INCOME TAX ACT, 1961

Section 143(3) Section 161(1) Section 161(1A)

Assessment - Status - Validity of trust -

Assessee trust was created by IL&FS Trust Company Ltd. (Settlor) by putting initial corpus of Rs. 500. Subsequently, the beneficiaries of the trust, i.e., seven mutual funds contributed a large amount of Rs. 300,55,82,700 and they were issued Pass Through Certificates (PTC) by the assessee for said investment. The said funds were then used for acquiring a loan transaction of Rs. 300 crores given by Yes Bank to HPCL carrying interest @ 9.18% p.a., which was acquired by the assessee at a premium of Rs. 55,82,700. As a result, the subsequent interest/principal repayments were made by HPCL directly to the assessee. The assessee earned interest income from HPCL of Rs. 3,54,62,470 for assessment year 2010-11 under consideration. However, the assessee did not offer such income to tax on contention that the beneficiaries of such income were mutual funds whose entire income was exempt under section 10(23D). As regards the income accrued in hands of assessee Trust, the assessee claims that the contributions made by the beneficiaries (seven mutual funds) represented revocable transfer and thus it was assessable in hands of the beneficiaries as per provisions of section 61 to 63. Also, the contention of assessee was that the taxability of income earned by assessee trust is governed by the provisions of section 161(1) as per which the income arisen in the hands of a determinate trust are liable to be taxed in the hands of the beneficiary. On the other hand, the AO held that the assessee was an AOP and not a Trust, hence the contention of assessee that it was falling under section 161 as a representative assessee does not have any merit. CIT(A) deleted the addition.Held: No adverse inference can be drawn of the point strenuously put forth by the revenue that the originator had been the guiding force of the securitization process. Most of the infirmities/defects pointed out in the documents by the revenue is mainly on the point that all the securitization transactions were carried out between 16-5-2008 and 20-5-2008 whereas the loan agreement was signed on 21-5-2008. The agreement between HPCL and Yes Bank was first signed on 15-5-2008, which provided that the standard format agreement will be signed. The standard format agreement was signed on 21-5-2008. All the procedures and documents related to the securitization process was carried out on 20-5-2008. The insistence of Revenue that only the standard format agreement has to be reckoned and not the agreement dated 15-5-2008 does not appear to be tenable. Therefore, it was very likely that Yes Bank had initiated the securitization process, pending signing of the standard format agreement. These are all standard documents that are signed up in such transactions. The reference to the agreement in the documents related to the securitization process needs to be understood in this perspective. Even assuming that minor infirmities exist in the documents, those can at best be characterized as procedural defects and this alone was not enough to disregard the documents totally. It was a settled principle that a legal document has to be viewed in its entirety and mistakes in some of the clauses cannot, by itself, negate the existence of the documents. Thus, assessee was a valid trust.

Followed:Co-ordinate Bench of this Tribunal in the case of Indian Corporate Loan Securitization Trust v. ITO ITA Nos. 3986 and 4343/Mum/2013, dated 17-2-2017 for assessment year 2009-10 (2017) 80 Taxmann.com 315 (Mum) : 2017 TaxPub(DT) 1130 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 61 to 63

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