ITO 23 (3)93), MUMBAI V. SME RETAIL POOL IV TRUST , MUMBAI

ITA 7966/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8177 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 26-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T S KHALSA
• Keywords: Maximum Marginal Rate; Diversion of income; Revocable transfer; Set aside
• Section: 234B; 143(2); 13; 63

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) G BENCH, MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , HON'BLE ACCOUNTANT MEMBER IT A. NO. 7966 /MUM/201 9 (A.Y: 20 09 - 10) INCOME TAX OFFICER 23(3)(3) ROOM NO. 126, 1 ST FLOOR MATRU MA NDIR, TARDEV ROAD MUMBAI 400 007 V. M/S. SME RETAIL POOL IV TRUST C - 22, G - BLOCK THE IL & FS FINANCIAL CENTRE BANDRA KURLA COMPLEX BANDRA (E), MUMBAI - 400051 PAN: AAHTS4971R (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI T.S. KHALSA DATE OF HEARING : 2 3 .06.2021 DATE OF PRONOUNCEMENT : 30 .07 .2021 O R D E R PER C.N. PRASAD (JM) 1. TH IS APPEAL IS FILED BY THE REVENUE AGAINST ORDER OF THE L EARNED COMMISSI ONER OF INCOME - TAX (APPEALS) - 32 , MUMBAI [HEREINAFTER FOR SHORT 'LD. CIT(A)] DATED 23.10.2019 FOR THE A.Y. 2009 - 10 . 2. REVENUE HAS RAISED FOLLOWING GROUNDS IN ITS APPEAL: - 2 ITA.NO. 7966/MUM/2019 (A.Y: 2009 - 10) M/S. SME RETAIL POOL IV TRUST 1. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT ASSESSEE HAS FURNISHED THE RETURN OF INCOME SPECIFYING THE STATUS OF THE ASSESSEE AS 'ANY OTHER AOP/BOI ARTIFICIAL JURIDICAL PERSON AND NOT THE TRUST.' 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE AO HAS CORRECTLY HELD THAT THE ASSESSEE IS CHANGING ITS STAND AGAIN AND AGAIN REGARDING ASSESSIBILITY OF THE INCOME IN ITS HAND.' 3. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS SHOWN INCOME TO THE TUNE OF RS.9,11,79,397/ - AND THE SAME HAS BEEN SHOWN UNDER PART A TO THE RETURN OF INCOME UNDER THE HEAD PROFIT AND LOSS ACCOUNT AS INTEREST INCOME A T RS. 9,11,79,397/ - AS THE INTEREST INCOME EARNED OR ACCRUED BY AN ASSESSEE IS NOT EXEMPT FROM TAX UNDER THE INCOME TAX ACT, 1961.' 4. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT ASSESSE E'S ACTIVITIES IS A BUSINESS ACTIVITIES AND AS PER THE OVERR IDING PROVISIONS OF SECTION 161(1A) OF THE I. T. ACT, 1961 THE INCOME EARNED BY IT IS LIABLE TO BE TAXED IN THE HANDS OF THE ASSESSEE ITSELF.' 5. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT EVEN IF THE STATUS IS HELD TO BE INVALID, THE INCO ME OF THE TRUST IS TAXABLE U/S.161(1 A) OF THE ACT.' 6. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED I N ALLOWING THE DEDUCTION OF RS. 9,11,79,397/ - WHILE COMPUTING THE TAXABLE INCOME,' 7. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED.' 8. ' THE APPELLANT CRAVES LEAVE TO ADD, DELETE, ALTER, AMEND AND MODIFY ANY OR ALL GROUNDS OF APPEAL.' 3. BRIEFLY STATED THE FACTS ARE THAT, ASSESSEE ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCE FILED RETURN OF INCOME ON 30.07.2009 DECLARING NIL INCOME FOR THE A.Y: 2009 - 10 . THE RETURN WAS PROCESSED U/S. 143(1 ) OF THE ACT ACCEPTING THE RETURN . SUBSEQUENTLY, THE RETURN WAS 3 ITA.NO. 7966/MUM/2019 (A.Y: 2009 - 10) M/S. SME RETAIL POOL IV TRUST SELECTED FOR SCRUTINY BY ISSUE OF NOTICE U/S. 143(2) OF THE ACT. DURING THE COURSE OF THE RE - ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED THAT ASSESSEE HAS FURNISHED THE RETURN OF INCOME SPECIFYING THE STATUS AS ANY OTHER AOP/BOI ARTIFICIAL JURIDICAL PERSON AND IN THE RETURN OF INCOME ASSESSEE MENTIONED ASSESSEE RECEIVED/EARNED INTEREST INCOME TO THE TUNE OF .9,11,73,397/ - AND THE SAME HAS BEEN SHOWN U NDER THE HEAD PROFIT AND LOSS ACCOUNT. ASSESSING OFFICER REQUIRED THE ASSESSEE TO PROVE THE WHY THE INTEREST EARNED BY THE ASSESSEE IS NOT LIABLE FOR TAX. IN RESPONSE ASSESSEE VIDE LETTER DATED 19.10.2011 SUBMITTED AS UNDER: - 'SME RETAIL POOL IV TRUST IS A PRIVATE TRUST WHOSE BENEFICIARY IS BAJAJ AUTO FINANCE LTD. THE SHARE OF BENEFICIARY IS DETERMINATE. BAJAJ AUTO FINANCE LTD HAS SUBSCRIBED TO THE ENTIRE PTCS IN SERIES A1 . THE INCOME OF THE TRUST BELONGS TO SINGLE BENEFICIARY. IN THE RET URN OF INCOME T HE FACT THAT INCOME IS DISTRIBUTED TO THE BENEFICIARY IS MENTIONED. ACCORDING TO US , THE PROVISIONS OF SECTION 161[1] IS APPLICABLE AS THE BENEFICIARY IS IDENTIFIED AND THEIR SHARE OF INCOME IS DETERMINATE . THEY ARE THE ENTITY WHO ARE LIABLE TO PAY TAX A S PER THE PROVISIONS OF ' INCOME TAX ACT 1961 AS THE INCOME BELONGS TO THEM. THE TRUST IS NOT IABLE TO PAY TAX. THE TRUS T HAS ONLY EARNED INTEREST INCOME' IN RESPECT OF THE INVESTMENTS MADE 'BY IT. THE SAID INCOME IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE TRUST HAS BEEN ENGAGED ONLY IN INVESTMENT ACTIVITY, AND A SPECIFIED INVESTMENT IS MADE. THE TRUST HAS NOT BORROWED ANY MONEY. THIS IS THE ONLY TRANSACTION THAT THE TRUST HAS EXECUTED. THE BENEFICIARIES HAVE MADE THE INVESTMEN TS BY SUBSCRIBING TO PTCS AND HAVE TAKEN THE RISK AND REWARD OF THE INVESTMENT MADE BY THE TRUST. THE TRUST HAS NOT UNDERTAKEN ANY RISK. WE WOULD LIKE TO CLARIFY THAT WE ARE A PRIVATE TRUST. WE ARE NOT ASSOCIATION OF PERSONS. IL & FS TRUST CO. LTD IS A TRUSTEE AND IS NOT A MEMBER OF ANY OF PERSONS. AS STATED EARLIER, THE BENEFICIARY IS BAJAJ AUTO FINANCE LTD. THE STATUS OF AOP IS DIFFERENCE FRO M THAT OF A TRUST 4 ITA.NO. 7966/MUM/2019 (A.Y: 2009 - 10) M/S. SME RETAIL POOL IV TRUST AS THE TRUST IS NOT AN AOP. THE INCOME WHICH IS ACTUALLY BELO NGING TO THE BENEFICIARY CANNOT BE TAXED IN THE HANDS OF THE TRUST TREATING IT AS AN AOP. WE. WOULD FURTHER LIKE TO CLARIFY THAT WE HAVE FILED THE RETURN IN ITR - 5 SHOWING THE STATUS AS 5. THIS IS BASED OF THE FORMAT OF THE RETURN WHEREIN CATEGORY 5 INCLUDES ANY OTHER AOP / BOP/ ARTIFICIA L JUDICIAL PERSON. PLEASE NOTE THAT AS PER THE PROVISIONS OF INCO ME TAX ACT 1961, THE CORRECT STATUS OF A PRIVATE TRUST IS AN INDIVIDUAL. PLEASE NOTE THAT THE CORRECT STATUS OF OUR TRUST SHOULD BE TREATED AS INDIVIDUAL AND NOT AN 'AOP. IN THE COMPUTATION O F INCOME ALSO THERE I S A REFERENCE TO TRUST AND DUE T O THE FORMAT OF THE RETURN THE CATEGORY IS SHOWN AS AOP. WE WOULD LIKE T O CLARIFY THAT THERE IS NO ASSOCIATION OF PERSONS. W ITH REFERENCE TO YOUR QUERY NO. 7 OF YOU R LETTER DATED 14. 7.2001, WE HAVE TO ST ATE THAT AT SR. NO. 50 OF THE RETURN OF INCOME IT IS CLEARLY MENTIONED THAT INCOME IS DISTRIBUTED TO THE BENEFICIARY. THE TRUST HAS NOT TRANSFERRED RS. 9,11, 73,397/ - TO RESERVE AND SURPLUS ACCOUNT '. 4. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE A SSESSING OFFICER TREATED ASSESSEE AS AN AOP AND ADDED THE INTEREST INCOME OF .91,17,3397/ - EARNED BY THE ASSESSEE. ON APPEAL LD.CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. AGAINST THIS ORDER OF THE LD.CIT(A) REVENUE IS IN APPEAL BEFORE US. 5. INSPITE OF ISSUE OF NOTICE NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT. THUS, WE PROCEED TO D ISPOSE OF THIS APPEAL ON HEARING LD. DR ON MERITS. 6. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND REQUESTED TO SET - ASIDE ORDER OF THE LD.CIT(A) . 5 ITA.NO. 7966/MUM/2019 (A.Y: 2009 - 10) M/S. SME RETAIL POOL IV TRUST 7. WE HAVE HEARD LD.DR , PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), WE FIND THAT THE LD. CIT (A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS IN THE ASSESSMENT ORDER AND DELETED THE ADDITION MADE BY THE ASSESSING OFFICER OBSERVING AS UNDER : - 4.3 I HAVE CONSIDERED THE AO'S ORDER, SUBMISSIONS MADE AND DETAILS FILED BY THE APPELLANT. THE GROUNDS RAISED ARE DECIDED IN LIGHT OF THE ORDER OF THE ITAT MUMBAI DATED 22.02.2017, IN APPELLANT'S OWN CASE FOR AY2010 - 11 IN ITA NO.4110 & 411 / MUM/2014 WHICH HAS. FURTHER FOLLOWED THE ORDER ITAT MUMBAI DATED 17.02.2017 IN THE CASE OF INDIA CORPORATE LOAN SECURITIZATION TRUST - 2008 SERIES 14, FOR AY2009 - 10 IN ITA NOS: 3986 & 4343/MUM/2013. 4.3.1 GROUND 1 & 2 ARE AGAI NST ASSESSING THE APPELLANT IN THE STATUS OF AOP. I FIN D THAT THE APPELLANT HAS BEEN CONSTITUTED AS A TRUST ON 14.03 . 2008 FOR THE BENEFIT OF CONTRIBUTORS, FOR THE PURPOSE OF CARRYING ON THE ACTIVITY OF PURCHASE FROM 'THE SELLERS OF THE RECEIVABLES PURSUANT TO LOAN AGREEMENTS AND RECEIVE CONTRIBUTIONS FROM THE PERSONS AS THE TRUSTE E MAY DEEM FIT AND ISSUE CERTIFICATES TO THE CONTR IBUTORS ETC. THE TRUST DEED PROVIDES FOR THE CONSTITUTION OF THE TRUST , DUTIES/POWE RS OF THE TRUSTEE, DISTRIBUTION OF FUND AND INC OME, PROVISIONS R ELATING TO CONTRIBUTOR ETC.. THE TRUSTEE HAS SIGNED AN ASSIGNMENT AGREEMENT WITH INDIABULLS FINANCIAL SERVICES LTD (INDIABULLS) TO PURCHASE THE LOAN RECEIVABLES FOR A CONSIDERATION OF RS.956,845,055/ - ON 14.03.2068. THE CONTRIBUTOR IS BAJA J. AUTO FINANCE LTD, AN NBFC, WHO HAVE CONTRIBUTED A SUM OF RS.956,845,055 - / - AGAINST, ISSUE OF 95 PTCS. THE. TRANSACTIONS REPRESENT THE SECURITIZATION OF LOANS. THE ITAT MUMBAI, IN CASE OF THE APPELLANT FOR AY2010 - 11, FOLLOWING THE LEA D CA SE OF INDIA CORPORATE LOAN SECURITIZATION TRUST - 2008 SERIES 14 AS REFERRED 'TO PARA 4.3 ABOVE, HAS HELD THAT - THE A PPELLANT IS A VALID TRUST AND NOT AN AOP. FOLLOWING THE ABOVE SAID PRECEDENTS AND CONSIDERING THAT THE FACTS REMAIN THE SAME, IT IS HELD THA T THE APPELLANT IS A TRUST AND NOT AN AOP. GROUND NO. L & 2 ARE ALLOWED AND GR OUND NO. 3, WHICH IS A WITHOUT PREJUDICE GROUND TO ASSESS THE INCOME U/S. 67A IS THEREFORE DISMISSED AS ' INFRUCTUOUS. 4.3.2 GROUND NO. 4 IS AGAINST INVOKING THE PROVISIONS OF SE CTION 161(1A) OF T HE ACT AND ASSESSING THE INCOME OF RS.9,11,73,397/ - AT 6 ITA.NO. 7966/MUM/2019 (A.Y: 2009 - 10) M/S. SME RETAIL POOL IV TRUST MAXIMUM MARGINAL RATE. GROUND NO. 5 IS A, WITHOUT PREJUDICE THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN LEVYING TAX AT THE APPLICABLE RATE WHEN THE SINGLE BENEFICIA RY HAS OFFERED THE SAID INCOME F OR TAXATION. GROUND NO. 6 IS AGAINST THE. OF THE AO THAT THE APP ELLANT HAS EMBARKED ON BUSINESS VENTURE BY RELYING ON CERTAIN FACTUALLY INCORRECT STATEMENTS AND BY RELYING ON CERTAIN IRRELEVANT CIRCUMSTANCES. GROUND NO.7 IS A GAINST THE ACTI ON OF THE AO IN NOT HOLDING THAT HAVING REGARD.TO THE RELEVANT DOCUMENTATION THE CONTRIBUTION MADE BY THE BENEFICIARY REPRESENTED REVOCABLE TRANSFERS AS CONTEMPLATED U/S . 63 OF THE INCOME TAX ACT, 196.1 AND THEREFORE IN ACCORDANCE WITH SECTION 61 'THE ENTI RE INCOME WAS ASSESSABLE IN THE HANDS OF THE BENEFICIARY. 4.3.3 THE APPELLANT HAS SUBMITTED THAT THE ITAT HAS ALREADY HELD IN ITS APPEAL FOR AY 2010 - 11 THAT THE FINDINGS OF THE COORDINATE BENCH IN THE LEAD CASE OF INDIA CORPOR ATE LOAN SECURITIZATION TRUST - 20 08 SERIES 14 WILL BE APPLICABLE IN ITS CASE. IN THIS REGARD,' I FIND THAT ON THE ISSUE OF WHETHER THE TRUST WAS A NOT A REVOCABLE TRUST AND CONTRIBUTION BY BENEFICIARIES WAS NOT A REVOCABLE TRANSFER, THE ITAT HAS HELD. IN , PARA 7.6.5 IN THE ORDER DATED 1 7.02.2017 , ASUNDER: IN VIEW OF THE DISCUSSION MADE ABOVE AND RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN THE ABOVE REFERRED DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE FUND - VU AND THE MUMBAI BENCH OF ITAT IN MILESTONE ARMY NAVY TRUST (SUPRA), WE HOLD THAT THE ASSESSEE TRUST IS A REVOCABLE TRUST AND CONTRIBUTION BY BENEFICIARIES IS A REVOCABLE TRANSFER. HAVING HELD THUS, IT FOLLOWS THAT THE INCOME SHALL BE TAXED IN THE HANDS OF THE BENEFICIARIES, I.E. T HE MUTUAL FUNDS WHO PURCHASE TH E PTCS FROM THE ASSESSEE TRUST. 4 .3.4 IT IS ALSO N OTED THAT IN THE CASE OF DCIT, CIRCLE 9(1), BANGALORE VS INDIA ADVANTAGE FUND - VII, [2014] 50 TAXMANN.COM 30, IT WAS HELD BY THE, ITAT BANGALORE THAT CASE THAT , THE POWER OF REVOCATION UNDER CLAUSE 13 OF THE DEED OF TRUST IS A GENERAL POWER OF REVOCATION AN