The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the income of a revocable trust is taxable in the hands of the contributors.
The assessee has been created under the guidelines of the Reserve Bank of India for fast recovery of Non-Performing Assets of the Banks/FIs and principally derived income from Securitization/Reconstruction of Asset. The claim of the assessee is, it is a pass through entity (Trust) and the income is not taxable in its hands. However, the Assessing Officer treated assessee as an Association of Persons (AOP) and taxed the income in the hands of the assessee.
Before the Tribunal, the assessee relied on the decision of the ITAT Mumbai Bench in the case of ITO v. M/s. Scheme A1 of ARCIL CPS 002 XI Trust in ITA.No. 2293/Mum/2018 dated 10.09.2020 and submitted that the purpose to establish the Trust are exactly same, no change in the trust deed clauses as well.
However, the department submitted that the assessee is only a pass thru entity under “SARFAESI Act”. According to them, trust settlers and beneficiaries are same persons. They submitted that it is the modus operandi of the assessee to generate profit. It is a colorable devise to evade tax.
After considering arguments from both sides, the Tribunal bench consists of Shri S. Rifaur Rahman, Accountant Member and Shri Amarjit Singh, Judicial Member has held that that Ld.CIT(A) has dealt with the issue in detail and gave a clear finding that assessee is a revocable trust and not an AOP. In view of the provisions of section 61, 62 and 63 of the Act, it was held that income is not taxable in the hands of the assessee but the same is taxable in the hands of the contributors.
Deciding the issue in favour of the assessee, the Tribunal held that “Respectfully following the above said Tribunal decision, we are in agreement with the finding of the Ld.CIT(A) and we do not find any infirmity to interfere with the finding of the Ld.CIT(A). Accordingly, grounds filed by the revenue are dismissed.”
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