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"1. Whereas in the case of the trust, settlor, contributor and beneficiaries, all have to be independent and distinct. In the case of the assessee, the contributors are the beneficiaries themselves, therefore, the ITO, 21(3)(2) Vs. Scheme A1 of ARCIL CPS 002 XI Trust 10 assessee cannot be treated as a trust, but as an AOP having members in the form of QIBs and financial institution.

(i) On a perusal of the records, we find that the A.O had observed, that in a trust the three constituents i.e settlor, contributors and beneficiaries should be independent and distinct, whereas in the instant case the contributors were themselves the beneficiaries. Accordingly, the A.O held a conviction that the assessee had created a smokescreen in the name of trust with an ulterior motive to evade taxes. Rebutting the aforesaid view of the A.O, we find that the CIT(A) had observed as under:

(b) with the permission of a principal civil court of original jurisdiction, by or on behalf of a minor, but subject in each case to the law for the time being in force as to the circumstances and extent in and to which the author of the trust may dispose of the trust property.

8. 4 From t he above, it is clear t hat there is no prohibition in the Trust Act on t he settlor becoming benef iciary. Every person capable of holding propert y may be a beneficiary. A person who transfers the asset into trust is settlor and a person can become settlor if he is competent to contract. Hence, the AO is wrong in holding that the appellant trust is not a valid trust since contributors and beneficiaries are the same. In my view, all the necessary ingredients for the formation and existence of the trust have been fulfilled and all the documents on record and processes being followed as per RBI guidelines cannot be disregarded. According to the AO, the trust is not a valid trust since the acquisition of financial assets and creat ion of trust are only a facade for evasion of taxes. If the argument of the AO is accepted that the trust is not valid and the whole process of acquisition of NPAs is a falsity, then it would imply that the trust does not exist. If the trust does not exist, what is the legal sanction to treat the trust as AOP? In such a situation, only transaction that subsists will be direct investment by the benef iciaries in the f inancial assets and theref ore t he question of assessi ng t he appellant trust as AOP or any other head of income is out of question.

8.5 In this regard, I find that the reliance of the appellant on the decision of the Bangalore ITAT in DCIT vs India Advantage Fund-VII (supra) is in order. Considering the totality of the facts and the circumstances of the issue involved, it is held that the appellant Trust is a valid Trust."

We have given a thoughtful consideration to the aforesaid observations of the CIT(A), and find ourselves to be in agreement with the view therein taken by him. As observed by the CIT(A), as per Sec. 9 of the Indian Trust Act, 1882, there is no prohibition on the settlor in becoming a beneficiary of the trust. In fact, as provided in Sec. 9 of the Indian Trust Act, 1882, every person capable of holding property may be a beneficiary of the trust. Further, as per Sec. 7 of the Indian Trust Act, 1882, any person competent to contract can become a settlor of the trust. In the backdrop of our aforesaid observations we concur with the CIT(A) that the observations of the A.O that the assessee trust was not a valid trust, for the reason, that its contributors and beneficiaries were the same, clearly militates ITO, 21(3)(2) Vs. Scheme A1 of ARCIL CPS 002 XI Trust 13 against the express provisions of the Indian Trust Act, 1882, and thus, cannot be accepted. As a matter of fact, we find that as observed by the CIT(A), all the necessary ingredients for the formation and existence of the trust had been fulfilled, and the RBI guidelines had duly been followed by the assessee trust. Interestingly, we find that in case the claim of the A.O that the assessee is not a valid trust and its creation was only a façade for evasion of taxes was to be accepted, then it would be imply that the trust does not exist at all. If that be so, then we concur with the CIT(A) that there would be no legal sanction to treat the trust as an AOP, as had been advocated by the A.O. Under such a situation, the only transaction that would subsist will be the direct investment by the beneficiaries in the financial assets, and therefore, the question of assessing the assessee trust as an AOP or under any other head of income would be totally out of question. Accordingly, in the backdrop of our aforesaid observations, we are of the considered view that the CIT(A) had rightly dislodged the aforesaid view of the A.O, and in the totality of the facts had correctly observed that the assessee is a valid trust.