Securitisation Trust Revocable – Income Taxable to SR Holders | ITAT

Case Details: Income-tax Officer vs. Arcil Retail Loan Portfolio - 001- A- Trust [2026] 182 taxmann.com 849 (Mumbai-Trib.)

Judiciary and Counsel Details

• Amit Shukla, Judicial Member & Makarand Vasant Mahadeokar, Accountant Member
• Rajesh Kumar Yadav, CIT-DR for the Appellant.
• Jeet Kamdar for the Respondent.

Facts of the Case

The assessee was a securitisation trust constituted by an Asset Reconstruction Company (ARC) under the SARFAESI Act and RBI Guidelines. It filed its return of income, claiming exemption under sections 61 to 63 in the hands of Security Receipt holders.

During the proceedings, the Assessing Officer (AO) treated the assessee as neither a revocable nor a determinate trust; accordingly, he treated it as an Association of Persons (AOP) under section 2(31) and denied exemption under sections 61 to 63. On appeal, the CIT(A) deleted the additions.

The matter then reached the Mumbai Tribunal.

ITAT Held

The Tribunal held that the issue was whether the assessee-trust was liable to be assessed as an AOP and whether the trust was revocable or irrevocable for sections 61 to 63. Sections 61 to 63 form a self-contained code dealing with the taxation of income arising from revocable transfers. The legislative scheme is explicit that where the transferor retains the right to re-assume control over income or assets, such income cannot be assessed in the hands of an intermediary entity but must be taxed in the hands of the transferor.

Section 63 deliberately adopts a broad and inclusive definition of both “transfer” and “revocable transfer”. The statute does not prescribe that revocation must be unilateral, unconditional, or exercisable by an individual contributor. What is required is a contractual or legal mechanism for the re-transfer of assets or the re-assumption of power.

On a plain reading of the trust deed, Security Receipt Holders were expressly conferred a right to revoke their contributions. Upon such revocation, the entire trust fund stands re-transferred to the Security Receipt Holders or their designees in proportion to their holdings, the scheme itself stands dissolved, the trustee ceases to act, and the Security Receipts stand extinguished. These provisions clearly satisfied both limbs of section 63(a).

The AO’s contention that revocation requiring consent from a specified percentage of holders negates the bench has been expressly rejected by the coordinate bench. The statutory position was further clarified by the coordinate bench, observing that section 63 does not require that the power of revocation should be unconditional or exclusively vested in a single transferor, and that it is sufficient if the trust deed contains provisions vesting the power of revocation, even if such power is exercisable collectively or subject to specified conditions.

Further, once it was held that the trust was revocable, section 164 had no independent application. Sections 61 to 63 override section 164 in cases of revocable transfers. The AO’s attempt to apply section 164, therefore, proceeded on an incorrect legal premise. Accordingly, the assessee could not be assessed as an AOP, as the beneficiaries were identifiable and the trust was statutorily mandated under the SARFAESI Act and RBI Guidelines, and Section 164 had no application.

List of Cases Reviewed

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, dated 7-6-2021] (para 26) followed.

List of Cases Referred to

• ITO-21(3)(2), Mumbai v. Scheme A1 of ARCIL CPS 002 XI Trust [2020] 119 taxmann.com 216/[2021] 186 ITD 136 (Mumbai – Trib.) (para 9)
• ITO v. ARCIL AARF-I-1 Trust [ITA No. 7353(Mum) of 2019, dated 15-9-2021]. (para 9)
• ARCIL CPS 002 XIII Trust v. ITO [ITA No. 434(Mum) OF 2017, DATED 7-6-2021] (para 9)
• ARCIL Retail Loan Portfolio 004 BTrust v. ITO [ITAppeal No. 256 (Mum) of 2024, dated 28-5-2024] (para 9)
• ARCIL Retail Loan Portfolio 001 J Trust v. ITO [ITA No. 4199 and 2909(Mum) OF 2023, DATED 7-6-2024] (para 9)
• Indian Corporate Loan Securitisation Trust v. ITO-9 (3) (2), Mumbai [2017] 80 taxmann.com 315 (Mumbai) (para 18).