Case: Axis Mutual Fund Through Its Trustee Axis Mutual Fund Trustee Company Limited Vs. The State of Maharashtra Through The Government Pleader High Court &amp; Others

2. The facts and circumstances in which these orders are challenged, are briefly set outBy the Deed of Trust dated 27.06.2009 made by and between Axis Bank Limited, a settlor, and Axis Mutual Fund Trustee Company Limited, trustee, an irrevocable trust/trusts called Axis Mutual Fund was created.4. Axis Mutual Fund Trustee Company Limited (Trustee Company), incorporated under the provisions of the Companies Act, 1956, was approved by Securities and Exchange Board of India (SEBI) to act as a Trustee of the various scheme(s) of the Axis Mutual Fund.5. Axis Asset Management Company Limited (Axis AMC), incorporated under the provisions of the Companies Act, 1956, was approved by SEBI to act as the Asset Management Company for the scheme(s) of the Axis Mutual Fund.6. By the Deed of Trust dated 27th June, 2009, the settlor,declared and agreed that the Trustee Company shall manage the mutual fund in accordance with the applicable regulations. Further, as per para 6.1.1 of the Deed of Trust dated 27th June, 2009, the Trustee Company is allowed to float one or more schemes for the issue of units to be subscribed by the public.7. The responsibility for the daily operations of the scheme(s) of Axis Mutual Fund has been delegated to the Axis AMC through an investment Management Agreement dated 27th June, 2009 executed between the Trustee Company and Axis AMC. As enumerated in Clause 3 of this Agreement dated 27th June, 2009, the delegated responsibilities, inter alia, include the maintenance of accounts and records, evaluation of investment operations, carrying out credit assessments in relation to proposes investments.It is undisputed fact that the Petitioner has maintained separate books of accounts and bank accounts for each fund in compliance of aforesaid regulations of SEBI.12. The Gold ETF Scheme is anmutual fund scheme that invests money collected from investors in gold. These are passively managed funds and are designed to provide returns that would closely track the returns from physical gold in the spot market. The units of these ETFs can be bought or sold on abasis at the stock exchange in which it is listed.13. The scheme entails investment in physical gold with a view to track the domestic spot price of gold as closely as possible. This provides the investor with an option to invest in gold without taking physical delivery of the gold. The investor can choose to redeem the value of his investment either in cash or in the form of gold.14. Axis AMC has, in terms of the Deed of Trust dated 27the June, 2009, floated the Axis Gold ETF scheme. As per the terms of the scheme, Axis AMC has to purchase and sell gold based on subscription/redemption requests received from investors. As the purchase and sale of gold is a taxable event under the MVAT Act, 2002, the petitioner is registered as a dealer under the MVAT Act, 2002.15. It is clarified that no other scheme(s)/fund(s) floated by Axis AMC in terms of the Deed of Trust dated 27th June, 2009 involves the sale or purchase of goods liable to be taxed under MVAT Act, 2002. There is no dispute between the parties in this regard.16. As per terms of the Scheme Information Document, the investment objective of the Gold ETF Scheme is to generate returns that are in line with the performance of gold. The corpus of the Scheme is to be invested in Gold Bullion of fineness (for purity) of 995 parts per 1,000 (99.5%) or higher. The value of one unit of the Scheme is termed as Net Asset Value (i.e. NAV per unit = Value/number of units). The NAV of gold ETFs is closely related to the value of gold held by the scheme. The value (price) of gold may fluctuate for several reasons and all such fluctuations will result in changes in the NAV of gold ETFs.17. As the Axis Gold ETF scheme is a passively managed scheme, transactions undertaken in the scheme can broadly be classified asCreation of units against Cash;(b) Creation of units against Gold;(c) Redemption of units against Cash;(d) Redemption of units against Gold;18. A copy of the process flow for each of the above listed transactions is annexed to the petition as Exhibit D. Sample copies of the documents for the creation of units against cash is annexed to the petition as Exhibit E. Sample copies of the documents for creation of units against gold is also annexed to the petition as Exhbit F. Sample copies of the documents for redemption of units against cash is annexed to the petition as Exhibit G and the sample copies of the documents for redemption of units against gold is also annexed as Exhibit H.In order to verify correctness of the claim of refund, notice dated 1st June, 2015 was issued by the Deputy Commissioner of Sales Tax (assessing authority). During the course of assessment proceedings, the petitioner has submitted the followingNo.SubmissionExhibits1Annual Report, trustee Report, Independent Auditors Report and Financial Statement for all 35 individual funds/scheme before Assessing Authority. These reports are for each of the 35 individual funds/scheme. When filed as a single compilation/document, it is called as an annual report in the mutual fund industry.2Independent Auditors report and Financial statement for Axis Gold ETF SchemeK3Consolidated document integrating/containing summation of receipts for each of the 26 individual funds/schemesL4Various documents viz. Sale/purchase statement, proof of receipt of Gold when purchased, Inventory details, bank book, fixed assets details, Misc. IncomeDuring the course of assessment, the assessing authority has alleged that the petitioner is not eligible to claim any input tax credit as the goods purchased by the petitioner on which input tax credit is claimed are not resold within a period of six months from the date of purchase. Such allegation was raised based on the special provision contained in Rule 53(6)(b) of the MVAT Rules, 2005.24. Despite all the facts being narrated and the records placed before the assessing officer, he passed an assessment order dated 31st July, 2015 rejecting the entire claim of input tax credit under Rule 53(6)(b) of the MVAT Rules, 2005. Consequently, the tax demand of Rs.3,10,79,343/along with interest of Rs.1,08,77,770/and penalty of Rs.3,10,79,343/was levied on the petitioner. A copy of the assessment order dated 31st July, 2015 is marked as Exhibit N. Aggrieved thereby, an appeal was filed, but the first appellate authority allowed the appeal partially by confirming theof input tax credit under Rule 53(6)(b) of the MVAT Rules, 2005 and interest under section 30(3) of the MVAT Rules, 2002. However, he dropped the penalty. Copy of this order dated 29th March, 2017 is annexed to the petition as Exhibit R. Thereafter, an appeal was preferred to the tribunal and an application for stay was made and an order of part payment was passed on 26th September, 2017. A rectification application was filed, which too has been dismissed by the order dated 7th November, 2017. Now, even the pending appeal before the tribunal is decided on 11th April, 2018. Then, it is claimed that an appeal has been filed by the UTI Mutual Fund being MVAT Appeal No. 18 of 2016, which is admitted. Placing reliance upon the same, it is urged that even this writ petition deserves to be allowed.

Court's reasoning:
34. In the appeal before the tribunal, various grounds were raised, but what we essentially find is that in the stay application and at the final arguments, an attempt was made to point out that independentis maintained by the petitioner in respect of each scheme. The exemption from payment of income tax as per section 10(23(d) of the Income Tax Act, 1961 was pointed out. The tribunal held that in the case of M/s. Religare Mutual Fund vs. The State of Maharashtra (VAT Second Appeal No. 138 of 2013), decided on 27th April, 2016 it has already taken a view that an assessee of this nature is not entitled to claim input tax credit in respect of gold, which is not sold within six months from the date of purchase. Hence, there is no reason to take a different view. That is how it directed payment of basic tax amount of Rs.3,10,79,343/2. We are afraid, we cannot accept this argument and for more than one reason. A careful perusal of the Deed of Trust would denote that the settlor is desirous of establishing a mutual fund to be called as Axis Mutual Fund as part of mutual fund business for investment in a scheme, as may be permitted under the applicable laws and for providing facilities for participation by subscribers and holders of units as beneficiaries in the schemes. The trustee company Axis Mutual Fund Trust Limited has entrusted the sum of Rs.1 lakh as initial contribution towards the corpus of the mutual fund and then it is stated that the trustee company, namely, Axis Mutual Fund Trust Limited shall offer to the public the units in the schemes for making group or collective investments in accordance with and as permitted under the regulations and subject to the terms and conditions set out. It then says that at the request of the settlor, the trustee company has agreed to act as the trustee of the Mutual Fund in accordance with the terms and conditions specifically set out, as is testified by the execution by them of these presents and in accordance with the regulations and in accordance with the provisions of the Indian Trust Act, 1882. It is also intended that this Trust Deed be binding on the unit holders of the relevant schemes to the extent permissible under applicable laws. Thereafter, there are various clauses and which include investment limitations, responsibilities, obligations and rights of the trustee company, internal control of the trustee company and authority to the trustee company to enter into investment management agreement. The liability of mutual fund and other aspects are also covered by this deed. All these details were forwarded to the assessing authority and it was stated that there are letters addressed to banks and other stake holders. Before us, reliance is placed on this to urge that the petitioner purchased gold from registered dealers based on subscription request received from customers, but it does not purchase/sell any gold when units are traded on the stock exchange. Sample invoices are annexed to the petition to show that gold worth Rs.522,48,59,036/was purchased from a registered dealer for the assessing yearby the petitioner. It claimed aof the tax amount of Rs.5,17,31,276/on purchase of gold under the provisions of section 48 of the MVAT Act read with Rule 52 of the MVAT Rules. It duly adjusted thed of Rs.3,10,79,343/against its output VAT liabilities in accordance with the provisions of Rule 55 of the MVAT Rules. Consequently, the petitioner applied for refund of excess input tax credit amounting to Rs.2,06,51,993/and relied upon sample copies of the invoices for sale of gold. It also relied upon the tax liability discharged on the sale of gold by referring to the audit reports. It submitted its details, but the assessing officer was not satisfied on the ground that the goods purchased by the petitioner, on which input tax credit is claimed, are sold within a period of six months from the date of purchase. The argument was that this Rule 53(6)(b) is not applicable.43. We do not see any merit in this argument either. The entire foundation of the argument is that each trust floated by the company is a separate trust in itself and while assessing the liability of the trustee company, which is acting for and on behalf of Axis Gold ETF Scheme, only receipts from this trust/scheme are to be considered and merely because the same person acts as a trustee for different schemes will not affect the legal position that there is a separate trust for each of the schemes. The internal report for the 35 schemes has been relied upon and a consolidated document Exhibit L is referred in that regard. It is urged that the assessing authority has considered receipts on account of sale of gold in the numerator (receipts on account of sale) from these financial statements of Axis Mutual ETF. However, the assessing authority has considered total receipts of schemes in the denominator from this consolidated printout of schemes. Hence, all the authorities have considered receipts from the activities of all schemes instead of considering the receipts of Axis Mutual ETF Scheme alone. This is taken to be an erroneous approach.44. We find no merit in the argument of Mr. Sridharan in this behalf. The sheet anchor of this argument is the judgment in the case of Nizams Family Trust (supra). Nizams Family Trust was a case arising under the Income Tax Act. The Revenue preferred appeal against the common judgment of the High Court of Andhra Pradesh, because it answered the questions framed by the Honble Supreme Court in favour of the assessee. One of the questions was, whether the income arising from the Reserve Fund and the Expenses Account of the Nizams Family Trust Deed dated 10th May, 1950 can be aggregated in a single assessment for each of the assessment years6. There, the facts were that Deed of Trust dated 10th May, 1950 created a Family Trust. A corpus of nine crores in Government securities was transferred to the trustees under that deed. The corpus was notionally divided into 175 equal units. Five units were to constitute a fund called the Reserve Fund and 3.5 units were to constitute the Family Trust Expenses Account. The remaining 166.5 units were alloted to the relatives mentioned in the Schedule in the manner provided therein, the number of units allocated to each individual relative being specified there. Clause 6 of the Trust Deed creates a Reserve Fund comprising five equal units of the corpus of the Trust Fund. The trustees hold the Reserve Fund upon trust to apply the income or corpus thereof for any special, unusual unforeseen or emergency expenses for the benefit of the member of the settlors family specified in the Schedule. Additionally, if the income of the Family Trust Expenses Account is insufficient to meet the charges of collection of the income of the trust fund and the remuneration of the trustees and of the committee of management and the other costs, charges, expenses and outgoing relating to the trust, the trustees are enjoined to make good such deficit out of the income or corpus of the Reserve Fund and for that purpose, they may transfer to the Family Trust Expenses Account such sums as may be required. Then clause 7 was referred, which is in relation to 3.5 equal units of corpus of the Trust Fund granted to the Family Trust Expenses Account. For the assessment yearand the assessment years prior thereto, the incomes accruing to the Reserve Fund and the Family Trust Expenses Account were aggregated in a single assessment made on the trustee of the Nizams Family Trust. But, thereafter, the assessees appeals were allowed by the Appellate Assistant Commissioner against assessment for the years60 and the incomes of the two funds were separately assessed for the assessment years2. Thus, the assessee was described in the one case as the trustee of the Nizams Family Trust Reserve Fund and in the other as the trustee of the Nizams Family Trust Expenses Account. However, the Income Tax Officer being of the opinion that there was only one settlement under the Trust Deed, reopened the assessments for the assessment years62 under clause (a) of section 147 of the Income Tax Act, 1961 in order to assess the trustees on the combined income of the Reserve Fund and the Family Trust Expenses Account. He made separate original assessments for the assessment years6. The assessee appealed and the first appellate authority cancelled the assessment for all the years. The Revenue appealed to the Income Tax Appellate Tribunal, but the view taken by the first appellate authority was upheld by the tribunal and the appeals were dismissed. Then, the questions were referred for opinion of the High Court of Andhra Pradesh and they were answered in the negative. Hence, the Revenue appealed. That is how the primary question in the appeals before the Honble Supreme Court was whether the incomes arising from the Reserve Fund and the Family Trust Expenses Account can be assessed separately or not.45. Mr. Sridharans reliance on paragraphs 7, 8, 9 and 11 must be seen in this context. The tax was not identical to the one before us. It was a distinct tax legislation, namely, the Income Tax Act, 1961. The issue was, whether the incomes arising from the Reserve Fund and the Family Trust Expenses Account of the Nizams Family Trust can be assessed separately or must be aggregated in a single assessment. It is in this backdrop that the Trust Deed was referred and the Honble Supreme Court concluded that there may be separate funds created, but there was a notional division of the original trust fund. It is not, therefore, a case where separate trusts were created or separate heads were to constitute separate incomes. The objects of the two funds were also demarcated clearly. There is no intermingling of the funds. With all this, the settlor intended to create separate trust, is the conclusion of the High Court, which the Revenue assailed. However, bearing in mind the nature of the tax, the typical nature of the Deed of Trust, the appeals were dismissed. The court, in the context of the incomes, concluded that they cannot be aggregated in one single assessment, but must be assessed separately.46. Such is not the case before us. There is a single Deed of Trust. There may be separate schemes, but there was never any intent as is now sought to be culled out and to create separate Trust. This is not a case where separate Trusts were created and hence, the principle relied upon by Mr. Sridharan from several works on Law of Trust and to the effect that receipts from Axis Mutual Fund ETF alone have to be considered for there is formation of more than one trust by the Deed of Trust and that is permissible, has no application. This has no application here because the earlier principle and based on the case of Commissioner of Income Tax, Bombay City 1, Bombay vs. Manilal Dhanji, Bombay (1962) 44 ITR 876  ) is inapplicable. This is not a case where the settlor has created more trusts under a single Trust Deed. This is a clear case where the Deed of Trust permits floating one or more schemes. That is not equivalent to creation of separate Trusts. It is in these circumstances that the assessing officer, the first appellate authority and the tribunal all rightly concluded that theavailable under Rule 53 has to be reduced. It shall be accordingly in part or full in the event of any of the contingencies specified and to the extent specified in(6) of Rule 53. Pertinently, thehas not been disallowed in full. It is hold that in the case clearly specified of gross receipts of a dealer in any year and if from that, receipts on account of sale are less than 50% of the total receipts, then, insofar as the dealer, who is not a hotel or restaurant, theis permissible only on those purchases effected in that year where the corresponding goods are sold or resold within six months from the date of purchase. There is no creation of separate Trusts, but separate schemes under a single Trust Deed are floated.47. To our mind, therefore, none of the authorities were in any error nor their view can be termed as perverse while granting partial relief to the petitioner. We do not see how the view taken by the first appellate authority in the facts and circumstances peculiar to the petitioners case is perverse. We are of the view that the conclusion reached by the first appellate authority is imminently possible. It is evident from the same that the petitioner obtained registration under the MVAT Act. It invested in the gold and disposed it of, may be on behalf of the customers. However, it paid VAT on it and was held liable to pay interest if the payment of VAT is delayed. Hence, the first appellate authority has rightly concluded that the tax amount, together with interest is payable. He confirmed the demand to that extent. The tribunal also confirmed this view. It concurred with the assessing officer and the first appellate authority as both took a view on facts and on law, which is not perverse or vitiated by error of law apparent on the face of the record. In these circumstances, the disallowance of input tax credit under Rule 53(6)(b) was also confirmed and in our opinion, rightly.