TRUST PERIOD, HAVE THE POWER AT THEIR DISCRETION TO ADMIT AS BENEFICIARY ANY INS TITUTIONAL INVESTOR WHICH AGREES TO ENTER INTO A CONTRIBUTION AGREEMENT.' AND, CONSEQUENT ON THE ABOVE, TO INSERT A DEFINITIO N OF THE EXPRESSION 'INSTITUTIONAL INVESTOR' IN CLAUSE 1 TO THE FOLLOWING EFFECT: '(1) 'INSTITUTIONAL INVESTOR' MEANS ANY ENTITY OTHE R THAN AN INDIVIDUAL, BEING A NATURAL PERSON INCLUDING BUT NO T LIMITED TO FINANCIAL INSTITUTION, COMPANY OR CORPORATION, GOVE RNMENT, STATE OR POLITICAL SUB-DIVISION OR LOCAL AUTHORITY, THAT TRUSTEES MAY CONSIDER A REPUTABLE INVESTOR.' AFTER A LITTLE DISCUSSION HE WAS WILLING ALSO TO DR OP THE LAST SEVEN WORDS WHICH WERE CONSIDERED TO BE SOMEWHAT VA GUE. ONE MAY PAUSE HERE TO CONSIDER WHETHER THERE COULD BE ANY VALID OBJECTIONS TO THE CONSTITUTION OF A TRUST IN THIS MANNER. THE AUTHORS OF THE TRUST ARE THE IC, THE INDIAN FIN ANCIAL SERVICE COMPANY AND OTHERS CONTRIBUTING TO THE TRUST BY THE DATE OF THE TRUST DEED. INDEED EVEN INSTITUTIONAL INVESTORS CON TRIBUTING TO THE TRUST, IN HELPING THE CT ACHIEVE ITS TARGET OF 50 MILLION DOLLARS CAN BE CONSIDERED AS SUPPLEMENTAL AUTHORS O F THE TRUST, THE C. A. CONSTITUTING READ WITH THE TRUST DEED, TH E INSTRUMENTS CONSTITUTING THE TRUST IN THEIR CASES. THE PURPOSES OF THE TRUST ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 13 ARE, AS STATED IN THE TD, TO INVEST THE TRUST FUNDS AND DISTRIBUTING THE PROCEEDS TO THE BENEFICIARIES. THI S IS, IN A SENSE, NOTHING MORE THAN AN ARRANGEMENT BY WHICH CE RTAIN PARTIES AGREED TO CONTRIBUTE FUNDS FOR A COMMON PUR POSE AND DIVIDE THE PROFITS AMONGST THEMSELVES. NO DOUBT THE SAME OBJECTIVE COULD BE ACHIEVED BY THE CONSTITUTION OF A FIRM OR A COMPANY BUT, EQUALLY, THERE SEEMS TO BE NO VALID OB JECTION IF THE PARTIES WISH TO DO IT IN THE FORM OF A TRUST WH ICH, UNDER THE TRUST ACT, MERELY REPRESENTS CERTAIN OBLIGATIONS AN NEXED TO THE OWNERSHIP OF PROPERTY IN THE FORM OF THE CONTRIBUTE D FUNDS. THE PURPOSES OF THE TRUST CANNOT BE SAID TO BE FORBIDDE N BY LAW OR LIKELY TO DEFEAT THE PROVISIONS OF ANY LAW OR FRAUD ULENT OR INVOLVING INJURY TO ANY PERSON OR PROPERTY OR OPPOS ED TO PUBLIC POLICY : VIDE SECTION 4 OF THE INDIAN TRUSTS ACT (2 OF 1882). IT WILL APPEAR LATER THAT, IN ENTERING INTO THE PRESEN T TRANSACTIONS, THE PARTIES TOOK INTO ACCOUNT CERTAIN DIFFICULTIES IF THE SAME TRANSACTIONS HAD BEEN PUT THROUGH THE FORMAT OF A C OMPANY AND ALSO TOOK INTO ACCOUNT CERTAIN FINANCIAL AND TA X IMPLICATIONS. BUT THESE CANNOT RENDER THE PURPOSES OF THE TRUST UNLAWFUL WITHIN THE MEANING OF THE INDIAN STATUTE. THE CLAUSE WHICH ENABLED THE TRUSTEES TO ADMIT ANY ONE AS A BE NEFICIARY, THE AUTHORITY FELT, MIGHT INTRODUCE A DEGREE OF UNC ERTAINTY REGARDING THE ELEMENT OF BENEFICIARIES UNDER THE TR UST. THE PARTIES HAVE AGREED TO MODIFY THE CLAUSE AS INDICAT ED ABOVE. THE RESULT IS THAT NOW THE TRUSTEE'S CHOICE OF BENE FICIARIES IS RESTRICTED (A) BY THE OVERALL LIMIT OF THE FUND ; ( B) ONLY TO INSTITUTIONAL INVESTORS ; AND (C) TO PERSONS WHO AG REE TO SUBSCRIBE TO THE C. A. THE CRITERIA FOR PERSONS TO BECOME BENEFICIARIES AND THE SHARES OF INCOME THEY ARE ENT ITLED TO ARE CLEARLY DEFINED IN THE DEED. THE AUTHORITY IS OF OP INION, THAT WITH THE INTRODUCTION OF THE MODIFICATIONS REFERRED TO ABOVE AND ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 14 IN THE LIGHT OF THE STATEMENT ON LAW CONTAINED IN T HE PASSAGES FROM AGARWALLA'S TRUST ACT CITED BY LEARNED COUNSEL , THERE CAN BE NO OBJECTION TO THE VALIDITY OF THE MODIFIED TRU ST DEED. (PARENTHETICALLY, HOWEVER, IT MAY BE OBSERVED THAT, IN THE DEFINITION IN CLAUSE (1) PROPOSED TO BE INSERTED, T HE WORDS 'BEING A NATURAL PERSON' APPEARS TO BE A SURPLUSAGE AND MAY BE OMITTED WITHOUT DETRACTING FROM THE MEANING OF T HE CLAUSE. BUT THIS HAS NO IMPACT ON THE VALIDITY OF THE TRUST DEED).' (EMPHASIS SUPPLIED) 47. WE AGREE WITH THE AFORESAID OBSERVATIONS OF THE AAR AND WE PROCEED FURTHER TO DECIDE THE VARIOUS ISSUES RAI SED BY THE REVENUE IN ITS APPEAL.' 18. THE TRIBUNAL THEREAFTER EXAMINED TAX IMPLICATIONS OF PRIVATE DISCRETIONARY TRUSTS AND OBSERVED THAT IT I S ONLY WHEN TRUSTEES HAVE DISCRETION ENTIRELY NOT TO DISTRIBUTE INCOME TO BENEFICIARIES THAT THE RIGOURS OF SECTION 164 OF TH E ACT AS AMENDED BY THE FINANCE ACT, 1970 WOULD BE ATTRACTED . THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRI BUNAL (PAGE 342 OF 36 ITR (TRIB)): '57. . . . THE FINANCE ACT, 1970, HAS REPLACED SECT ION 164 OF THE INCOME-TAX ACT BY A NEW SECTION. UNDER SECTION 164 AS SO REPLACED, A 'REPRESENTATIVE ASSESSEE' WHO RECEIVES INCOME FOR THE BENEFIT OF MORE THAN ONE PERSON WHOSE SHARES IN SUCH INCOME ARE INDETERMINATE OR UNKNOWN, WILL BE CHARGE ABLE TO INCOME-TAX ON SUCH INCOME AT THE FLAT RATE OF 65 PE R CENT. OR THE RATE WHICH WOULD BE APPLICABLE IF SUCH INCOME WERE THE TOTAL INCOME OF AN ASSOCIATION OF PERSONS, WHICHEVER COUR SE WOULD BE MORE BENEFICIAL TO THE REVENUE. 58. WHEN THE EXPLANATION WAS ADDED IN 1980, THE CEN TRAL BOARD OF DIRECT TAXES ISSUED THE FOLLOWING CIRCULAR (SEE [1980] ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 15 123 ITR (ST.) 159) (THE QUOTATION HAS BEEN TAKEN FR OM THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE (NO. 2) BILL, 1980 AND NOT FROM THE RELEVANT CIRCULAR, WHIC H IS CIRCULAR NO. 281 DATED SEPTEMBER 22, 1980 REPORTED IN [1981] 131 ITR (ST.) 4, THOUGH THE CIRCULAR USES SIMILAR LANGUAGE- ED.) : '49. (IV) UNDER THE EXISTING PROVISIONS, THE FLAT R ATE OF 65 PER CENT. IS NOT APPLICABLE WHERE THE BENEFICIARIES AND THEIR SHARES ARE KNOWN IN THE PREVIOUS YEAR, ALTHOUGH SUCH BENEF ICIARIES OR THEIR SHARES HAVE NOT BEEN SPECIFIED IN THE RELEVAN T INSTRUMENT OF TRUST, ORDER OF THE COURT OR WAKF DEED. THIS PRO VISION HAS BEEN MISUSED IN SOME CASES BY GIVING DISCRETION TO THE TRUSTEES TO DECIDE THE ALLOCATION OF THE INCOME EVE RY YEAR AND IN OTHER WAYS. IN SUCH A SITUATION, THE TRUSTEES AN D BENEFICIARIES ARE ABLE TO MANIPULATE THE ARRANGEMEN TS IN SUCH A MANNER THAT A DISCRETIONARY TRUST IS CONVERTED TO A SPECIFIC TRUST WHENEVER IT SUITS THEM TAX-WISE. IN ORDER TO PREVENT SUCH MANIPULATION, IT IS PROPOSED TO PROVIDE THAT UNLESS THE BENEFICIARIES AND THEIR SHARES ARE EXPRESSLY STATED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEE D, AS THE CASE MAY BE, AND ARE ASCERTAINABLE AS SUCH ON THE DATE O F SUCH ORDER, INSTRUMENT OR DEED, THE TRUST WILL BE REGARD ED AS A DISCRETIONARY TRUST AND ASSESSED ACCORDINGLY.' 59. FROM THE ABOVE EXTRACTS IT CAN BE SEEN THAT THE OBJECT OF THE AMENDMENTS TO THE PROVISION WAS ONLY THAT THE DISTR IBUTION OF THE INCOME SHOULD NOT BE ENTIRELY AT THE DISCRETION OF THE TRUSTEES AND THAT THE TRUST DEED SHOULD REGULATE TH E SHARES.' 19. ON THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 3 WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF SE CTIONS 60, 61 AND 63 OF THE ACT TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRIBUNAL HELD AS FOLLOWS (PAGE 343 OF 36 ITR (T RIB)) : ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 16 '60. HAVING NOTICED THE TAX IMPLICATIONS OF DISCRET IONARY TRUSTS, WE MAY NOW REVERT TO THE VARIOUS ISSUES RAISED BY T HE REVENUE IN THE GROUNDS OF APPEAL AND THE FACTS OF T HE PRESENT CASE. THE ISSUE RAISED IN GROUND NO. 1 IS GENERAL, CALLING FOR NO SPECIFIC ADJUDICATION. THE ISSUE RAISED BY THE REVE NUE IN GROUND NO. 2 IS WITH REGARD TO THE APPLICABILITY OF THE PROVISIONS OF SECTIONS 60, 61 AND 63 OF THE ACT TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THIS REGARD I T NEEDS TO BE CLARIFIED THAT THE ASSESSEE IN ITS REPLY, DATED DEC EMBER 15, 2010, TO THE ASSESSING OFFICER IN THE COURSE OF ASS ESSMENT PROCEEDINGS POINTED OUT THE ABOVE PROVISIONS AND SU BMITTED THAT IT IS ONLY THE BENEFICIARIES WHO HAVE TO BE AS SESSED TO TAX IN RESPECT OF INCOME ARISING FROM A REVOCABLE TRANS FER. THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT DID NO T CONSIDER THE ABOVE ARGUMENT NOR HAS HE GIVEN ANY REASONS WHY THE SAME ARE REJECTED. THE SUBMISSION MADE BY THE ASSES SEE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT HAVE BEEN ACCEPTED BY THE COMMISSIONER OF INCOME-TA X (APPEALS) BUT HE HAS NOT DISCUSSED OR GIVEN ANY REA SONS AS TO HOW THE SUBMISSIONS ARE BEING ACCEPTED. THE BASIC S CHEME OF SECTION 61 READ WITH SECTION 62 AND SECTION 63 IS A S FOLLOWS : WHERE UNDER A SETTLEMENT ANY INCOME ARISES TO THE S ETTLOR, IT HAS TO BE ASSESSED IN THE HANDS OF SETTLOR, WHETHER THE SETTLEMENT IS REVOCABLE OR IRREVOCABLE. IF UNDER A SETTLEMENT ANY INCOME ARISES TO ANY OTHER PERSON APART FROM TH E SETTLOR SUCH INCOME CAN STILL BE ASSESSED IN THE HANDS OF T HE SETTLOR PROVIDED THE SETTLEMENT IS REVOCABLE. EVEN IF A SET TLEMENT ON THE FACE OF IT IS STATED TO BE IRREVOCABLE, IF THE SAME PROVIDES FOR DIRECT OR INDIRECT RETRANSFER OF INCOME OR ASSETS O F THE SETTLEMENT TO THE SETTLOR OR GIVES THE SETTLOR A RI GHT TO RESUME ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 17 POWER DIRECTLY OR INDIRECTLY OVER SUCH INCOME OR AS SET, THE SETTLEMENT SHOULD BE DEEMED TO BE REVOCABLE. 61. IN CHAPTER X OF THE PRIVATE PLACEMENT MEMORANDU M ISSUED BY THE INVESTMENT MANAGER INVITING CONTRIBUTION FRO M INVESTORS, THE TAX CONSIDERATIONS IN MAKING INVESTMENTS AS UND ERSTOOD BY THEM HAVE BEEN SET OUT. THE CONTENTS THEREOF IN BRIEF ARE THAT THE CONTRIBUTION BY THE CONTRIBUTORS ARE AKIN TO 'REVOCABLE TRANSFER' UNDER SECTION 61 OF THE ACT READ WITH SEC TION 63 OF THE ACT AND THEREFORE INCOME ARISING FROM THE TRANSFER ARE ASSESSABLE IN THE HANDS OF THE CONTRIBUTORS. THE CO NTRIBUTORS ARE THEREFORE INFORMED THAT IN RESPECT OF THEIR PRO -RATA SHARE OF INCOME RECEIVED BY THE FUND IT IS THE CONTRIBUTORS WHO WILL BE LIABLE TO TAX AND NOT THE TRUST/FUND. THE NATURE OF INCOME THAT IS LIKELY TO ARISE FROM THE REVOCABLE TRANSFER HAS ALSO BEEN SET OUT THEREIN AND THE SAME IS REFERRED TO AS (1) DIVI DEND DECLARED BY COMPANIES WHOSE SHARES ARE HELD BY THE TRUST, AR E EXEMPT IN THE HANDS OF THE SHAREHOLDERS AND THEREFORE THE DIVIDEND EARNED BY THE TRUST FROM INVESTMENT WOULD BE EXEMPT FROM TAX AND THEREFORE THERE WOULD BE NO TAX IMPLICATIONS IN THE HANDS OF THE BENEFICIARY. (2) INTEREST ON LOANS GIVEN BY THE TRUST/FUND TO COMPANIES WOULD SUFFER TAX DEDUCTION AT SOURCE. NEVERTHELESS THE BENEFICIARIES HAVE TO DECLARE INTE REST INCOME AND PAY TAX THEREON BUT CLAIM REFUND OF TAX PAID OR CREDIT FOR TAXES ALREADY PAID. (3) GAIN ON SALE OF PORTFOLIO I NVESTMENTS WOULD BE SUBJECTED TO TAX EITHER AS LONG-TERM CAPIT AL GAIN OR SHORT-TERM CAPITAL GAIN. THERE IS ALSO A REFERENCE TO THE FACT THAT IN CASE THE GAIN ON SALE OF SECURITIES OF COMP ANIES HELD/INVESTED BY THE TRUST/FUND ARE HELD TO BE IN T HE NATURE OF BUSINESS INCOME THEN SUCH BUSINESS INCOME WOULD BE TAXABLE IN THE HANDS OF THE BENEFICIARIES AT THE RELEVANT A PPLICABLE RATES. (4) GAIN ON REDEMPTION PREMIUM OF DEBENTURES /BONDS ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 18 WILL ALSO SUFFER TAX EITHER AS LONG-TERM OR SHORT-T ERM CAPITAL GAIN DEPENDING ON THE PERIOD OF HOLDING. 62. UNDER CLAUSE 2 OF THE CONTRIBUTION AGREEMENT, T HE CONTRIBUTOR/ BENEFICIARY/INVESTOR AGREES TO CONTRIB UTE A SPECIFIED SUM TO THE TRUST/ FUND. CLAUSE 2.6 OF THE CONTRIBUTION AGREEMENT SPECIFIES THAT THE CONTRIBUTOR/INVESTOR/B ENEFICIARY SHALL NOT HAVE ANY RIGHT TO DEMAND THE RETURN OF HI S/HER/ITS FUND CONTRIBUTOR, OTHER THAN UPON DISSOLUTION OF TH E FUND. CLAUSE 2.6.2 PROVIDES THAT THE TRUSTEE MAY REFUND T HE FUND CONTRIBUTOR TO THE CONTRIBUTOR, WITHOUT INTEREST, W ITHIN A PERIOD OF THREE MONTHS FROM THE DATE HEREOF, IN THE EVENT THE MINIMUM FUND COMMITMENT IS NOT RECEIVED. CLAUSE 2.9 OF THE CONTRIBUTOR AGREEMENT ALSO LAYS DOWN THAT THE REDEMPTION OF UNI TS BY THE BENEFICIARY SHALL BE AT THE SOLE DISCRETION OF THE TRUSTEES IN CONSULTATION WITH THE INVESTMENT MANAGER. 63. IN THE LIGHT OF THE AFORESAID CLAUSES IN THE CO NTRIBUTION AGREEMENT, CAN IT BE SAID THAT TRANSFER OF FUNDS BY THE BENEFICIARY TO THE TRUST/FUND IS A REVOCABLE TRANSF ER? 64. THE ANSWER TO THE ABOVE QUESTION CANNOT BE GIVE N BY MERELY READING THE CLAUSES IN THE CONTRIBUTION AGRE EMENT ALONE. THE CONTENTION OF LEARNED COUNSEL FOR THE AS SESSEE BEFORE US WAS THAT THE CONTRIBUTION AGREEMENT HAS T O BE READ ALONG WITH THE TRUST DEED AS WELL AS THE INVESTMENT MANAGEMENT AGREEMENT AND OFFER DOCUMENT FOR PRIVATE PLACEMENT ISSUED BY THE INVESTMENT MANAGER. ARTICLE 13 OF THE TRUST DEED PROVIDES FOR TERMINATION OF THE TRUST. T HOUGH SUCH A POWER IS NOT WITH THE BENEFICIARY/TRANSFEROR, IT IS NOT THE REQUIREMENT OF SECTION 61 THAT THE POWER OF REVOCAT ION MUST BE AT THE INSTANCE OF THE BENEFICIARY/TRANSFEROR. THE POWER OF REVOCATION UNDER CLAUSE 13 OF THE DEED OF TRUST IS A GENERAL ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 19 POWER OF REVOCATION AND THE SAME WOULD BE SUFFICIEN T FOR CONSTRUING THE TRANSFER IN THE PRESENT CASE AS A RE VOCABLE TRANSFER. AS RIGHTLY CONTENDED BY LEARNED COUNSEL F OR THE ASSESSEE IT IS NOT NECESSARY THAT THE POWER OF REVO CATION SHOULD BE AT THE INSTANCE OF THE CONTRIBUTORS/BENEFICIARIES/TRANSFEROR AND IT CAN BE AT THE INSTANCE OF ANY PERSON EITHER SETTLOR, TRUSTEE, TRA NSFEREE OR THE BENEFICIARIES. PROVISIONS OF SECTION 61 OF THE ACT DO NOT CONTEMPLATE A POWER OF REVOCATION ONLY AT THE INSTA NCE OF THE TRANSFEROR. IN THIS REGARD THE RELIANCE PLACED BY L EARNED COUNSEL FOR THE ASSESSEE ON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF ADDL. CIT V. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 SUPPORT THE PLEA TAKEN BY HIM. AS RIGHTLY CONTENDED BY HIM THE EXIST ENCE OF A POWER TO REVOKE THE TRANSFER THAT HAS TO BE SEEN AN D NOT THE MANNER IN WHICH/ OR AT WHOSE INSTANCE SUCH REVOCATI ON IS BROUGHT ABOUT. 65. THE ALTERNATIVE SUBMISSION OF LEARNED COUNSEL F OR THE ASSESSEE THAT THE PROVISIONS OF SECTION 63(A) OF TH E ACT, WHICH DEEMS EXISTENCE OF POWER OF REVOCATION IN CERTAIN CIRCUMSTANCES, ARE ALSO ACCEPTABLE. IN THIS REGARD PROSPECTUS INVITING CONTRIBUTION FROM CONTRIBUTORS CLEARLY LAY DOWN IN CERTAIN CIRCUMSTANCES 75 PER CENT. OF THE CONTRIBUT ORS CAN REVOKE THEIR CONTRIBUTION TO THE FUND AT ANY POINT OF TIME AND THE TRUSTEES SHALL THEN TERMINATE THE FUND. THOUGH THE ABOVE POWER OF THE TRANSFEROR/BENEFICIARY TO REVOKE THE T RANSFER IS NOT IN THE INSTRUMENT OF TRANSFER BUT BY VIRTUE OF THE POWER CONFERRED IN A DOCUMENT BY WHICH THE INVESTMENT MAN AGER APPOINTED BY THE TRUST BY VIRTUE OF POWERS CONFERRE D UNDER THE TRUST DEED, WOULD BE SUFFICIENT TO CONCLUDE THAT TH E TRANSFEROR/BENEFICIARY HAD DEEMED POWERS OF REVOCAT ION. IN ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 20 THIS REGARD THE RELIANCE PLACED BY LEARNED COUNSEL FOR THE ASSESSEE ON THE RATIO LAID DOWN IN THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF JYOTHENDRASINHJI (SUPR A) IS SQUARELY APPLICABLE TO THE PRESENT CASE. IN THE AFO RESAID DECISION THE HON'BLE SUPREME COURT HELD THAT SECTIO N 63(1) OF THE ACT DOES NOT SAY THAT THE DEED OF TRANSFER MUST CONFER OR VEST AN UNCONDITIONAL OR AN EXCLUSIVE POWER OF REVO CATION IN THE TRANSFEROR. IT WAS FURTHER HELD THAT THE FACT THAT CONCURRENCE OF THE TRUSTEE HAD TO BE OBTAINED BY THE TRANSFEROR/SE TTLER FOR REVOCATION WILL NOT MAKE THE TRUST AN IRREVOCABLE T RANSFER. IN SUCH CIRCUMSTANCES IT MUST BE HELD THAT THE DEED CO NTAINS A PROVISION GIVING THE TRANSFEROR A RIGHT TO REASSUME POWER DIRECTLY OR INDIRECTLY OVER THE WHOLE OR ANY PART O F INCOME OR ASSETS WITHIN THE MEANING OF SECTION 63(A)(II) OF T HE ACT. 66. FOR THE REASONS GIVEN ABOVE WE HOLD THAT SECTIO N 61 READ WITH SECTION 63 OF THE ACT WHICH MANDATES THAT INCO ME ARISING TO ANY PERSON BY VIRTUE OF A REVOCABLE TRANSFER OF ASSETS SHALL BE CHARGEABLE TO INCOME-TAX AS INCOME OF THE TRANSF EROR WILL APPLY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THEREFORE THE ASSESSMENT IN THE HANDS OF THE TRANSFEREE/REPRESENTATIVE ASSESSEE WAS NOT PROPER.' 20. AS WE HAVE ALREADY MENTIONED, THE TERMS OF THE TRU ST DEED, THE CONTRIBUTION AGREEMENT AND THE MEMORANDUM OF PRIVATE PLACEMENT ARE IDENTICAL IN SUBSTANCE AND TH ERE IS NO DISPUTE ON THIS ASPECT EITHER BEFORE THE REVENUE AU THORITIES OR BEFORE THE TRIBUNAL. 21. ON THE ISSUE RAISED IN GROUNDS NOS. 4 TO 7 OF THE GROUNDS OF APPEAL IN THESE APPEALS, THE TRIBUNAL DEALT WITH IDENTICAL GROUNDS IN THE CASE OF INDIA ADVANTAGE FUND-VII (SU PRA) AND HELD AS FOLLOWS (PAGE 347 OF 36 ITR (TRIB)) : ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 21 '68. THE GENERAL RULE AS LAID DOWN IN SECTION 161(1 ) IS THAT INCOME RECEIVED BY A TRUSTEE ON BEHALF OF THE BENEF ICIARY SHALL BE ASSESSED IN THE HANDS OF THE TRUSTEE AS REPRESEN TATIVE ASSESSEE AND SUCH ASSESSMENT SHALL BE MADE AND THE TAX THEREON SHALL BE LEVIED UPON AND BE RECOVERED FROM THE REPRESENTATIVE ASSESSEE 'IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIABLE UPON THE RECOVERABLE FROM T HE PERSON REPRESENTED BY HIM'. TO THE ABOVE RULE, HOWEVER, TH REE EXCEPTIONS HAVE BEEN INCORPORATED IN THE ACT : ( A ) UNDER SECTION 161(1A), THIS RULE OF APPORTIONMENT AND DETERMINATION OF PROPORTIONATE TAX ATTRIBUTABLE TO THE BENEFICIARY WILL NOT APPLY TO ANY INCOME EARNED BY THE TRUSTEE AS PROFITS AND GAINS OF A BUSINESS. THE WHOLE OF SUCH INCOME SHALL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. A SIMILAR PROVISO OCCURS ALSO IN SECTION 164(1) RESTRICTING BENEFITS WHERE BUSINESS INCOME IS INVOLVED. (B) UNDER SECTION 164(1), IF THE BENEFICIARIES ARE NOT IDENTIFIABLE OR THE INDIVIDUAL SHARES OF THE PERSONS ON WHOSE BEHALF AND FOR WHOSE BENEFIT THE INCOME IS RECEIVABLE ARE INDETERMINATE OR UNKNOWN, SUCH INCOME, AGAIN, WILL BE TAXED AT THE 'MAXIMUM MARGINAL RATE'. ( C ) IN CERTAIN OTHER CIRCUMSTANCES, SET OUT IN THE PROVISO TO SECTION 164(1), THE RELEVANT INCOME WILL BE ASSESSABLE NOT AT THE MAXIMUM RATE BUT AT THE RATE APPLICABLE TO IT AS IF IT WERE THE TOTAL INCOM E OF AN ASSOCIATION OF PERSONS. 69. IN THE PRESENT CASE THE ASSESSING OFFICER HAS N OT INVOKED THE PROVISIONS OF SECTION 161(1A) OF THE ACT OR THE PROVISO TO SECTION 164(1) OF THE ACT AND THEREFORE, WE NEED NO T EXAMINE THOSE PROVISIONS. ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 22 AS FAR AS IDENTIFICATION OF INDIVIDUAL SHARES OF TH E SECTION 164(1) OF THE ACT WILL NOT GET ATTRACTED FOR THE RE ASON THAT THE BENEFICIARIES ARE NOT IDENTIFIABLE. 70. THE QUESTION FOR OUR CONSIDERATION THEREFORE IS REGARDING APPLICABILITY OF SECTION 164(1) OF THE ACT. THERE A RE TWO ASPECTS TO BE NOTICED IN THE ABOVE PROVISIONS. THE FIRST AS PECT IS THE IDENTIFICATION OF THE BENEFICIARIES. THE SECOND ASP ECT IS WITH REGARD TO ASCERTAINMENT OF THE SHARE OF THE BENEFIC IARIES. 71. ON THE ASPECT OF IDENTIFICATION OF THE BENEFICI ARIES, IT IS THE PLEA OF LEARNED COUNSEL FOR THE ASSESSEE THAT SO LO NG AS THE TRUST DEED GIVES THE DETAILS OF THE BENEFICIARIES A ND THE DESCRIPTION OF THE PERSON WHO IS TO BE BENEFITED, T HE BENEFICIARIES CANNOT BE SAID TO BE UNCERTAIN. THE C ENTRAL BOARD OF DIRECT TAXES, CIRCULAR NO. 281, DATED SEPT EMBER 22, 1980, WHEREIN THE CENTRAL BOARD OF DIRECT TAXES HAS EXPLAINED THE SCOPE OF SECTION 164 WITH REGARD TO S TATING THE NAME OF THE BENEFICIARIES IN THE TRUST DEED. IN THE SAID CIRCULAR THE PROVISIONS OF EXPLANATION 1 TO SECTION 164 OF T HE ACT REGARDING IDENTIFICATION OF BENEFICIARIES HAS BEEN EXPLAINED TO THE EFFECT THAT FOR IDENTIFICATION OF BENEFICIARIES IT IS NOT NECESSARY THAT THE BENEFICIARY IN THE RELEVANT PREV IOUS YEAR SHOULD BE ACTUALLY NAMED IN THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WAKF DEED, ALL THAT IS NECES SARY IS THAT THE BENEFICIARY SHOULD BE IDENTIFIABLE WITH REFEREN CE TO THE ORDER OF THE COURT OR THE INSTRUMENT OF TRUST OR WA KF DEED ON THE DATE OF SUCH ORDER, INSTRUMENT OR DEED. WE FIND THAT CLAUSE 1.1.13 OF THE TRUST DEED CLEARLY LAYS DOWN T HAT 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. ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 23 72. ON THE ASPECT OF ASCERTAINMENT OF SHARE OF THE BENEFICIARIES, WE FIND THAT ARTICLE 6.5 OF THE TRUS T DEED CLEARLY SPECIFIES THE MANNER IN WHICH THE INCOME OF THE ASS ESSEE IS TO BE DISTRIBUTED. THE SAID CLAUSE DETAILS FORMULA WIT H RESPECT TO THE SHARE OF EACH BENEFICIARY. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IT IS NOT THE REQUIREMENT OF LAW TH AT TRUST DEED SHOULD ACTUALLY PRESCRIBE THE PERCENTAGE SHARE OF T HE BENEFICIARY IN ORDER FOR THE TRUST TO BE DETERMINAT E. IT IS ENOUGH IF THE SHARES ARE CAPABLE OF BEING DETERMINE D 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 MECHAN ISM SPECIFIED IN THE TRUST DEED. THE FURTHER ASPECT THA T MAY REQUIRE CONSIDERATION IN THE PRESENT CASE IS WITH R EGARD TO THE CLAUSE IN THE TRUST DEED WHICH AUTHORISES ADDITION OF FURTHER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME IN ADDITION TO INITIAL CONTRIBUTORS. FROM THIS CLAUSE CAN IT BE SAID THAT SHARE INCOME OF THE BENEFICIARIES CANNOT BE DETERMI NED OR KNOWN FROM THE TRUST DEED. ON THE ABOVE ASPECT, WE FIND THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF ADVANC E RULING P. NO. 10 OF 1996, IN RE [ 1997] 224 ITR 473 (AAR) HAS CONSIDERED SIMILAR CLAUSE IN A TRUST DEED WITH SPEC IFIC REFERENCE TO THE PROVISIONS OF SECTION 164(1) OF TH E ACT AND HAS HELD THAT IF THE TRUST DEED SETS OUT EXPRESSLY THE MANNER IN WHICH THE BENEFICIARIES ARE TO BE ASCERTAINED AND A LSO THE SHARE TO WHICH EACH OF THEM WOULD BE ENTITLED WITHO UT AMBIGUITY, THEN IT CANNOT BE SAID THAT THE TRUST DE ED DOES NOT NAME THE BENEFICIARIES OR THAT THEIR SHARES ARE IND ETERMINATE. THE PERSONS AS WELL AS THE SHARES MUST BE CAPABLE O F BEING DEFINITELY PIN-POINTED AND ASCERTAINED ON THE DATE OF THE TRUST ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 24 DEED ITSELF WITHOUT LEAVING THESE TO BE DECIDED UPO N AT A FUTURE DATE BY A PERSON OTHER THAN THE AUTHOR EITHE R AT HIS DISCRETION OR IN A MANNER NOT ENVISAGED IN THE TRUS T DEED. EVEN IF THE TRUST DEED AUTHORISES ADDITION OF FURTH ER CONTRIBUTORS TO THE TRUST AT DIFFERENT POINTS OF TI ME, IN ADDITION TO INITIAL CONTRIBUTORS, THAN THE SAME WOULD NOT MA KE THE BENEFICIARIES UNKNOWN OR THEIR SHARE INDETERMINATE. EVEN IF THE SCHEME OF COMPUTATION OF INCOME OF BENEFICIARIE S IS COMPLICATED, IT IS NOT POSSIBLE TO SAY THAT THE SHA RE INCOME OF THE BENEFICIARIES CANNOT BE DETERMINED OR KNOWN FRO M THE TRUST DEED. IN VIEW OF THE AFORESAID DECISION OF TH E AUTHORITY FOR ADVANCE RULINGS, WITH WHICH WE RESPECTFULLY AGR EE, WE HOLD THAT THE PROVISIONS OF SECTION 164(1) OF THE A CT WOULD NOT BE ATTRACTED IN THE PRESENT CASE. WE ALSO FIND THAT THE HON'BLE MADRAS HIGH COURT IN THE CASES OF CIT V. P. SEKAR T RUST [2010] 321 ITR 305 (MAD.) AND CIT V. MANILAL BAPALAL FAMILY BENEFIT TRUST [2010] 321 ITR 322 (MAD) HAS TAKEN A VIEW THA T IDENTITY BY REFERENCE TO THE TERMS OF THE TRUST DEED IS SUFF ICIENT AND IT IS NOT NECESSARY THAT THE BENEFICIARIES SHOULD BE S PECIFICALLY NAMED IN THE DEED OF TRUST. CONSEQUENTLY GROUNDS NO S. 4 TO 7 RAISED BY THE REVENUE ARE HELD TO BE WITHOUT MERIT. ' AS WE HAVE ALREADY STATED THE TERMS OF THE TRUST DE ED ARE IDENTICAL IN ALL CASES AND THERE IS NO DISPUTE ON T HIS ASPECT. 22. ON THE ISSUES RAISED IN GROUNDS NOS. 8 AND 9 BY TH E REVENUE, THE TRIBUNAL IN THE CASE OF INDIA ADVANTAG E FUND-VII (SUPRA) HELD AS FOLLOWS (PAGE 349) : '73. IN GROUND NO. 8, THE REVENUE HAS CHALLENGED TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WHEREBY TH E COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE ASSESSEE CANNOT BE ASSESSED AS AN 'ASSOCIATION OF PERSONS'. IN GROUND ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 25 NO. 9 THE REVENUE HAS CONTENDED THAT THERE IS NO SE PARATE STATUS OF TRUST FOR MAKING ASSESSMENT ENVISAGED UND ER THE ACT. IN THIS REGARD THE DEFINITION OF PERSON UNDER SECTION 2(31) OF THE ACT WHICH DOES NOT SPECIFICALLY REFER TO 'TR UST' IS BEING HIGHLIGHTED IN THE GROUNDS RAISED BY THE REVENUE. T HESE GROUNDS CAN BE CONVENIENTLY DEALT WITH TOGETHER. 74. SECTION 2(31) OF THE ACT DEFINES THE TERM 'PERS ON'. THE DEFINITION INCLUDES 'ASSOCIATION OF PERSONS' (AOP). THERE IS NO DEFINITION OF THE EXPRESSION ASSOCIATION OF PERSONS OCCURRING IN THE 1922 ACT. BY A SERIES OF DECISIONS, THE MEANING OF THIS EXPRESSION WAS PRECISELY DEFINED AND TESTS WERE LAI D DOWN IN ORDER TO FIND OUT WHEN A CONGLOMERATE OF PERSONS CO ULD BE HELD TO BE AN ASSOCIATION OF PERSONS FOR THE PURPOS ES OF SECTION 3 OF THE 1922 ACT. WHILE INTERPRETING THIS EXPRESSION OCCURRING IN SECTION 3 OF THE INDIAN INCOME-TAX ACT , 1922, THE SUPREME COURT IN CIT V. INDIRA BALKRISHNA [1960] 39 ITR 546 HELD (PAGE 551) 'AN ASSOCIATION OF PERSONS MUST BE ONE IN WHICH TWO OR MORE PERSONS JOIN IN A COMMON PURPOSE OR COMMON ACTION, AND AS THE WORDS OCCUR IN A SECTION WHICH IMPOSES A TAX ON INCOME, THE ASSOCIATION MUST BE ON E THE OBJECT OF WHICH IS TO PRODUCE INCOME, PROFITS OR GA INS'. THE SUPREME COURT, HOWEVER, ADMINISTERED THE FOLLOWING CAUTION (PAGE 552) : 'THERE IS NO FORMULA OF UNIVERSAL APPL ICATION AS TO WHAT FACTS, HOW MANY OF THEM AND OF WHAT NATURE, AR E NECESSARY TO COME TO A CONCLUSION THAT THERE IS AN ASSOCIATION OF PERSONS WITHIN THE MEANING OF SECTION 3 ; IT MUS T DEPEND ON THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER THE CONCLUSION CAN BE DRAWN OR NOT'. TO THE ABOVE JUDICIAL EXPOSITION OF WHAT CONSTITUTES ASSOCIATION OF PERSONS, THERE HAS BEEN A STATUTORY RIDER ADDED. THE FINANCE ACT, 2002, HAS INSERTED WITH EFFECT FROM APRIL 1, 2003, AN ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 26 EXPLANATION TO CLARIFY THAT OBJECT OF DERIVING INCO ME IS NOT NECESSARY FOR ASSOCIATION OF PERSONS, BODY OF INDIV IDUALS, LOCAL AUTHORITY OR AN ARTIFICIAL JURIDICAL PERSON I N ORDER THAT SUCH ENTITY MAY COME WITHIN THE DEFINITION OF 'PERS ON' IN SECTION 2(31). IF INCOME RESULTS THAN THEY ARE LIAB LE TO BE TAXED AS ASSOCIATION OF PERSONS IF THE OTHER CONDITIONS L AID DOWN BY JUDICIAL DECISIONS ARE SATISFIED. IN THE LIGHT OF T HE ABOVE DEFINITION OF ASSOCIATION OF PERSONS, LET US EXAMIN E THE FACTS OF THE PRESENT CASE. ( I ) THE ASSESSEE IS A TRUST CONSTITUTED UNDER AN INSTRU MENT OF TRUST DATED SEPTEMBER 25, 2006. M/S. ICICI VENTURE FUNDS MANAGEMENT COMPANY LTD. (HEREINAFTER REFERRED TO AS 'SETTLOR') BY AN INDENTURE OF TRUST DATED SEPTEM BER 25, 2006, TRA NSFERRED A SUM OF RS. 10,000 TO M/S. THE WESTERN INDIA TRUSTEE AND EXECUTOR COMPANY LTD. (HEREINAFTER REFERRED AS THE 'TRUSTEE') AS INITIAL CORPUS TO BE APPLIED AND GOVERNED BY THE TERMS AND CONDITIONS OF THE INDENTURE DATED SEPTEMBER 25, 2006. THE TRUSTEE WAS EMPOWERED TO CALL FOR CONTRIBUTIONS FROM THE CONTRI BUTORS 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 ME ZZANINE INSTRUMENTS AND TO ACHIEVE COMMENSURATE RETURNS TO THE CONTRIBUTORS. THE FUND COLLECTED FROM THE CONTRIBUT ORS TOGETHER WITH THE INITIAL CORPUS WAS TO BE HANDED O VER TO THE TRUSTEES UNDER THE PROVISIONS OF THE INDIAN TRU STS ACT, 1882. THE TRUST WAS TO FACILITATE INVESTMENT B Y THE CONTRIBUTORS WHO SHOULD BE RESIDENT IN INDIA AND AC HIEVE RETURNS TO SUCH CONTRIBUTORS. THE CONTRIBUTORS TO T HE FUND ARE ITS BENEFICIARIES. ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 27 75. IT CAN THUS BE SEEN THAT THE BENEFICIARIES CONT RIBUTED THEIR MONEY TO THE ASSESSEE AND A SEPARATE AGREEMEN T WAS ENTERED INTO BETWEEN THE ASSESSEE AND EACH BENEFICI ARY. 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. THEREFO RE IT CANNOT BE SAID THAT TWO OR MORE BENEFICIARIES JOINE D IN A COMMON PURPOSE OR COMMON ACTION AND THEREFORE THE T ESTS FOR CONSIDERING THE ASSESSEE AS ASSOCIATION OF PERSONS WAS SATISFIED. THE BENEFICIARIES HAVE NOT SET UP THE TR UST. THEREFORE IT CANNOT BE SAID THAT THE BENEFICIARIES HAVE COME TOGETHER WITH THE OBJECT OF CARRYING ON INVESTMENT IN MEZZAN INE 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 ASSOCIATION OF PERSONS. GROUND NO. 8 RAISED BY THE REVENUE IS THEREFORE HELD TO BE WITHOUT ANY MERIT. 76. ANOTHER REASON ASSIGNED BY THE ASSESSING OFFICE R FOR TREATING THE STATUS OF THE ASSESSEE AS ASSOCIATION OF PERSONS WAS THAT IN THE RETURN OF INCOME FILED BY T HE 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 YE AR DID NOT CONTAIN A CLAUSE FOR FILING RETURN OF INCOME BY A 'TRUST' IN THE STATUS OTHER THAN ASSOCIATION OF PERSONS. THE C ENTRAL BOARD OF DIRECT TAXES REALISED THIS DIFFICULTY FACE D BY 'PRIVATE DISCRETIONARY TRUSTS' HAVING TOTAL INCOME EXCEEDING TEN LAKH RUPEES FACING PROBLEM IN FILING THEIR RETU RN OF INCOME ELECTRONICALLY IN CASES WHERE THEY ARE FILIN G THEIR RETURN IN THE STATUS OF AN INDIVIDUAL BECAUSE STATU S OF A ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 28 PRIVATE DISCRETIONARY TRUST HAS BEEN HELD IN LAW AS THAT OF AN 'INDIVIDUAL' GAVE INSTRUCTIONS IN CIRCULAR NO. 6 OF 2012, DATED AUGUST 3, 2012, TO THE EFFECT THAT IT WILL NO T BE MANDATORY FOR 'PRIVATE DISCRETIONARY TRUSTS', IF IT S TOTAL INCOME EXCEEDS TEN LAKH RUPEES, TO ELECTRONICALLY F URNISH THE RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13. FORM 49A WHICH WAS THE PRESCRIBED FORM OF APPLICATION FOR AL LOTMENT OF PERMANENT ACCOUNT NUMBER (PAN) ALSO DID NOT CONT AIN A SEPARATE STATUS 'TRUST' BUT CONTAINED A COLUMN 'ASS OCIATION OF PERSONS (TRUST)'. THE REVISED FORM 49A LATER NOT IFIED CONTAINS A COLUMN FOR STATUS AS 'TRUST'. THEREFORE THE ARGUMENT OF THE REVENUE THAT ALL 'TRUSTS' ARE ASSOC IATION OF PERSONS IS NOT CORRECT. IF THE CONTENTION OF THE RE VENUE AS RAISED IN GROUND NO. 9 IS ACCEPTED THAN THE PROVISI ONS OF SECTION 161(1) OF THE ACT WOULD BECOME REDUNDANT. T HE CHARGE TO TAX IN THE HANDS OF THE REPRESENTATIVE-AS SESSEE 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.' 23. ON THE ISSUE RAISED IN GROUND NO. 10, THIS TRIBUNA L IN THE CASE OF INDIA ADVANTAGE FUND-VII (SUPRA) HELD A S FOLLOWS (PAGE 352) : '77. IN GROUND NO. 10 THE REVENUE HAS RAISED ISSUE THAT INCOME HAS TO BE BROUGHT TO TAX IN THE HANDS OF THE RIGHT PERSON IN THE RIGHT STATUS. IN THIS REGARD THERE AR E CIRCULARS DATED FEBRUARY 24, 1967, DECEMBER 26, 1974 AND AUGU ST 24, 1966, ON THE ISSUE WHEREIN IT HAS BEEN OPINED T HAT ONCE THE CHOICE IS MADE BY THE DEPARTMENT TO TAX EITHER THE TRUST OR THE BENEFICIARY, IT IS NO MORE OPEN TO THE DEPAR TMENT TO GO BEHIND IT AND ASSESS THE OTHER AT THE SAME TIME. ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 29 78. IN THE CASE OF DR. DAVID JOSEPH [1995] 214 ITR 658 (KER) THE HON'BLE KERALA HIGH COURT AFTER MAKING A REFERE NCE TO THE ABOVE CIRCULARS HELD THAT ONCE A BENEFICIARY IS ASSESSED AND HIS ASSESSMENT IS COMPLETED PRIOR IN POINT OF T IME, AND HIS ASSESSMENT IS AN ELEMENT OF FINALITY, IT IS A N ATURAL CONSEQUENCE FLOWING THERE FROM THAT THE DEPARTMENT DOES NOT GET ANY PERMISSION TO GO BEHIND IT FOR THE PURP OSE OF SCRUTINISING THE PROCEDURE, FOR FINDING OUT FAULTS IN REGARD THERETO, THE SOLE OBJECT OF WHICH IS TO JUSTIFY THE SUBSEQUENT ACTION TAKEN BY THE DEPARTMENT. THESE ARE IN FACT T HE NORMAL CONSEQUENCES THAT FLOW FROM THE PRINCIPLE OF FINALITY. THIS PRINCIPLE ESPECIALLY EMERGES FROM THREE CIRCUL ARS AND HAS ESTABLISHED INTO A SETTLED PRACTICE, ANY TIME A DEVIATION THERE FROM CANNOT BE PERMITTED, EVEN ON THE GROUND OF A MISTAKE WITH REGARD TO THE MERITS OF THE SITUATION THAT RECEIVED FINALITY. SIMILAR VIEW HAS BEEN TAKEN BY T HE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF RAI SAHEB SETH GHISALAL MODI FAMILY TRUST V. CIT [1984] 149 ITR 724 (MP) AND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TR USTEES OF CHATURBHUJ RAGHAVJI TRUST V. CIT [1963] 50 ITR 693 (BOM.) . 79. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TR USTEES OF CHATURBHUJ RAGHAVJI TRUST HELD THAT UNDER SUB-SE CTION (2) OF SECTION 41, IT IS PERMISSIBLE FOR THE INCOME-TAX AUTHORITIES TO MAKE DIRECT ASSESSMENT ON THE PERSON ON WHOSE BE HALF INCOME, PROFITS AND GAINS FROM A TRUST ARE RECEIVAB LE. SECTION 41 HAVING PROVIDED FOR TWO ALTERNATIVE METH ODS, NAMELY, EITHER TO TAX THE INCOME IN THE HANDS OF TH E TRUSTEES OR DIRECTLY IN THE HANDS OF THE PERSON ON WHOSE BEH ALF THE INCOME WAS RECEIVABLE UNDER THE TRUST, AND ONE OF T HEM HAVING BEEN AVAILED OF BY THE INCOME-TAX DEPARTMENT IN ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 30 DIRECTLY ASSESSING BENEFICIARY IN RESPECT OF THE IN COME, THE OTHER WAS NO LONGER AVAILABLE TO THE DEPARTMENT. IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE OPTION WAS OF THE INCOME-TAX OFFICER WHO WAS ASSESSING THE TRUST TO DECIDE WHETHER HE WOULD ASSESS THE INCOME IN THE HA NDS OF THE TRUSTEES OR DIRECTLY IN THE HANDS OF THE BENEFI CIARY. THIS CONTENTION WAS REJECTED BY THE HON'BLE HIGH COURT W HICH HELD THAT SECTION 41 WAS A SPECIAL ENABLING PROVISI ON WHICH PERMITTED THE ASSESSMENT IN THE HANDS OF THE TRUSTE ES BUT DID NOT PRECLUDE THE DIRECT ASSESSMENT IN THE HANDS OF THE BENEFICIARIES. THERE IS NOTHING IN SECTION 41 WHICH WOULD INDICATE THAT THE CHOICE BETWEEN THE ALTERNATIVE ME THODS PROVIDED THEREIN HAS TO BE MADE ONLY AT THE TIME OF THE ASSESSMENT OF THE TRUSTEES OR THAT THE CHOICE ONLY BELONGS TO THE INCOME-TAX OFFICER WHO IS ASSESSING THE TRUST. IN CIRCULAR NO. 157, DATED DECEMBER 26, 1974 ([1975] 9 8 ITR (ST.) 41), OF THE CENTRAL BOARD OF DIRECT TAXES THE CENTRAL BOARD OF DIRECT TAXES HAS CLARIFIED ON ASSESSMENT O F TRUST WHERE SHARE OF BENEFICIARIES ARE UNKNOWN. IT HAS BE EN CLARIFIED THEREIN THAT THE INCOME-TAX OFFICER SHOUL D AT THE TIME OF RAISING THE INITIAL ASSESSMENT EITHER OF TH E TRUST OR THE BENEFICIARIES ADOPT A COURSE BENEFICIAL TO THE REVENUE. HAVING EXERCISED HIS OPTION ONCE, IT WILL NOT BE OP EN TO THE INCOME-TAX OFFICER TO ASSESS THE SAME INCOME FOR TH AT ASSESSMENT YEAR IN THE HANDS OF THE OTHER PERSON (I .E., THE BENEFICIARY OR THE TRUSTEE). IN THE CENTRAL BOARD O F DIRECT TAXES CIRCULAR NO. 13 OF 2014, DATED JULY 28, 2014 ([2014] 366 ITR (ST.) 2) THE BOARD HAS HOWEVER GIVEN INSTRU CTIONS THAT AS PER THE SEBI (ALTERNATIVE INVESTMENT FUNDS) REGULATIONS, 2012, FUNDS WHICH ARE NOT VENTURE CAPI TAL FUNDS AND WHICH ARE NON-CHARITABLE TRUSTS WHERE THE ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 31 INVESTORS NAME AND BENEFICIAL INTEREST ARE NOT EXPL ICITLY KNOWN ON THE DATE OF ITS CREATION-SUCH INFORMATION BECOMING AVAILABLE ONLY WHEN THE FUNDS STARTS ACCEPTING CONT RIBUTION FROM THE INVESTORS, HAVE TO BE TREATED AS FALLING W ITHIN SECTION 164(1) OF THE ACT AND THE FUND SHOULD BE TA XED IN RESPECT OF THE INCOME RECEIVED ON BEHALF OF THE BEN EFICIARIES AT THE MAXIMUM MARGINAL RATE. 80. THE RELIANCE PLACED ON THE AFORESAID CIRCULAR, IN OUR VIEW, WILL NOT BE OF ANY USE FOR THE REASON THAT TH E SAID CIRCULAR WAS NOT IN FORCE AT THE RELEVANT ASSESSMEN T YEAR WHEN THE ASSESSMENT WAS MADE BY THE ASSESSING OFFIC ER ON THE PRESENT 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 (INDI A) LTD. V. W. HASAN,CIT [2006] 280 ITR 136 (BOM) . THE DECISION OF THE HON'BLE SUPREME IN THE CASE OF CH. ATCHAIAH [1996] 218 ITR 239 (SC) ON WHICH THE ASSESSING OFFICER 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 A SSOCIATION OF PERSONS WAS NOT DISPUTED BUT IT WAS ARGUED THAT THE INCOME-TAX OFFICER HAD OPTION TO ASSESS EITHER THE ASSOCIATION OF PERSONS OR THE INDIVIDUAL MEMBER OF THE ASSOCIATION OF PERSONS. THE HON'BLE SUPREME COURT H ELD THAT UNLIKE UNDER SECTION 3 OF THE 1922 ACT, THE INCOME- TAX OFFICER DID NOT HAVE AN OPTION UNDER SECTION 4 OF T HE INCOME- TAX ACT, 1961, TO ASSESS EITHER THE ASSOCIATION OF PERSONS OR THE INDIVIDUAL MEMBERS THEREOF. IF THE INCOME-TAX O FFICER HAS ASSESSED A WRONG PERSON, SAY INDIVIDUAL INSTEAD OF ASSOCIATION OF PERSONS, HE IS NOT PRECLUDED, IN CONTRADISTINCTION TO THE 1922 ACT, TO SEEK TO ASSES S THE RIGHT ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 32 PERSON UNDER THE 1961 ACT. THE HON'BLE COURT MADE I T CLEAR THAT WHEREVER SUCH ON OPTION IS GIVEN UNDER THE 196 1 ACT, IT HAS BEEN SPECIFICALLY PROVIDED, AS IN SECTION 183 A ND THAT UNDER THE 1961 ACT, TAX HAS TO BE LEVIED ON THE RIG HT PERSON, IRRESPECTIVE OF BENEFIT TO THE REVENUE. IN THE PRES ENT 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. SECTION 161(1) BY IMPLICATION PERMITS ASS ESSMENT OF EITHER THE BENEFICIARY OR THE TRUSTEE. WHEN THE TRUSTEE IS ASSESSED AS REPRESENTATIVE-ASSESSEE IN RESPECT OF I NCOME RECEIVED ON BEHALF OF THE BENEFICIARY, THE SECTION PROVIDES THAT TAX SHALL BE LEVIED UPON AND RECOVERED FROM HI M IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD BE LEVIAB LE UPON AND RECOVERABLE FROM THE PERSON REPRESENTED BY HIM. IN OUR VIEW, THEREFORE, THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF CH. ATCHAIAH [1996] 218 ITR 239 (SC) WI LL NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE IN THE PRESENT CASE.' 24. FOLLOWING THE DECISION RENDERED BY THIS TRIBUNAL I N THE CASE OF INDIA ADVANTAGE FUND-VII (SUPRA) WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) A ND DISMISS THE THREE APPEALS, VIZ., I.T.A. NO. 177/BAN G/12, I.T.A. NO. 179/BANG/12 AND I.T.A. NO. 475/BANG/13. 5. SINCE NO DIFFERENCE IN FACTS WOULD BE POINTED OU T BY THE LD. DR OF THE REVENUE, WE FIND NO REASON TO TAKE A CONTRARY V IEW IN THE PRESENT CASES AND THEREFORE, RESPECTFULLY FOLLOWING THESE TRIBUNA L ORDERS CITED BY THE LD. COUNSEL FOR THE ASSESSEE AS NOTED ABOVE, WE DECLINE TO INTERFERE WITH THE ORDERS OF THE LD. CIT(A). ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 33 6. IN THE RESULT, ALL THE THIRTEEN APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (SUNIL KUMAR YADAV) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER BANGALORE: D A T E D : 27.07.2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE ITA NOS.505(B)/13, 533-535(B)/14, 633- 638(B)/13, 697(B)/15 & 836-838(BANG)2013 34 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO. 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SECTION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER