Smt. Asha Parakh, Pune V. DCIT, Cir.-2, Pune

CO 13/PUN/2011

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7727 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 6 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 06-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 24-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Question of law; Cost of acquisition
• Section: 37(1); 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 630/PN/2011 (ASSESSMENT YEAR 2007-08) DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE .. APPELLANT VS. ASHA PARAKH, 584/1, SALISBURY PARK, GULTEKADI, PUNE 411037 .. RESPONDENT PAN NO.AFBPP 0818F CO NO. 13/PN/2011 (ASSESSMENT YEAR 2007-08) ASHA PARAKH, 584/1, SALISBURY PARK, GULTEKADI, PUNE 411037 .. RESPONDENT PAN NO.AFBPP 0818F VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE .. RESPONDENT ASSESSEE BY : SRI SUNIL PATHAK DEPARTMENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 18-07-2012 DATE OF PRONOUNCEMENT : 31-08-2012 ORDER PER R.K. PANDA, AM : THE APPEAL FILED BY THE REVENUE AND CO FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 22-02-2011 OF THE CIT(A)-II , PUNE RELATING TO ASSESSMENT YEAR 2007-08. FOR THE SAKE OF CONVENIENCE THESE WE RE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE DERIVES INCOME FROM HOUSE PROPERTY, SHARE TRANSACTIONS AND DIVIDENDS. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAS TRANSACTED HEAVILY IN SHARES DIRECTLY AS WELL AS THROUGH PORTFOLIO MANAGEMENT SE RVICE (IN SHORT PMS) 2 PROVIDERS. THE INCOME EARNED THROUGH PMS PROVIDERS HAS BEEN SHOWN AS INCOME FROM CAPITAL GAINS. THE ASSESSEE HAS ALSO EARNED I NCOME FROM INVESTMENTS IN MUTUAL FUNDS. THE ASSESSEE DURING THE YEAR HAS TR ANSACTED IN SECURITIES THROUGH ENAM ASSET MANAGEMENT COMPANY PVT. LTD. THE AO ASK ED THE ASSESSEE TO FURNISH DETAILS IN RESPECT OF THE SAME. FROM THE V ARIOUS DETAILS FURNISHED BY THE ASSESSEE THE AO NOTED THAT THE ASSESSEE DURING THE YEAR HAD AGREEMENT WITH TWO PMS PROVIDERS FOR PURCHASE AND SALE OF SECURITIES I NCLUDING DERIVATIVES. 2.1 HE NOTED THAT THE AGREEMENT WITH PMS CLEARLY ST ARTS WITH ASSESSEE APPOINTING THE PMS, I.E. PORTFOLIO MANAGEMENT SERVI CE PROVIDER AS HIS AGENT TO CARRY ALL THE TRANSACTIONS IN HIS BEHALF, EG. THE C LAUSE 2 OF THE AGREEMENT WITH ENAM ASSET MANAGEMENT COMPANY LTD. READS AS UNDER : 2.01 THE CLIENT HEREBY APPOINTS THE PORTFOLIO MANAG ER FOR THE PURPOSE OF INVESTING THE FUNDS OF THE CLIENT AND MANAGING THE CLIENTS PORTFO LIO OF SECURITIES ON THE TERMS AND CONDITIONS HEREIN CONTAINED. 2.02 AS THE CLIENTS PORTFOLIO MANAGER, THE PORTFOL IO MANAGER SHALL ACT IN A FIDUCIARY CAPACITY AND AS A TRUSTEE AND AGENT OF THE CLIENTS ACCOUNT. 3. AFTER CONSIDERING THE VARIOUS ARGUMENTS ADVANCED BY THE ASSESSEE AND CONSIDERING THE FREQUENCY, VOLUME, PERIOD OF HOLDIN G OF THE SHARES, ORGANISED ACTIVITY OF THE ASSESSEE IN PURCHASE & SALE OF SHAR ES TO MAXIMISE THE PROFITS AND UTILISATION OF SALE PROCEEDS FOR FURTHER PURCHASE O F SHARES, THE AO TREATED THE INCOME FROM PURCHASE AND SALE OF SHARES AS BUSINESS INCOME FOR THE FOLLOWING REASONS AS MENTIONED AT PARA 8 OF THE AO : 8.0 CONCLUSION : AFTER CONSIDERATION OF THE SUBMISSIONS OF THE ASSES SEE AND THE LEGAL POSITION I AM OF THE VIEW THAT THE PROFITS EARNED BY THE ASSESSEE ON INV ESTMENTS MADE THROUGH PMS PROVIDERS AMOUNT TO INCOME FROM BUSINESS AND PROCESSION ON TH E BASIS OF THE FOLLOWING REASONS : 8.1 THE PMS PROVIDER HAS ACTED AS AGENT OF THE ASSE SSEE. AS ALREADY STATED ABOVE, THE AGREEMENT WITH ENAM SPECIFICALLY INCORPO RATES A CLAUSE CLARIFYING THAT THE PMS PROVIDER IS TO WORK AS AGENT OF THE ASSESSE E. THE CLAUSE READ AS AS THE CLIENTS PORTFOLIO MANAGER, THE PORTFOLIO MANAGER S HALL ACT IN A FIDUCIARY CAPACITY AND AS A TRUSTEE AND AGENT OF THE CLIENTS ACCOUNT. 3 8.2 ALL THE PURCHASES ARE IN THE NAME OF THE ASSESS EE. THE SHARES ARE TAKEN TO THE DEMAT ACCOUNT OF THE ASSESSEE ONLY AND HE IS TH E RIGHTFUL OWNER OF ALL THE SHARES PURCHASED THROUGH PMS PROVIDER. 8.3 NUMBER OF INSTANCES HAVE BEEN SEEN IN THE ASSES SEES CASE WHERE THE SHARES HAVE BEEN REPURCHASED SOME TIME AFTER THE SA LE. FOLLOWING ARE SOME OF THE INSTANCES WHERE ASSESSEE SOLD SHARES OF A PARTI CULAR COMPANY AND REPURCHASED THEM SOON AFTER. FIRST SALE REPURCHASE PMS SCRIP NO. SALE NO. REPURCHASE DATE ENAM INFOSYS 700 10-04-06 TO 17-04-06 700 12-07-06 ENAM TITAN INDUSTRIES 1600 05-04-06 TO 04-05-06 1840 19-05-06 TO 22-05-06 ENAM HINDALCO 4200 04-09-06 450 26-10-06 8.4 A LARGE NUMBER OF TRANSACTIONS THROUGH PMS WERE SHORT TERM IN NATURE AND THE MOTIVE OF PURCHASING THE SHARES WAS MAINLY THE PROFIT BOOKING BY SELLING AT HIGHER RATES AND NOT EARNING OF DIVIDENDS. 8.5 THE PMS PROVIDER CHARGES HIS FEES AS THE PERCEN TAGE OF DAILY ASSET VALUE OF HOLDING IN THE ACCOUNT OF THE CLIENT. HENCE THE Y HAVE ALWAYS BEEN INTERESTED IN SELLING THE SHARES WHEN THE MARKET GOES UP AND BUY THE SHARES AT LOWER PRICES. IN THE CASE OF ENAM THE AGREEMENT DIRECTLY REFERS TO T HE PROFIT SHARING RATIO BETWEEN THE ASSESSEE AND THE PMS PROVIDER OVER AND ABOVE TH E FIXED MANAGEMENT CHARGES OF 0.5%. THE TERMS ARE AS UNDER : A. PROFIT UPTO 15% - NIL B. PROFIT ABOVE 15% - 80.20 THE ABOVE ARRANGEMENT CLEARLY SHOWS THE BUSINESS IN TENTION OF THE ASSESSEE IN CARRYING OUT THE SHARE TRADING ACTIVITY THROUGH PMS PROVIDER. 8.6 THE ENTIRE TRANSACTIONS ARE HANDLED BY PMS PROV IDERS CARE CARRIED OUT IN A THOROUGH PROFESSIONAL MANNER. THE ORGANISED AND SYSTEMATIC APPROACHES TO TRANSACTIONS BY PMS PROVIDERS CLEARLY SHOW INTENTIO N TO MAXIMISE THE PROFITS BY INCREASING THE TURNOVER RATHER THAN TO MAKE MONEY B Y EARNING DIVIDENDS BY HOLDING THE SHARES LONG ENOUGH. 8.7 SINCE THE PMS PROVIDERS ACT AS AGENT TO THE ASS ESSEE HENCE THE WAY THEY CONDUCT THE BUSINESS DIRECTLY INDICATES THE INTENTI ONS OF THE ASSESSEE TOO. 8.8 THE VOLUME OF TRANSACTIONS AND THE DIVERSE NATU RE OF PORTFOLIO ARE ALSO INDICATIVE OF THE BUSINESS INTENTIONS. ALTERNATIVE LY SPEAKING, IF THE ASSESSEE HAS TO MAINTAIN THE SET UP SIMILAR TO THAT OF THE PMS PROV IDER THEN HE WOULD HAVE TO ENGAGE EXPERTS TO ANALYSE THE MARKET SITUATION AND FUTURE PROSPECTS. IN SUCH A CASE THE ASSESSEES ACTIVITIES WOULD NO DOUBT BE CO NSIDERED AS BUSINESS ACTIVITY. BY ENGAGING A PORTFOLIO MANAGEMENT SERVICE PROVIDER THE ASSESSEE HAS MERELY OUTSOURCED THESE ACTIVITIES TO AN AGENT TO WORK ON HIS BEHALF ON PAYMENT BASIS. THE PAYMENT IS CLEARLY RELATED TO THE PERFORMANCE A ND MOTIVATED THE PMS PROVIDERS TO TRADE FREQUENTLY TO BOOK PROFITS AS AN D WHEN POSSIBLE. 8.9 NO GUARANTEED RETURNS ARE ASSURED BY THE PMS PR OVIDERS. THE ASSESSEE HAS TO CARRY THE RISK OF INCURRING THE LOSSES IF TH E VALUE OF SHARES GOES DOWN AT THE 4 TIME OF SALE. AT THE SAME TIME THE PMS PROVIDER IS ONLY MARGINALLY AFFECTED AS HE IS CONCERNED ONLY WITH THE PERCENTAGE OF AVERAGE DA ILY VALUE OF THE PORTFOLIO. 8.10 THE WAY IN WHICH THE BUSINESS WAS CONDUCTED SP EAKS OF THE PROFESSIONALISM AND OPPORTUNISM. THE IDLE FUNDS WE RE IMMEDIATELY TRANSFERRED TO LIQUID FUNDS SO THAT THE FUNDS CONTINUOUSLY YIELDED RETURNS. 8.11 THE TOTAL NUMBER OF TRANSACTIONS UNDERTAKEN BY THE PMS PROVIDERS IN THE CASE OF ASSESSEE IS MORE THAN 150. TOTAL NUMBER OF SCRIPS IN WHICH TRANSACTIONS HAVE BEEN MADE EXCEED 40. THIS SPEAKS ABOUT THE EX TENT OF THE VOLUME OF TRANSACTIONS. 8.12 THE INTENTION OF THE ASSESSEE WAS NOT TO LOOK FOR INVESTMENT AND EARNING OF DIVIDEND. SOME OF THE SHARES TRADED BY THE ASSESSE E THROUGH PMS HAVE BEEN EXAMINED FOR THE DATES ON WHICH THE SHARES BECAME E X-DIVIDEND. THE DETAILS OF SALE/PURCHASE BY ASSESSEE AND THE RECORD DATE IN RE SPECT OF SOME COMPANIES ON TEST CHECK BASIS ARE AS UNDER : SR.NO. PMS SCRIP NAME SALE EX-DIVIDEND DATE 1 ENAM KIRLOSKAR BROS 8-12-06 1-02-07 2 ENAM INFOSYS 17-10-06 19-10-06 3 ENAM BILCARE 10-05-06 21-09-06 4 ENAM L&T 8-12-06 28-03-07 5 ENAM TITAL IND. 6-06-06 4-08-06 FROM THE ABOVE DETAILS IT CAN BE SEEN THAT THE SOLE MOTIVE BEHIND THE SHARE TRANSACTIONS WAS TO BENEFIT BY TRADING AS THE SALES HAVE BEEN JUST PRIOR TO THE DIVIDEND DATE IN NUMBER OF CASES. HENCE THE DIVIDE ND EARNING AND HOLDING OF SHARES WAS NOT THE MAIN INTENTION OF THE ASSESSEE. THE MAIN INTENTION WAS TO EARN BY QUICK TRADING. THE ASSESSEE HAS NOT SOLD THE SH ARES TO UTILISE THE SALE PROCEEDS FOR SOME PERSONAL NEEDS BUT HAS CIRCULATED THE FUND S FOR BUYING NEW SCRIP. 3.1 THE AO HELD THAT SINCE THE INCOME IS TREATED AS BUSINESS INCOME THE FEES PAID TO PMS PROVIDERS WILL BE AN ALLOWABLE EXPENDIT URE. HOWEVER, THE SAME IS NOT ALLOWABLE IF SUCH INCOME WOULD HAVE BEEN TREATED AS CAPITAL GAIN. THE AO ALSO DISALLOWED AN AMOUNT OF RS.5,79,460/- U/S.14A BEING EXPENSES RELATABLE TO EARNING DIVIDEND INCOME. 4. IN APPEAL THE LEARNED CIT(A) FOLLOWING THE DECIS ION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GOPAL PUROHIT REPORTED IN 228 CTR 582 (MUMBAI) AND VARIOUS OTHER DECISIONS RELIED ON BY THE ASSESSEE B EFORE HIM TREATED THE INCOME FROM PURCHASE AND SALE OF SHARES THROUGH PMS AS INC OME FROM SHORT TERM AND LONG TERM CAPITAL GAIN. SO FAR AS THE DISALLOWAN CE U/S.14A IS CONCERNED HE HELD THAT NO SUCH DISALLOWANCE IS CALLED FOR U/S.14A R.W .RULE 8D IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. HE 5 HOWEVER HELD THAT SINCE THE INCOME IS TREATED AS LO NG TERM CAPITAL GAIN & SHORT TERM CAPITAL GAIN, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF THE PMS FEES OF RS.28,31,619/- AND NDSL CHARGES OF RS.9,60,192/-. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING THE ASSESSEES APPEAL INSTEAD OF CONFIRMING THE ASSESSI NG OFFICERS ORDER. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN NOT APPRECIATING THAT THE GAINS OF RS. 1,17,49,017/- SH OWN AS SHORT TERM CAPITAL GAIN AND RS. 48,20,515/- SHOWN AS LONG TERM CAPITAL GAIN WAS EARNED FROM TRADING IN SHARES, AND, THEREFORE, SUCH GAINS HAD B EEN RIGHTLY ASSESSED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN NOT APPRECIATING THAT THE ASSESSEE HAD CARRIED OUT TRAN SACTIONS IN HIGH VOLUMES, FREQUENCY AND IN AN ORGANISED MANNER WHICH WOULD CL EARLY ESTABLISH THAT THE IMPUGNED ACTIVITY WAS IN THE NATURE OF BUSINESS A ND NOT INVESTMENT AS CLAIMED BY THE ASSESSEE; AND, THEREFORE, THE PROFIT S DERIVES FROM SUCH TRANSACTIONS WERE TAXABLE UNDER THE HEAD INCOME FROM BUSINESS. 5. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT THE ACTIVITIES OF THE ASSESSEE HAD ALL THE INGREDIENTS OF BUSINESS/TRADING TRANSACTIONS AS POINTED OUT BY THE ASSESSING OFFICER IN PARA 8 OF THE ASSESSMENT ORDER, SUCH AS THE CALCULATED PURCHA SES AND SALES OF SHARES WITH A VIEW TO MAXIMISING PROFITS, SHORT TERM HOLDING OF M OST SUCH SHARES, UTILISATION OF THE SALE PROCEEDS FOR PURCHASE OF FURTHER SHARES, T RANSFER OF IDLE FUNDS TO LIQUID FUNDS SO THAT THE FUNDS COULD YIELD RETURNS ETC. AN D, IN THE CIRCUMSTANCES, THE TRANSACTIONS IN QUESTION COULD BY NO MEANS BE TREAT ED AS HAVING BEEN RESORTED TO FOR EARNING DIVIDENDS. THE FACT THAT SOME SHARES W ERE SOLD BEFORE THEY BECAME EX-DIVIDEND WOULD FORTIFY THIS CONCLUSION. 6. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN HOLDING THAT THE TRANSACTIONS IN QUESTION WERE NOT IN THE NATURE OF THE ASSESSEES BUSINESS, MERELY FOR THE REASON THAT THE SAME HAD BEEN CARRIE D OUT THROUGH A DISCRETIONARY PORTFOLIO MANAGEMENT SERVICE AND ALSO IN HOLDING TH AT, AT THE MOST, THE TRANSACTIONS COULD BE CONSIDERED AS THE BUSINESS OF THE PMS PROVIDER. 7. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN COMING TO THE ABOVE ERRONEOUS CONCLUSION WITHOUT APPRECIATING THAT THE ASSESSEES AGREEMENT WITH THE PMS PROVIDED CATEGORICALLY REFER RED TO THE LATTER AS AGENT AND IT ALSO PROVIDED FOR PROFIT-SHARING BETWEEN THE ASS ESSEE AND THE PMS PROVIDER IN ADDITION TO PAYMENT OF FEES. SUCH ARRANGEMENTS OF AGENCY AND PROFIT-SHARING ARE ALIEN TO A TRANSACTION IN THE NATURE OF INVESTMENT. 8. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT EVEN IF IT IS ASSUMED, WITHOUT CONC EDING, THAT THE ASSESSEE DID NOT PARTICIPATE IN THE DAY TO DAY AFFAIRS OF TRANSACTIO NS WHICH WERE ALLEGEDLY TAKEN CARE OF BY THE PMS PROVIDER, THE SAME BY ITSELF WOU LD NOT MAKE THE ASSESSEE AN INVESTOR VIS-A-VIS THE IMPUGNED TRANSACTIONS IN AS MUCH AS THE ASSESSEE HAD 6 CONSCIOUSLY DEPLOYED FUNDS WITH THE PMS PROVIDER FO R MAXIMISING PROFIT AND HAD ALSO CONSCIOUSLY DELEGATED THE FUNCTION OF CHURNING THE SAID FUNDS TO THE PMS PROVIDER MUCH AS A CONTRACTOR DELEGATES A PART OF H IS WORK TO A SUB-CONTRACTOR. IN THE LATTER INSTANCE, IT CANNOT BE SAID THAT THE DELEGATOR CEASED TO BE IN BUSINESS VIS-A-VIS THE PORTION OF WORK SO DELEGATED. 9. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ERRED IN FAILING TO APPRECIATE THAT IF THE MOTIVE OF THE ASSESSEE WERE TO INVEST AND NOT TO TRADE IN SHARES, HE WOULD NOT HAVE GIVEN A BLANKET MANDATE T O THE PMS PROVIDER FOR BUYING AND SELLING SHARES AND, INSTEAD, WOULD HAVE RESERVED THE RIGHT OF DECISION IN RESPECT OF SUCH SHARES TO HIMSELF. THE ABSENCE OF SUCH RESERVATION OF RIGHT CLEARLY PROVES THE INTENT OF THE ASSESSEE TO TRANSA CT IN SHARES WITH A VIEW TO BOOKING PROFITS. 10. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MADE U/S .14A R.W. RULE 8D MERELY BY ROUTINELY REFERRING TO THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. AND WITHOUT A PPRECIATING THAT EVEN AS PER THE SAID DECISION, EXPENDITURE INCURRED ON IN R ELATION TO EXEMPT INCOME HAS TO BE ARRIVED AT ON A REASONABLE BASIS. IN THE CIRCUM STANCES, THE LD. COMMISSIONER OF INCOME TAX(APPEALS) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE, OTHER THAN THE DISALLOWANCE TO THE EXTENT OF RS. 1,40,371/- ATTRIB UTABLE TO THE PROPORTIONATE PART OF THE FEES PAID TO THE PMS PROVIDER, BY CONSIDERIN G THE SAME TO BE REASONABLE. 11. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGE D AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(APPEALS) MAY BE VACATED AN D THAT OF THE ASSESSING OFFICER BE RESTORED. 12. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY OR ALL THE GROUNDS OF APPEAL. 4.2. THE REVENUE HAS ALSO FILED FOLLOWING ADDITIONA L GROUNDS : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S.14A OF THE INCOME TAX ACT, 1961 R.W.R. 8D OF THE INCOME TAX RULES, 1962 INSTEAD OF HOLDING THAT NO EXPENSES REMAINED TO BE DISALLOWED BY APPLYING AFORESAID SECTION/RULE. 2. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(APPEALS) MAY BE VACATED AN D THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY OR ALL THE GROUNDS OF APPEAL. 4.3. THE ASSESSEE HAS FILED THE CO WITH THE FOLLOWI NG GROUNDS IN VIEW OF DISALLOWANCE OF PMS FEES: 1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE EX PENDITURE INCURRED IN THE FORM OF FEES AND OTHER PAYMENTS TO PORTFOLIO MANAGEMENT SER VICES (PMS) PROVIDERS WOULD NOT BE ALLOWED AS AN EXPENDITURE WHILE COMPUT ING THE CAPITAL GAINS. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT MADE TO PMS PROVIDERS WAS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER AND THEREFORE, THE CLAIM WAS ALLOWABLE. 7 3. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LEAR NED CIT(A) ERRED IN NOT APPRECIATING THAT THE AMOUNT PAID TO PMS PROVIDERS OUGHT TO HAVE BEEN REDUCED FROM THE SALE CONSIDERATION WHILE COMPUTING CAPITAL GAINS. 4. THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND , OR DELETE ANY OF THE ABOVE CROSS OBJECTIONS. 4.4 AFTER HEARING BOTH THE SIDES, THE ADDITIONAL GR OUNDS FILED BY THE REVENUE ARE ADMITTED FOR ADJUDICATION. 5. THE FIRST ISSUE RAISED IN THE GROUNDS BY THE REV ENUE RELATES TO THE ORDER OF THE CIT(A) IN TREATING THE PROFIT FROM PURCHASE AND SAL E OF SHARES AS SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AS AGAINST BUSINESS INCOME TREATED BY THE AO. 6. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECI SIONS CITED BEFORE US. WE FIND UNDER IDENTICAL FACTS & CIRCUMSTANCES THE PUNE BENC H OF THE TRIBUNAL IN THE CASE OF DCIT VS. KRA HOLDING AND TRADING PVT. LTD. (WHEREIN BOTH OF US ARE PARTIES) VIDE ITA NO. 356/PN/2011 ORDER DATED 25-07-2012 FOR ASSESSMENT YEAR 2007-08 HAS UPHELD THE ORDER OF THE CIT(A) WHEREIN GAIN ON SALE OF SHARES AND MUTUAL FUNDS WAS HELD AS SHORT TERM AND LONG TERM CAPITAL GAIN BY THE CIT(A). THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 5 OF T HE ORDER READS AS UNDER : 5. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER BOOK FILED O N BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE DECISION OF THE TRIBUNAL IN A SSESSEES OWN CASE. BOTH THE PARTIES FAIRLY CONCEDED THAT THE ISSUE STANDS COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-0 5. WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 VIDE ITA NO. 500/PN/08 OR DER DATED 31-08-2009 ALLOWED THE CLAIM OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPI TAL GAIN ON SALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS. WE FIND FOLLOWING THE S AID DECISION THE TRIBUNAL VIDE ITA NO. 1320/2008 AND ITA NO. 434/2009 ALLOWED THE CLAI M OF SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN FOR A.Y. 2005-06 AND 2006-07 . ALTHOUGH THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HON BLE HIGH COURT ON THIS ISSUE AND THE HONBLE HIGH COURT HAS ONLY ADMITTED THE APPEAL, HO WEVER NO DECISION REVERSING THE DECISION OF THE TRIBUNAL WAS FILED BEFORE US. THER EFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE AN D IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIB UNAL WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 8 6.1 DESPITE HIGH VOLUME, FREQUENCY AND ORGANISED AC TIVITY IN PURCHASE & SALE OF SHARES, PROFIT FROM SUCH PURCHASE & SALE OF SHARES IS BEING TREATED AS SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN AS THE CASE MAY BE BY THE COORDINATE BENCHES OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE DECISI ON OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT . LTD. (SUPRA) AS WELL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GOPAL PUROHIT (SUPRA) WE UPHOLD THE ORDER OF THE CIT(A) IN TREATING SUCH PRO FIT FROM PURCHASE AND SALE OF SHARES AS CAPITAL GAIN. THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE ACCORDINGLY DISMISSED. 7. THE SECOND ISSUE RAISED BY THE REVENUE AND THE G ROUNDS IN THE CO BY THE ASSESSEE RELATES TO THE ORDER OF THE CIT(A) IN DEL ETING THE DISALLOWANCE MADE BY THE AO U/S.14A READ WITH RULE 8D OTHER AND HOLDING THAT PMS FEES & NSDL CHARGES AS NOT AN ALLOWABLE EXPENDITURE FROM CAPITA L GAIN. 8. AFTER HEARING BOTH THE SIDES WE FIND THE AO NOTE D THAT THE ASSESSEE HAS EARNED DIVIDEND FROM THE ACTIVITIES OF SHARE TRANSA CTIONS IN PERSONAL ACCOUNT FROM PMS AND FROM MUTUAL FUNDS INVESTMENT. THE TOTAL DI VIDEND RECEIVED DURING THE YEAR AND CLAIMED EXEMPT WAS RS.6,36,975/-. SIMILAR LY, THE ASSESSEE HAS CLAIMED THE PROFIT ON LONG TERM CAPITAL GAIN ON MUTUAL FUND S AT RS. 1,92,21,750/- AS EXEMPT U/S.10(38) OF THE INCOME TAX ACT. THE AO DISALLOWE D AN AMOUNT OF RS.5,79,460/- BEING 0.5% OF THE AVERAGE INVESTMENT U/S.14A READ WITH RULE 8D AS EXPENDITURE FOR EARNING DIVIDEND INCOME WHICH IS EXEMPT FROM TA X. 9. IN APPEAL THE LEARNED CIT(A) DELETED SUCH DISALL OWANCE MADE U/S.14A R.W. RULE 8D OF THE I.T. RULES ON THE GROUND THAT RULE 8 D IS NOT APPLICABLE FOR A.Y. 2007-08 IN VIEW OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. (328 ITR 81). HE HOWEVER HELD THA T PAYMENT OF FEES TO PMS PROVIDERS AND NSDL CHARGES AMOUNTING TO RS.28,31,61 9/- AND RS.9,60,192/- 9 RESPECTIVELY ARE NOT ALLOWABLE EXPENDITURE FROM SUC H CAPITAL GAIN. WHILE DOING SO THE LEARNED CIT(A) RELIED ON THE DECISION OF THE MU MBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT REPOR TED IN 50 DTR 369 (MUMBAI). 9.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REV ENUE AS WELL AS THE ASSESSEE ARE IN APPEAL BEFORE US. 9.2 THE LEARNED DR HEAVILY RELIED ON THE ORDER OF T HE AO REGARDING THE DISALLOWANCE OF EXPENDITURE U/S.14A R.W. RULE 8D. SO FAR AS THE DISALLOWANCE OF FEES PAID TO THE PMS PROVIDER FROM CAPITAL GAIN THE LEARNED DR SUPPORTED THE ORDER OF THE CIT(A). HE ALSO RELIED ON THE DECISION OF T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HOMI K. BHABHA VS. ITO VIDE ITA NO. 3287/M/2009 ORDER DATED 28-09-2011 FOR THE A.Y. 2006-07 TO THE PROPOSITION THAT PORTFOLIO MANAGEMENT SERVICE FEES CANNOT BE ALLOWED AS DEDUCTION FROM SH ORT TERM AND LONG TERM CAPITAL GAIN. 9.3 THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OTH ER HAND SUBMITTED THAT THE FEES PAID TO THE PMS PROVIDER IS NOT IN DISPUTE. T HE QUESTION IS REGARDING ITS ALLOWABILITY FROM SUCH SHORT TERM OR LONG TERM CAPI TAL GAIN. HE SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH THE PMS PROVIDER WHO MANAGES THE BUYING AND SELLING ACTIVITY OF THE ASSESSEE AS PER THE AGREEMENT. THE PMS PROVIDER IS PAID 0.05% OF THE TOTAL NAV UNDER MANAG EMENT AT THE BEGINNING OF EACH QUARTER AS HIS FEES, AS PER THE AGREEMENT, COP Y OF WHICH IS AVAILABLE AT PAGE 11 OF THE PAPER BOOK. HE SUBMITTED THAT SUCH EXPEND ITURE IS AN OBLIGATION ON THE PART OF THE ASSESSEE TO EARN THAT INCOME. REFERRIN G TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ROSHAN BAB U MOHD. HUSSEIN MERCHANT REPORTED IN 275 ITR 231 HE SUBMITTED THAT EXPENDITURE INCURRED BY AN ASSESSEE TO REMOVE THE ENCUMBRANCE CREATED BY THE A SSESSEE HIMSELF ON THE 10 PROPERTY WHICH WAS ACQUIRED WITHOUT ANY ENCUMBRANCE IS NOT AN ALLOWABLE DEDUCTION U/S.48(1). HOWEVER, IN THE CASE OF THE A SSESSEE THERE WAS NO SUCH ENCUMBRANCE. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING LTD.(SUPRA) HE SUBMIT TED THAT THE REFERENCE OF THE DECISION IN THE CASE OF CIT VS. SHAKUNTALA KANTILAL 190 ITR 56 BY THE PUNE BENCH OF THE TRIBUNAL WAS UNNECESSARY. SO FAR AS THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HOMI K. BHABHA (SUPRA) HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS NOT CONSIDERED THE DECISIO N OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SOLAPUR DISTRICT MILK PRODUCERS AND PROCESS UNIT LTD. REPORTED IN 315 ITR 304. HE SUBMITTED THAT THE DEC ISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING (P) L TD. HAS TO BE FOLLOWED AND THE FEES PAID TO THE PMS PROVIDER HAS TO BE ALLOWED AS AN EXPENDITURE FROM THE SHORT TERM CAPITAL GAIN OR LONG TERM CAPITAL GAIN. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE VARIOUS DEC ISIONS CITED BEFORE US. SO FAR AS THE DELETION OF ADDITION MADE BY THE AO U/S.14A R.W.RULE 8D OF THE I.T. RULES WE FIND THE ASSESSMENT YEAR INVOLVED IN THE IMPUGNE D APPEAL IS ASSESSMENT YEAR 2007-08. THEREFORE, PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEARS SINCE THE SAME IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND ONWARDS AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA). WE FURTHER FIND THE SUBMISS ION OF THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE CIT(A) THAT NO BORROWED FUN DS HAVE BEEN UTILISED AND NO INTEREST HAS BEEN PAID FOR OBTAINING SUCH DIVIDEND INCOME COULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUM STANCES WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION MA DE BY THE AO U/S.14A R.W. RULE 8D. 11 10.1 SO FAR AS THE FEES PAID TO PMS PROVIDERS AS AN ALLOWABLE EXPENDITURE, WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING AND TRADING PVT. LTD. VS DCIT VIDE ITA NO. 240/PN/2011 ORDER DATED 2 5-07-2012 FOR ASSESSMENT YEAR 2007-08 (IN WHICH BOTH OF US ARE PARTIES) HAS HELD THE FEES PAID TO THE PMS PROVIDER AS AN ALLOWABLE EXPENDITURE. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 9 ONWARDS READ AS UNDER : 9. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND THE PAPER B OOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE TRIBUNAL IN ASSESSEES O WN CASE VIDE ITA NO. 500/PN/2008 FOR ASSESSMENT YEAR 2004-05 HAS DECIDED THE ISSUE AND ALLOWED THE CLAIM OF PORTFOLIO MANAGEMENT FEES BY HOLDING A S UNDER : 19. WE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. ALLOWABILITY OF THE FEE PAID TO THE M/S ENAM, THE PORTFOLIO MANA GER FOR PURCHASE AND SALE OF THE SECURITIES UNDER SECTION 48 OF THE ACT IS TH E ISSUE FOR ADJUDICATION BEFORE US. THE STANDS OF THE PARTIES ON THIS ISSUE ARE AS FOLLOWS. AS PER THE REVENUE, WHILE THE AO MADE DISALLOWANCE FOR COUPLE OF REASONS: (I) THE PAYMENT IS NOT AS PER THE AGREEMEN T, AS THE AGREEMENT WAS NEVER TERMINATED IN REALITY; (II) THE PAYMENT W AS NOT AUTHORIZED BY THE SEBI REGULATIONS, 1993, CIT(A) AUTHORITY CONFIRMED THE SAID DISALLOWANCE ALSO FOR ANOTHER REASONS THAT THE SAID PAYMENT ATTR ACTS PROVISIONS OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 OF THE IT ACT. THE SAID FEE IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE TRIBUN AL OF MUMBAI BENCH IN THE CASE OF DAVENDRA KOTHARI (136 TTJ 188) WHERE TH E TRIBUNAL HELD THAT WHEN THE ASSESSEE FAILED TO DEMONSTRATE THE NEXUS O F THE SAID EXPENDITURE WITH THE PURCHASE AND SALE TRANSACTIONS OF THE SAID CAPITAL ASSETS IE SECURITIES, THE FEE PAID TO THE PORTFOLIO MANAGERS IS NOT AN ALLOWABLE EXPENDITURE U/S 48 OF THE ACT. 20. PER CONTRA, THE CASE OF THE ASSESSEE IS THAT THE SAID DECISION OF THE MUMBAI BENCH TRIBUNAL IS DISTINGUISHABLE ON FACTS R ELATING TO DISCHARGE OF ONUS RELATING TO NEXUS ISSUE AND ALSO IN MATTERS OF GLOBAL TURNOVER BASED CLAIM OF FEE INCLUDING THE MISCELLANEOUS RECEIPTS SUCH AS DIVIDENDS AND INTEREST. AS PER THE ASSESSEE, THERE ARE OTHER DECISIONS TO SUPP ORT THE CLAIM OF THE ASSESSEE. FURTHER, ASSESSEES STAND IS THAT REVENUE AUTHORITIES HAVE LISTED THREE REASONS CUMULATIVELY FOR DENIAL OF DEDUCTION IE NOT AS PER THE AGREEMENT; (II) NOT AUTHORIZED BY THE SEBI REGULATIONS, 1993 A ND THEREFORE IT ATTRACTS THE PROVISIONS OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 IE INFRINGEMENTS OF THE LAW, AND THE SAID REASONS DO NOT STAND THE T EST OF LEGAL SCRUTINY AS THE IT AUTHORITIES MISINTERPRETED THE FACTS. IN THIS REGAR D, THE FACTS ARE THAT THE FEE PAID TO ASSESSEE AS PER THE AGREEMENT IE AT THE EXP IRY OF THE AGREEMENT PERIOD AND EXPIRY OF THE AGREEMENT IS DIFFERENT FRO M THE EXPIRY THE AGREEMENT. IN THE EARLIER CASE, THE AGREEMENT DOES NOT EXPIRE AND ONLY THE PERIOD EXPIRES. SECONDLY, REGARDING THE ALLEGATION OF SEBI REGULATI ONS, ASSESSEES STAND IS THAT THE SAID CLAUSE 14(3) HAS BEEN AMENDED TO INCL UDE THE PAYMENT OF FEE ON PROFITS SHARING BASIS TOO. THEREFORE, THERE IS NO T INFRINGEMENT OF THE SAID CLAUSE AND CONSEQUENTLY, THE INVOKING BY THE CIT(A) OF THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT DOES NOT AR ISE. 12 21. IN THE CONTEXT OF THE ABOVE RIVAL POSITIONS, WE PROCEED TO EXAMINE THE SCOPE OF THE PROVISIONS OF SECTION 48 OF THE ACT, A MENDED SEBI REGULATIONS IN MATTERS RELATING TO FEE PAYABLE TO PORTFOLIO MANAGE RS, THE MATTERS RELATING TO THE DISTINGUISHING OF THE DECISIONS CITED BY THE RE VENUE ETC. A. SCOPE OF THE PROVISIONS OF SECTION 48 OF THE ACT: 22. SECTION 48 PROVIDES FOR THE METHOD OF COMPUTATI ON OF CAPITAL GAINS. THE RELEVANT PROVISIONS READ AS FOLLOWS: THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN S SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATI ON RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET TH E FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER, (II) THE COST OF ACQUISITION OF THE CAPITAL ASSET A ND THE COST OF ANY IMPROVEMENT THERETO. HONBLE JURISDICTIONAL HIGH C OURT HAS AN OCCASION TO EXPLAIN THE ABOVE PROVISIONS OF SECTION 48 OF THE ACT IN THE CASE OF CIT V SHAKUNTALA KANTILAL 190 ITR 56 (B OM) EXPLAINED THE SAME AND HELD THAT THE DEDUCTIBILITY OF CERTAIN EXPENDITURE MUST CONSIDERED FAVORABLY TO THE ASSESSEE AS THE PROVISI ONS OF CLAUSE (I) AND (II) ARE WIDER. AS THE HONBLE HIGH COURT, SUC H TYPE OF PAYMENTS ARE DEDUCTIBLE IN TWO WAYS, ONE BY TAKING FULL VALUE OF CONSIDERATION IE NET OF SUCH PAYMENTS OR DEDUCTING THE SAME AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER. IN OTHER WORDS, SO LONG AS THE EXPENDITU RE IN QUESTION IS GENUINE AND ARE INCURRED IN CONNECTION WITH THE TRA NSFER OF THE SECURITIES, THE EXPENDITURE IS ALLOWABLE FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING, ITSELF . MEANING THEREBY, THE IMPUGNED EXPENDITURE IS REDUCED FROM THE GROSS VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING, AND THE NET VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING WILL BE FURTHER REDUCED BY THE EXPENDITURE MENTIONED IN CLAUSES (I) AND (II) OF SE CTION 48 OF THE ACT. THE SECOND WAY OF DEALING WITH THE SAID GENUIN E EXPENDITURE RELATES TO THE ONE SPECIFIED IN CLAUSE (I) AND CLAU SE (II). THE ASSESSEE MUST BE GIVEN BENEFIT OF THE DEDUCTION AS THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE TRANSFER OF THE SECURITIES. FOR THE SAKE OF COMPLETENESS OF THIS ORDER, RELEVANT PA RA 5 & 6 ARE REPRODUCED AS FOLLOWS: 5. IT MUST BE STATED IN FAIRNESS TO DR BALASUBRAMA NIAN FOR THE REVENUE THAT HE DID NOT DISPUTE THE FACT OF PAY MENT OR EVEN THE NECESSITY OF MAKING SUCH A PAYMENT. HIS CONTENTION IS THAT THE LANGUAGE IN WHICH SECTION 48 IS COUCHED DOES NOT CONTEMPLATE DEDUCTION OF SUCH AN AMOUNT. REFERENCE IN THIS REGARD WAS MADE TO SECTIO N 48 OF THE ACT TO SHOW THAT THE PAYMENT HEREIN COULD BE NE ITHER BE TERMED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVE LY FOR THE TRANSFER OR THE COST OF ACQUISITION OR OF ANY I MPROVEMENT THERETO.. 6. IN ORDER TO APPRECIATE DR SUBMISSION, IT IS D ESIRABLE TO REFER TO THE PROVISIONS OF SECTION 48 WHICH READ AS UNDER: THE SECTION (SECTION 48) BROADLY CONTEMPLATES THREE AMOUNTS FOR THE PURPOSE OF COMPUTING INCOME CHARGEABLE UNDER TH E HEAD CAPITAL GAINS. THE FIRST IS THE FULL VALUE OF THE CONSIDERATION FOR WHICH THE CAPITAL ASSET HAS BEEN TRANSFERRED. THE S ECOND IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH 13 TRANSFER AND THE THIRD AND THE LAST IS THE COST OF ACQUISITION OF THE CAPITAL ASSET INCLUDING THE COST OF ANY IMPROVEMENT THERETO. WE HAVE ALREADY REFERRED TO THE FACTS OF THE CASE IN D ETAIL EARLIER. IT CANNOT BE DISPUTED THAT UNLESS THE ASSESSEE HAD SET TLED THE DISPUTE WITH RADIA AND SONS (P) LTD., THE SALE TRAN SACTION WITH M/S.COSMOS CO-OP HOUSING SOCIETY LTD. UNDER THE AGR EEMENT DATED MARCH 30,1967, WOULD NOT, RATHER COULD NOT, H AVE MATERIALIZED. IF THIS TRANSACTION HAD NOT MATERIALI ZED THERE WOULD PERHAPS HAVE BEEN NO QUESTION OF CAPITAL GAINS. THE SALE WOULD THEN HAVE TAKEN PLACE AT THE RATE OF RS 29 PER SQ. YARD AS AGAINST RS 51 PER SQ. YARD. ONE WAY OF LOOKING AT THE PROBL EM COULD BE TO SAY THAT THE FULL VALUE OF THE CONSIDERATION IN THI S CASE WAS NOT THE APPARENT CONSIDERATION, I.E. RS2,58,672/-, BUT RS 2 ,23,168/- (I. E 2,58,672 MINUS RS 35,501). THE LEGISLATURE, WHILE U SING THE EXPRESSION FULL VALUE OF CONSIDERATION, IN OUR VI EW, HAS CONTEMPLATED BOTH ADDITIONS AS WELL AS DEDUCTIONS F ROM THE APPARENT VALUE. WHAT IT MEANS IS THE REAL AND EFFEC TIVE CONSIDERATION. THAT APART, SO FAR AS CLAUSE (I) OF SECTION 48 IS C ONCERNED, WE FIND THAT THE EXPRESSION USED BY THE LEGISLATURE IN ITS WISDOM IS WIDER THAN THE EXPRESSION FOR THE TRANSFER. THE EXPRESS ION USED IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS, IN OUR VIEW, CERTAINLY WIDER THAN THE EXPRESSION FOR THE TRANSFER. HERE AGAIN, WE ARE OF THE VIEW THAT ANY AMOUNT THE PAYME NT OF WHICH IS ABSOLUTELY NECESSARY TO EFFECT THE TRANSFER WILL BE AN EXPENDITURE COVERED BY THIS CLAUSE. IN CONCLUSION, IT IS RESPEC TFULLY SUBMITTED THAT THE FEES PAID HAVE BEEN CORRECTLY CLAIMED AS D EDUCTION IN THE COMPUTATION OF CAPITAL GAINS 23. THE SCOPE OF SECTION 48 AS PER THE BINDING JUDG MENT OF THE HONBLE HIGH COURT IS THAT THE CLAIM OF BONA FIDE OR GENUINE EXPENDITURE SHOULD BE ALLOWABLE IN FAVOUR OF THE ASSESSEE SO LONG AS THE INCURRING OF THE EXPENDITURE IS A MATTER OF FACT AND THE NECESSITY OF MAKING SUCH A P AYMENT IS THE IMMINENT AND THE REQUIREMENT FOR THE TRANSFER THE TRANSFER OF TH E ASSET . IT IS NOW BINDING ON OUR PART TO TAKE THE VIEW THAT THE EXPRESSIONS IN CONNECTION WITH HAS WIDER MEANINGS THAN THE EXPRESSION FOR THE TRANSFER . THE REVENUES CONTENTION IS THAT THE LANGUAGE IN WHICH SECTION 48 DOES NOT CONT EMPLATE DEDUCTION OF SUCH AN AMOUNT WAS OVERRULED AND ALLOWED THE DEDUCTION O F THE FEE INCURRED BY THE ASSESSEE FOR REMOVAL OF THE ENCUMBRANCES, WHICH IS NECESSARY FOR TRANSFER OF THE ASSET IN THAT CASE. 24. WE HAVE ALSO PERUSED SOME OF THE OTHER CITATION S RELIED UPON BY THE PARTIES TO DRAW THE BOUNDARY LINES FOR THE KIND OF EXPENDITURE WHICH FALL WITHIN THE SCOPE OF THE ALLOWABLE EXPENDITURE U/S 48 OF TH E ACT IN COMPUTATION OF THE CAPITAL GAINS. WE FIND THAT ALL THESE CITATIONS INV ARIABLY FOLLOWED THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF S ANTHILAL KANTILAL (SUPRA). A. CALCUTTA HIGH COURT HELD IN THE CASE OF GOPEENAT H PAUL AND SONS & ANR (278 ITR 240) THAT WHEN ASSETS OF THE ASSESSEE GNP , EARLIER CARRYING ON BUSINESS IN THE NAME OF GSM COULD NOT BE SOLD AS GO ING CONCERN UNDER ORDERS OF COURT WITHOUT MEETING THE LIABILITIES OF GSM TOWARDS THE BANK, PAYMENTS FOR MEETING SUCH LIABILITIES OF GSM TOWARD S BANK WAS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH THE TRANSFER, HENCE DEDUCTIBLE U/S 48(I) OF THE ACT. B. AAR HELD IN THE CASE OF COMPAGNIE FINANCIERE HAM ON, IN RE (310 ITR1), THAT THE PROFESSIONAL FEE PAID TO THE LAWYE RS DISTINCTLY RELATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARE S IS ADMISSIBLE FOR DEDUCTION U/S 48(I) OF THE ACT AAR HELD THAT THE W HAT IS ATTRIBUTABLE TO THE FINAL ACT OF TRANSFER OF SHARES IS ADMISSIBLE FOR D EDUCTION PROVIDED THE 14 INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF TRANSFERRING SHARES IS ESTABLISHED. C. IN THE CASE OF BRADFORD TRADING CO P LTD, THE MA DRAS HIGH COURT HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO A THIRD PA RTY TO SETTLE THE PRE EXISTING CLAIMS AGAINST THE TRANSFER OF THE ASSETS AS ALSO LITIGATION EXPENSES CONSTITUTED EXPENDITURE INCURRED WHOLLY AN D EXCLUSIVELY FOR TRANSFER OF CAPITAL ASSET AND WAS DEDUCTIBLE IN COM PUTATION OF CAPITAL GAINS; THE AMOUNT REIMBURSED BY VENDEE TO THE ASSES SEE TOWARDS SUCH CLAIM CONSTITUTED PART OF SALE CONSIDERATION BUT DE DUCTIBLE WHILE COMPUTING CAPITAL GAINS. D. BOMBAY HIGH COURT IN THE CASE OF ABRAR ALVI (247 ITR 312) HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO HIS SON TO RESOL VE THE PROPERTY DISPUTE WAS AN ALLOWABLE EXPENDITURE IN COMPUTING THE CAPIT AL GAINS. SAME HIGH COURT IN THE CASE OF MISS PIROJA C PATEL (242 ITR 5 82) HELD THAT THE COMPENSATION PAID BY THE ASSESSEE TO THE HUTMENT DW ELLERS IS AN ALLOWABLE EXPENDITURE IN COMPUTING THE CAPITAL GAIN S. E. IN THE CASE OF MOTILAL KOTHARI VS DCIT (136 TTJ 188), THE MUMBAI TRIBUNAL HELD THAT THE PAYMENT OF FEE TO THE PMS TO DISCHARGE HIS CONTRACTUAL LIABILITY DID NOT AMOUNT TO DIVERSION O F INCOME BY OVERRIDING TITLE. IT IS A CASE OF APPLICATION OF INCOME. IN TH IS CASE, THE ASSESSEE CLAIMED EXPENDITURE OF THE FEE PAID TO PMS ON HIS G LOBAL TURN OVER AND ASSESSEE FAILED TO DISCHARGE ONUS IN ESTABLISHING T HE NEXUS OF THE EXPENDITURE WITH THE ASSETS TRANSFER. TRIBUNAL DID NOT REFER TO THE EXPLANATION GIVEN BY THE BINDING JURISDICTIONAL HIG H COURT ON THE PROVISIONS OF SECTION 48 OF THE ACT. 25. FROM THE ABOVE, IT IS INVARIABLY LEARNT THAT TH E SCOPE OF THE PROVISIONS OF SECTION 48 ARE EXPLAINED BY THE JURISDICTIONAL HIGH COURT AND IT IS BINDING ON US AS THEY REMAIN UNDISTURBED AS INFORMED TO US. THE C ITATION AT E ABOVE DID NOT HAVE BENEFIT OF THE SAID EXPLAINING OF THE PROVISIO NS OF SECTION 48 OF THE ACT. FOR ALLOWING THE CLAIM OF DEDUCTION IN THE COMPUTAT ION OF THE CAPITAL GAINS, THE EXPENDITURE HAS TO BE DISTINCTLY AND INTRICATELY LI NKED TO THE ASSET AND ITS TRANSFER AND THE ONUS IS ON THE ASSESSEE TO DEMONST RATE THE SAID LINKAGE BETWEEN THE EXPENDITURE AND THE ASSETS TRANSFER. I T IS EVIDENT AND BINDING THAT THE EXPENDITURE IF UNDISPUTEDLY, NECESSARILY AND GE NUINELY SPENT FOR THE ASSETS TRANSFER WITHIN THE SCOPE OF THE PROVISIONS OF SECT ION 48 OF THE ACT, THE CLAIM CANNOT BE DISALLOWED FOR WANT OF THE EXPRESS PROVIS IONS IN SECTION 48 OF THE ACT. 26. WHOLLY AND EXCLUSIVELY: IN THIS REGARD, IT IS A SETTLED LAW THAT THE EXPRESSION WHOLLY AND EXCLUSIVELY IS EXPLAINED FOR THE PURPOSE OF THE IDENTICAL EXPRESSIONS USED IN SECTION 37 OF THE ACT. IN THE C ASE OF SASOON J DAVID & CO P LTD V CIT 118 ITR 261(SC), HONBLE SUPREME COURT EXPLAINED THE TWIN ADVERBS STATING THAT THE FIRST ADVERB, WHOLLY REF ERS TO THE QUANTUM OF THE EXPENDITURE, THE SUM OF MONEY SPENT AND THE SECOND ADVERB EXCLUSIVELY HAS REFERENCE TO THE PURPOSE BEHIND THE EXPENDITURE A ND NOT THE MOTIVE OR OBJECT OF EXPENDITURE. 27. AFTER EXPLAIN THE SCOPE OF SECTION 48 OF THE AC T, WE SHALL NOW PROCEED TO EXAMINE THE FACTS OF THE CASE IN GENERAL AND THE AP PLICABILITY OF THE PROVISIONS OF SECTION 48 IN PARTICULAR. 28. WE HAVE ALREADY DETAILED THE FACTS OF THE IMPUG NED PAYMENTS IN THE PRECEDING PARAGRAPHS. TO SUM UP THE SAME, THE UNDIS PUTED FACTS ARE: (I) THE ASSESSEE MADE THE PAYMENT OF FEE TO M/S ENAM, THE A SSET MANAGEMENT COMPANY AND THE GENUINENESS OF THE SAID PAYMENT IS UNDISPUTED; (II) THE REVENUE AUTHORITIES HAVE ALSO NOT DISPUTED THE REQU IREMENT OR NECESSITY OF THE SAID PAYMENTS; (III) QUANTITATIVELY SPEAKING IN VIE W OF THE ADVERBIAL EXPRESSION, 15 WHOLLY USED IN SECTION 48(I) OF THE ACT , WE FIND THAT THE PAYMENT OF FEE @ 5% ONLY RESTRICTED TO THE NAV OF THE SECURITIES AND NOT ONLY THE GLOBAL TURN OVER INCLUDING THE OTHER INCOME; (IV) REGARDING THE PURPOSE OF PAYMENT IN VIEW OF THE ADVERBIAL EXPRESSION, EXCLUSIVELY USED IN SECTION 48(I) OF THE ACT , WE FIND THAT THE SAME IS INTENDED ONLY TWIN PURPOSE OF THE ACQUISITION OF THE SECURITIES AND ALSO FOR SALE OF THE SAME; (V) THE N AV IS DEFINED IN PARA 1(D) AS THE NET ASSET VALUE OF THE SECURITIES OF THE CLIENT AND THE ASSESSEE CALCULATED THE IMPUGNED FEE IS LINKED TO THE SECURI TIES VALUE ONLY AND NOT INCLUDES OTHER INCOME SUCH INTEREST OR DIVIDEND ETC ; (V) CONSIDERING THE CONTENTS OF THE PARA 7.01(C), TERMINATION FEE UPTO 5% WILL BE PAYABLE ON THE NET ASSET VALUE (NAV) OF THE PORTFOLIO OF THE CLIEN T AS ON THE DATE OF TERMINATION OF THE AGREEMENT PERIOD AND NOT THE AGREEMENT ITSEL F AND THEREFORE PAYMENT IS PERIOD SPECIFIC; (VI) IT IS A FACT THAT THE CLAUSE 14(3) WAS AMENDED SUBSEQUENTLY AND THEREFORE, THE ACTION OF THE REVEN UE IS BASED ON THE INAPPLICABLE OR PRE-AMENDED FACTS. THE DETAILS ARE DETAILED BELOW. CLAUSE 14(3) OF SEBI (PORTFOLIO MANAGERS) RULES & R EGULATIONS 1993: 29. REVENUE IS OF THE BONA FIDE BELIEF OR OPINION THAT THE CLAUSE 3(A) PROHIBITS THE PAYMENT OF FEE ON THE BASIS OF RETURNS SHARING BASIS AS THEY RELIED ON THE ORIGINAL CLAUSE 14(3) OF SEBI (PORTFOLIO MANAGERS) RULES & REGULATIONS 1993 WHICH GOVERNS THE PORTFOLIO MANAGER WHICH BANS THE PAYMENT OF FEE TO THE PORTFOLIO MANAGER. IN THIS REGARD, LD COUNSEL FILED A GAZETTE COPY SHOWING THE AMENDED CLAUSE 3 VIDE SEBI (PORTFOLIO MANAGERS) (AM ENDMENT) RULES, 2002 WHICH PROVIDES FOR RETURN BASED FEE ALSO. THE SAID CLAUSE ORIGINALLY CAME INTO FORCE WITH EFFECT FROM 7.1.1993, A DATE OF PUBLICAT ION IN THE OFFICIAL GAZETTE, WHEREBY THE SEBI PROVIDED FOR THE FEE RELATING TO T HE PORTFOLIO MANAGERS VIDE PARA 3(A) WHICH HAS COME INTO EFFECT W.E.F. 11.10.2 002. THE SECURITIES & EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS) REGULA TIONS, 1993 PROVIDE THAT THE DISCRETIONARY PORTFOLIO MANAGER IS OBLIGED TO I NDIVIDUALLY AND INDEPENDENTLY MANAGE THE FUNDS OF EACH CLIENT IN ACCORDANCE WITH THE NEEDS OF THE CLIENT. THESE REGULATIONS, 1993 PROVIDE THAT FEE TO BE CHAR GED MAY BE A FIXED AMOUNT OR A RETURN BASED FEE OR A COMBINATION OF BO TH. WE HAVE EXTRACTED THE AMENDED CLAUSE 14(3) AND THE SAME IS AS FOLLOWS. (3)(A) : THE PORTFOLIO MANAGER SHALL CHARGE AN AGR EED FEE FROM THE CLIENTS FOR RENDERING PORTFOLIO MANAGEMENT SERVICES WITHOUT GUARANTEEING OR ASSURING, EITHER DIRECTLY OR INDIRECTLY, ANY RETURN AND THE FEE SO CHARGED MAY BE A FIXED FEE OR A RETURN BASED FEE OR A COMBI NATION OF BOTH. THUS, IN OUR OPINION, THE AMENDED PROVISIONS ALLOWS THE P AYMENT OF FEE TO AMC ON RETURN BASED FEE AND THEREFORE, ALL THE THREE REASONS OF THE REVENUE FOR DENYING THE CLAIM OF DEDUCTION IN FAVOUR OF THE ASSESSEE, AS DISCUSSED IN THE ABOVE PARAGRAPHS OF THIS ORDER, REQUIRE TO B E REJECTED AND IN FAVOUR OF THE ASSESSEE.CAPITAL GAINS VS DEDUCTIONS 30. WE HAVE DISCUSSED IN THE PRECEDING PARAGRAPHS T HAT THE PROFITS EARNED BY THE ASSESSEE IS CHARGEABLE TO TAX UNDER THE HEAD C APITAL GAINS. IT IS SO ORDERED BY THIS TRIBUNAL VIDE THE ORDER DT 31.8.200 9 IN CONNECTION WITH APPEALS ITA NO 499/PN/08 IN THE CASE OF ARA TRADING & INVES TMENTS P LTD. AND ITA NO 500/PN/08 IN THE CASE OF KRA HOLDING & TRADING P . LTD. RELEVANT PARA 27 OF THE SAID ORDER WAS ALREADY EXTRACTED IN THE PREC EDING PARAGRAPHS. IN THE LIGHT OF THE ABOVE UNDISTURBED PROPOSITION, OUR ATT ENTION IS RESTRICTED TO THE LIMITED ISSUE OF IF THE IMPUGNED FEE PAID TO THE M/ S ENAM IS ALLOWABLE U/S 48 OF THE ACT OR NOT. LOADING OF THE EXPENDITURE TO THE COST OF THE SHARE S, DISTINGUISHING OF THE TRIBUNALS ORDER IN THE CASE OF DEVENDRA KOTHARI (S UPRA): 31. LD DR FOR THE REVENUE RELIED ON THE ABOVE DECIS ION OF THE TRIBUNAL AND MENTIONED THAT THE ORDER OF THE CIT(A) DOES NOT CAL L FOR ANY INTERFERENCE DESPITE THE FACT THAT THE ORDER IS NOT CONSIDERED THE ABOVE CITATIONS. IN THIS REGARD, LD COUNSEL FILED AT OUR REQUEST A BRIEF NOTE ON THE IS SUE OF LOADING AND OTHER 16 ANCILLARY ISSUES AND THE RELEVANT PORTIONS ARE IMPO RTED FOR THIS ORDER AND THE SAME ARE AS UNDER: THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY I N RESPECT OF FEES PAID IS TO PROPORTIONATELY LOAD THESE TYPES OF FEES AS PART OF THE PURCHASE COST OF THE SECURITIES DURING THE GIVEN PERIOD. AUT OMATICALLY THESE FEES ARE TAKEN INTO ACCOUNT FOR COMPUTING CAPITAL GAINS OR T HE CARRYING COST OF UNSOLD INVESTMENTS. THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE F EES PAID AND THE PROCESS OF ACQUISITION AND SALE OF THE SECURITIES W HICH IS A CAUSATIVE FACTOR FOR MAKING CAPITAL GAINS AND THAT THE FEES ARE PAID WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME OFFERED TO TAX UNDER THE HEA D CAPITAL GAINS. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF C IT V. SHAKUNTALA KANTILAL [1991] 58 TAXMAN 106/190 ITR 56 (BOM.) WHE RE IT WAS HELD THAT AMOUNT PAID FOR REMOVING AN ENCUMBRANCE WAS AL LOWABLE U/S 48(I). IN COMING TO THIS VIEW THE COURT OBSERVED THAT WITHOUT THIS PAYMENT THE SALE COULD NOT HAVE BEEN MATERIALIZED AND HENCE THERE WO ULD HAVE BEEN NO QUESTION OF THE CAPITAL GAINS BEING BROUGHT TO TAX. IN THE PRESENT CASE THE CAPITAL GAINS HAVE ARISEN AS A RESULT OF THE EFFORT S OF THE PM FOR WHICH THE FEES HAVE BEEN PAID. A MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DAVE NDRA KOTHARI (136 TTJ 188) HAS CONFIRMED DISALLOWANCE OF PMS FEE S WHILE COMPUTING CAPITAL GAINS. IN THAT CASE FEES WERE PAID BASED ON VALUE OF THE A SSETS. THE HONOURABLE BENCH HAS OBSERVED AT PARA 7 OF THE SAID ORDER THAT THE CIT(A) FOUND THAT THE,- QUANTIFICATION OF FEES: WAS BASED ONLY ON EITHER TH E MARKET VALUE OF THE ASSET OR THE NET VALUE OF THE ASSETS OF THE ASSESSE E AS HELD EITHER AT THE BEGINNING OR AT THE END OF EACH QUARTER. AT PARA 8 OF THE ORDER, THE HONOURABLE BENCH HAS OB SERVED THAT THE CIT(A) HELD THAT THE ASSESSEE WAS PAYING THE FEES A S AFORESAID TO PORTFOLIO MANAGERS EVEN ON THE INTEREST/DIVIDEND RE CEIVED ON THE INVESTMENTS AND THEREFORE THE CIT(A) CAME TO HOLD T HAT IT COULD NOT BE SAID THAT THERE WAS NEXUS BETWEEN THE PMS FEES PAID AND PURCHASE AND SALE OF INVESTMENTS. THE HONOURABLE MUMBAI TRIBUNAL HAS LAID STRESS ON T HE SAID FINDINGS OF THE CITA. PRESENT CASE OF THE APPELLANT IS CLEARLY DISTINGUIS HABLE IN THE LIGHT OF THE FACT THAT RETURN BASED FEES IS ALSO PAYABLE IN RESP ECT OF PROFITS EARNED ON SALE OF INVESTMENTS AND THEREFORE THE PMS FEES HAS A DIRECT NEXUS WITH THE PURCHASE AND SALE OF INVESTMENTS DURING THE YEA R AND FEES IS NOT PAID ON INTEREST AND DIVIDEND RECEIVED BY THE APPELLANT. IT IS RESPECTFULLY SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE AS IT TURNS ON ITS OWN FACTS APART FROM BEING PATENTLY WR ONG. THE ASSESSEE IN THAT KOTARIS CASE HAD FAILED TO DE MONSTRATE THE NEXUS BETWEEN THE FEES PAID AND THE ACTIVITY OF PUR CHASE AND SALE. THE ASSESSEE COULD NOT EXPLAIN HOW THE FEES PAID ON SUCH EXPLICIT BASIS COULD BE CONSIDERED DIFFERENTLY SO AS TO CONS TITUTE COST OF EITHER ACQUISITION OR AS EXPENDITURE IN CONNECTION WITH TRANSFER. 17 THE ASSESSEE COULD NOT DEMONSTRATE HOW ALLOCATION O F FEES HAD BEEN MADE. IT COULD NOT FURNISH DETAILS OF HOW OR T HE BASIS ON WHICH ALLOCATION OF SAID FEES WAS POSSIBLE. FURTHER FEES HAD TO BE PAID EVEN WHEN NO PURCHASE O R SALE TOOK PLACE. THE CIT(A) HAD HELD THAT IT WAS NOT POSSIBLE TO BRE AK UP THE FEES SO AS TO HOLD THAT THE SAME WAS RELATABLE TO PURCHASE OR SALE OF SHARES. FURTHER, FEES WERE PAID EVEN ON INTEREST ACCRUED AN D DIVIDEND RECEIVED. THE TRIBUNAL HELD THAT THE BASIS ON WHICH FEES WERE PAID IS SUCH THAT THERE WAS NO RELATIONSHIP WITH EITHER PURCHASE OR SALE. I N VIEW OF THIS IT HELD THAT THERE WAS NO NEXUS WITH PURCHASE OR SALE. IT IS RESPECTFULLY SUBMITTED THAT THE HONOURABLE TR IBUNAL OUGHT TO HAVE INDEPENDENTLY DETERMINED WHETHER THE FEES WERE PAID FOR AN ACTIVITY WHICH HAD A DIRECT NEXUS WITH THE PURCHASE OR SALE OF THE SHARES INSTEAD OF ALLOWING ITSELF TO BE PERSUADED MERELY BY THE DIFFI CULTY IN ALLOCATING SUCH FEES TO PURCHASES BY A DIRECTLY CONCEIVABLE BASIS. IN THE PRESENT CASE BEFORE YOU HONOURS THE ANNUAL T ERMINATION FEE IS TO BE DETERMINED WITH REFERENCE TO THE NAV OF THE PORT FOLIO WHICH HAS BEEN DEFINED TO BEEN THE MARKET VALUE OF THE SECURITIES AS ON THE RELEVANT DATE. NO FEES WERE PAID ON INTEREST ACCRUED AND DIVIDEND RECEIVED. IT IS FURTHER SUBMITTED THAT THE ACT DOES NOT DEFINE THE EXPRESSI ONS COST OF ACQUISITION OR COST OF IMPROVEMENT REFERRED TO IN SECTION 48. THESE EXPRESSIONS THUS HAVE TO BE GIVEN THEIR NATURAL COMMERCIAL MEANING A S MEN OF TRADE AND COMMERCE WOULD UNMISTAKABLY UNDERSTAND. INVESTMENTS IN SECURITIES ARE VALUED AT COST BY THE APPELLANT. IN VIEW OF THE DIRECT NEXUS BETWEEN THE FEES AND TH E ROLE OF THE PM ESTABLISHED BY US IT IS NOT DIFFICULT TO APPRECIATE THAT SUCH FEES FORM PART OF THE COST OF ACQUISITION OF THE PORTFOLIO. THE SC IN THE CASE OF BHARAT EARTH MOVERS (245 ITR 428)(SC) IN THE CONTEXT OF ALLOWABILITY OF PROVISION FOR LEAVE ENCASHMENT REFERRED TO THE FOLLOWING PASSAGE FROM ITS DECISION IN THE CASE OF CALCUTTA CO. LTD VS. CIT (1959) 37 ITR 1 (SC) WHEREIN IT WAS HELD THAT MEREL Y BECAUSE THERE IS SOME DIFFICULTY IN THE ESTIMATION OF THE LIABILITY WOULD NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE; IT WAS AL WAYS OPEN TO THE TAX AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMAT E OF THE LIABILITY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE MERELY BECAUSE SOME MATHEMATICA L EXERCISE IS INVOLVED IN LOADING SUCH FEES TO INDIVIDUAL TRANSAC TIONS OF PURCHASE WOULD NOT MEAN THAT SUCH FEES DO NOT FORM PART OF COST OF ACQUISITION OR HAVE NEXUS THEREWITH ACCOUNTING STANDARD 13 (ACCOUNTING FOR INVESTMENTS) ISSUED BY ICAI PROVIDES THAT COST OF AN INVESTMENT INCLUDES ACQUISITION CHARGES SUCH AS BROKERAGE, FEES AND DUTIES. THE MET HOD OF ACCOUNTING FOLLOWED BY THE COMPANY IN RESPECT OF FEES PAID IS TO PROPORTIONATELY LOAD THESE FEES ON THE SECURITIES HANDLED BY THE PORTFOL IO MANAGER DURING THE YEAR [I.E. OPENING PORTFOLIO PLUS INVESTMENTS MADE DURING THE YEAR]. AUTOMATICALLY THESE FEES ARE TAKEN INTO ACCOUNT FOR COMPUTING CAPITAL GAINS OR THE CARRYING COST OF UNSOLD INVESTMENTS. THE SUPREME COURT IN THE CASE OF UP STATE INDUSTRIA L DEVELOPMENT CORPORATION (225 ITR 703) WAS DEALING WITH THE CASE OF AN UNDERWRITER OF SHARES WHO HAD TO SUBSCRIBE TO SHARES IN THE EVENT OF UNDER SUBSCRIPTION 18 BY THE PUBLIC. THE ISSUE BEFORE THE SC WAS WHETHER IN RESPECT OF SUCH DEVOLVED SHARES WHETHER THE UNDERWRITING COMMISSION RECEIVED FROM THE CLIENT, SHOULD BE TREATED AS AN ITEM OF INCOME OR A N ITEM THAT WOULD GO TO REDUCE THE COST OF ACQUISITION OF SUCH DEVOLVED SHA RES. THE SUPREME COURT, APPLYING THE WELL ACCEPTED PROPOSITION THAT FOR THE PURPOSES OF ASCERTAINING PROFITS AND GAINS ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING SHOULD BE APPLIED SO LONG AS THEY ARE NO T IN CONFLICT WITH ANY EXPRESS PROVISION OF THE ACT UPHELD THE CONTENTION OF THE ASSESSEE WHICH IT FOUND TO BE IN CONSONANCE WITH THE GENERAL PRINC IPLES OF ACCOUNTANCY GOVERNING UNDERWRITING CONTRACTS. IN THE PRESENT CASE SINCE THE DEPARTMENT IS NOT CON TENDING THAT THE ACCOUNTING PRACTICE FOLLOWED BY THE COMPANY IS CONT RARY TO GENERAL PRINCIPLES OF ACCOUNTANCY GOVERNING PM CONTRACTS TH E ABOVE RATIO WOULD SQUARELY APPLY. AS A MATTER OF FACT THE LOWER AUTH ORITIES HAVE NOT DISPUTED THE CORRECTNESS OF THE METHOD OF ALLOCATION OF PMS FEES OR FOUND IT CONTRARY TO ACCOUNTING PRACTICE. THE HONBLE PUNE TRIBUNAL IN CASE OF S.BALAN (308 I TR 151 (T PUNE) HELD THAT INTEREST PAID ON MONIES BORROWED FOR ACQU ISITION OF SHARES WOULD FORM PART OF COST OF ACQUISITION. UNDOUBTEDLY LOADING INTEREST ON INDIVIDUAL TRANSACT ION OF PURCHASE WOULD NECESSARILY INVOLVE AN EXERCISE OF ALLOCATION WHICH DID NOT DETER THE PUNE TRIBUNAL FROM UPHOLDING THE CLAIM. THE HONBLE PUNE TRIBUNAL OBSERVED THAT INTEREST HAVING NEXUS WITH THE COST OF ACQUISI TION HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTATION OF CAPITAL G AINS PRESCRIBED U/S 48 (II). THE HONBLE BENCH INTER ALIA REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MITHILESH KUMARI RE PORTED IN 92 ITR 7 AND THE OBSERVATION OF THEIR LORDSHIPS THAT- IT WILL NOT MAKE ANY DIFFERENCE WHETHER THE INTERES T WAS PAID ON THE DATE OF PURCHASE OR WHETHER IT IS PAID SUBSEQUENTLY TO EXCLUDE THE INTEREST AMOUNT FROM THE ACTUAL COST WOULD LEAD TO ANOMALOUS RESULTS. IN THE CASE OF CHALLAPALLI SUGARS LTD (98 ITR 167) THE SC HELD THAT INTEREST PAID ON BORROWED MONEY FOR PURCH ASING PLANT AND MACHINERY BEFORE COMMENCEMENT OF PRODUCTION WOULD F ORM THE PART OF ACTUAL COST FOR THE PURPOSE OF DEPRECIATION ALLOWANCE. IT HELD SO FOLLOWING THE ACCEPTED ACCOUNTANCY RULE FOR DETE RMINING THE COST OF FIXED ASSETS. IN THIS CASE PREOPERATIVE INTEREST WOULD HAVE TO BE ALLOCATED TO THE COST OF INDIVIDUAL FIXED ASSETS ACQUIRED DURING CON STRUCTION PERIOD OF A NEW COMPANY (THIS WAS BEFORE THE BLOCK OF ASSETS CONCEPT WAS INTRODUCED) AND YET THE COURT HELD SO. BY THE SAME LOGIC EXPENSES INCURRED IN RELATION TO THE PORTFOLIO SHOULD BE ALLOWED TO BE CAPITALIZED IN TERMS OF AS 13. IT WILL BE APPRECIATED FROM THE SUBMISSIONS MADE AB OVE THAT THIS IS NOT SO IN THE PRESENT CASE WHERE A LIVE NEXUS HAS B EEN CLEARLY ESTABLISHED AND ON THAT BASIS EVEN THE ACCOUNTS HAV E BEEN MAINTAINED; INVESTMENTS HAVE BEEN ACCOUNTED FOR INC LUSIVE OF PROPORTIONATE FEES AND SAID FEES ARE ALSO LOADED TO UNSOLD INVESTMENTS AS AT THE YEAR END. IT IS RESPECTFULLY SUBMITTED THAT IN THE PRESENT CA SE ASSESSEE HAS DEMONSTRATED HOW THERE IS A NEXUS BETWEEN THE FEES AND THE ROLE OF THE PM DIRECTLY AFFECTING PURCHASES AND HENCE CO ST OF ACQUISITION. 19 32. FROM THE ABOVE, IT IS EVIDENT THAT THE UNLIKE I N THE TRANSACTIONS INVOLVING ACQUISITION AND SALE OF THE LAND BUILDINGS, THE LOA DING OF THE EXPENSES IE FEE PAID TO THE AMC IS DONE IN ACCORDANCE WITH THE AS-1 3 IE COST OF AN INVESTMENT INCLUDES ACQUISITION CHARGES SUCH AS BROKERAGE, FEE S AND DUTIES. FURTHER, ONCE THE LIABILITY TO INCUR IS CERTAIN THE QUANTIFICATIO N DOES NOT BAR THE ASSESSEE FROM CLAIMING THE EXPENDITURE. THE CLAIM OF THE ASSESSEE MUST BE ALLOWED ONCE THE BASIS OF QUANTIFICATION IS SCIENTIFIC AND REASONABL E. THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY CONSISTENTLY IN RESPECT OF FEES PAID IS TO PROPORTIONATELY LOAD THESE FEES ON THE SECURITIES H ANDLED BY PORTFOLIO MANAGER DURING THE YEAR. FINDINGS OF THE TRIBUNAL 33. THUS, THE ISSUE FOR ADJUDICATION RELATES IF THE PAYMENT OF FEE PAID TO THE PORTFOLIO MANAGER IE ENAM FOR THE TWIN PURPOSES OF (I) PURCHASE OF INVESTMENTS/SECURITIES AND (II) SALE OF THE SAME IS AN ALLOWABLE DEDUCTION U/S 48 OF THE ACT OR NOT. THE SAME HAS TO BE DECIDED IN THE CONTEXT OF SETTLEMENT OF THE DISPUTES RELATING TO CORRECT HEAD OF INCOME. IN OTHER WORDS, THE ISSUE RELATING TO HEAD OF INCOME FOR TAXING THE GAINS O N SALE OF THE SAID INVESTMENTS/SECURITIES HAS BEEN DECIDED BY THE TRIB UNAL IN THE FIRST ROUND OF THE APPEALS AND THE TRIBUNAL HELD THAT THE PORTFOLI O INVESTMENT IS NOT THE BUSINESS ACTIVITY BUT IT IS AN INVESTMENT ACTIVITY & RELEVANT GAINS ARE TAXABLE UNDER THE HEAD CAPITAL GAINS AS ACCOUNTED BY THE ASSESSEE. IT IS SO HELD IN THE OWN CASE OF THE ASSESSEE VIDE 499 & 500/P/2008 AND THE SAME AFFIRMED BY A DECISION OF THE TRIBUNAL-MUMBAI BENCH VIDE I.T .A NO. 5382 MUM/2009 DATED 30TH NOVEMBER, 2010 IN THE CASE OF RADHA BIRJ U PATEL. THUS, IT IS THE SETTLED POSITION AT THE LEVEL OF THE TRIBUNAL THAT THE PORTFOLIO MANAGEMENT ACTIVITY IS AN INVESTMENT ACTIVITY AND NEITHER THE BUSINESS ACTIVITY NOR THE ACTIVITY AMOUNTING TO AN ADVENTURE IN THE NATURE O F TRADE. THEREFORE, THE SECURITIES IN QUESTION ARE HELD TO BE THE INVESTMEN TS BY THE TRIBUNAL IN THE FIRST ROUND AND CONSEQUENTLY, WHEN SUCH SECURITIES ARE TR ANSFERRED BY WAY OF SALE, THE RESULTANT GAINS HAVE TO BE DEALT WITH AS PER TH E PROVISIONS OF SECTION 48 OF THE ACT. 34. THE PROVISIONS OF SECTION 48 OF THE ACT HAVE AL READY BEEN ANALYSED IN THE PRECEDING PARAGRAPHS IN THE LIGHT OF THE EXPLAINING BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SHANTILAL KANTILAL (SUPRA). IT IS A SETTLED ISSUE NOW AT THE LEVEL OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SHANTILAL KANTILAL (SUPRA) THAT THE RIGHTFUL EXPENDITURE INCURRED IN CONNECTIO N WITH THE TRANSFER OF THE CAPITAL ASSET/SECURITIES SHOULD BE ALLOWED NOTWITHS TANDING THE INADEQUACY OF THE EXPRESS PROVISIONS OF SECTION 48 OF THE ACT. IT IS ALSO BINDING ON US TO INTERPRET THE SAID PROVISIONS OF SECTION 48 THAT TH E SAME ARE READ DOWN BY THE HONBLE HIGH COURT IN THAT CASE AND THE SAME REMAIN S UNDISTURBED TILL DATE. CONSEQUENTLY, THE EXPENDITURE WHICH IS DISTINCTLY A ND DIRECTLY CONNECTED TO THE TRANSFER, WHICH IS INTERPRETED TO BE OF WIDER MEANI NG AND CONNOTATION, ARE REQUIRED TO BE ALLOWED. WE ALSO INTERPRETED IN THE PRECEDING PARAGRAPHS THAT THE EXPRESSION WHOLLY AND EXCLUSIVELY IN CONNECTIO N WITH SUCH TRANSFER AS WIDER IN SCOPE AND IN OUR OPINION, IT IS NO SO NARR OW TO NOT TO ACCOMMODATE THE PORTFOLIO FEE, WHICH IS PAID UNDISPUTEDLY AND OBV IOUSLY FOR ACQUISITION AND SALE OF THE SECURITIES/UNIT IF ANY. THEREFORE, WE ARE OF OPINION THAT THE IMPUGNED EXPENDITURE IS (I) DIRECTLY CONNECTED TO THE ASSET AND ITS TRANSFER, (II) IT IS GENUINELY INCURRED AS ACCEPTED BY THE REVENUE; (III ) IT IS A BONA FIDE PAYMENTS MADE AS PER THE NORMS OF THE ARMS LENGTH PRINCIPL E SINCE THE M/S ENAM AND THE ASSESSEE ARE UNRELATED; (IV) NECESSITY OF INCUR RING OF EXPENDITURE IS IMMINENT AND IT IS IN THE NORMAL COURSE OF THE INVE STMENT ACTIVITY; AND (V) READ DOWN PROVISIONS OF SECTION 48 OF THE ACT IN VIEW OF THE SAID RATIO IN THE CASE OF SHANTILAL KANTILAL (SUPRA) ACCOMMODATE THE CLAIM OF SUCH EXPENDITURE LEGALLY. 35. FURTHER, THE DECISION OF THE TRIBUNAL IN THE CA SE OF DEVENDRA KOTHARI (SUPRA), WHICH WAS HEAVILY RELIED UPON BY THE LD DR FOR THE REVENUE UNFORTUNATELY DID NOT REFER TO THE SAID READ DOWN INTERPRETATION IN THE CITED 20 JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF THE SHANTILAL KANTILAL (SUPRA). IN ANY CASE, WE FIND THE SAID ORDER OF THE TRIBUNAL IS DISTINGUISHABLE ON FACT IN GENERAL AND THE DISCHARGING OF THE ONUS OF THE ASSESSEE IN DEMONSTRATING THE DIRECT LINKAGE OF THE EXPENDITURE TO THE SHARES AS WELL AS THE CLAIM OF FEE ON THE ENTIRE TURNOVER ON GLOBAL BASIS IE NOT RESTRICTED TO INVESTMENTS ONLY. AS SUCH, IT IS A SETTLED ISSUE TH AT THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER ENJOYS MUCH WIDER ME ANING AND THEREFORE, THE FEE PAID TO THE PORTFOLIO MANAGER IN OUR OPINION HA S TO BE CONSTRUED TO HAVE BEEN EXPENDED FOR THE PURPOSES OF ACQUISITION AND T RANSFER OF THE INVESTMENT OF THE SECURITIES. CONSEQUENTLY, ADJUDICATION OF TH E ISSUE OF ALLOWABILITY OF THE SAID EXPENDITURE UNDER CLAUSES (I) OR (II) OF SECTI ON 48 OF THE ACT IS MERELY AN ACADEMIC EXERCISE. THEREFORE, CONSIDERING THE FACT THERE IS NO SUCH SPECIFIC ISSUE RAISED BEFORE US IN THE GROUNDS, WE REFRAIN F ROM ENTERING INTO THAT ZONE IN THIS ORDER. IT IS ALSO RELEVANT TO MENTIONED THAT T HE ON FACTS, THE EXPENDITURE IS FOR THE TWIN PURPOSE OF ACQUISITION AND SALE OF THE SECURITIES AND HENCE, IT CANNOT BE HELD THE WHOLE OF THE IMPUGNED EXPENDITUR E IS SPENT FOR TRANSFER OF ASSET OR IT SHOULD BE LOADED TO THE COST OF THE SEC URITIES. 36. NON-ALLOCABILITY OF THE EXPENDITURE: IT IS AN A GREED POSITION BETWEEN THE PARTIES THE PAYMENT OF THE PORTFOLIO MANAGEMENT FEE WAS PAID TO M/S ENAM AND OTHERS AND THE SAME IS IN ACCORDANCE WITH THE C ONTENTS OF THE BILATERAL AGREEMENT. THE SERVICES RENDERED BY M/S ENAM ARE AL SO UNDOUBTED. THE TWIN SERVICES RELATING TO THE SAID PORTFOLIO MANAGEMENT INCLUDE (I) ACQUISITION OF SECURITIES FOR THE ASSESSEE-CLIENT AND (II) SALE OF THE SAID SECURITIES FOR THE ASSESSEE-CLIENT. THE PAYMENT OF FEE IS UNDISPUTEDLY UNSPECIFIC TO THE INDIVIDUAL SHARES/SECURITIES. IN FACT, THE REVENUE TAKES AN ARGUMENT BEFORE US THAT TO BECOME THE PART OF THE COST OF THE ACQUISIT ION OF THE ASSET, THE EXPENDITURE IE FEE PAID THE ENAM, HAS TO BE ASSET-S PECIFIC OR SHARE-SPECIFIC PER THE PROVISIONS OF SECTION 48 OF THE ACT. IN OUR OPINION, THE SAME IS ABSURD GIVEN THE FACTS OF THE CASE WHERE THE PORTFOLIO INV ESTMENT ATTRACTS THE PROVISIONS OF SECTION 48 OF THE ACT AND THE ASSET I NVOLVED IS NOT LAND OR BUILDING AND IN FACT THE ASSETS INVOLVED ARE THE SE CURITIES/SHARES/MUTUAL FUNDS ETC. IN MATTERS OF TRANSACTIONS INVOLVING SECURITIE S/SHARES/MUTUAL FUNDS ETC, EXPENDITURE/FEE PAID TO PORTFOLIO MANAGER IS NEVER EACH SHARE SPECIFIC AND IN FACT THEY ARE PAID ON VOLUME BASED. THEREFORE, THE REVENUES ARGUMENT HAS TO BE REJECTED ON THE GROUND OF IMPRACTICABILITY OR NO N-EXISTENT IN THIS LINE OF INVESTMENT ACTIVITY ALONE. CONSIDERING THE GENUINEN ESS AND ESSENTIALITY OF THE PAYMENT OF FEE TO THE PORTFOLIO MANAGER IE ENAM AND UNDISPUTEDLY FOR THE PREDOMINANTLY FOR THE SAID TWIN PURPOSES OF ACQUISI TION AND SALE OF THE SECURITIES, THE CLAIM HAS TO BE ALLOWED. FURTHER, I T IS AN ADMITTED FACT THAT THE BIFURCATION OF EXPENDITURE IS NOT POSSIBLE IN THE G IVEN FACTS OF THE CASE AND THE PAYMENT IS FOR COMPOSITE SERVICES, WHOLLY AND EXCLU SIVELY IN CONNECTION WITH TRANSFER OF THE TRANSFER OF THE SECURITIES. THE EX PENDITURE IS UNDISPUTEDLY FOR THE TWIN PURPOSES OF ACQUISITION OF THE SECURITIES AND THE SALES OF THE SAME. THE EXPENDITURE IS ARRIVED AT ON PROFITS SHARING BA SIS, WHICH IS NOW ALLOWABLE BASIS BY THE SEBI. THE EXPENDITURE IS COMPOSITE ONE AS IT IS FOR THE BOTH THE PURPOSES. THERE IS NO BIFURCATION EITHER BY THE ASS ESSEE OR BY THE REVENUE. IN OUR OPINION, THERE IS NO REQUIREMENT OF BIFURCATION OF THE EXPENDITURE IE A SEGMENT TO FORM PART OF THE COST OF ACQUISITION AND OTHER SEGMENT RELATING TO TRANSFER OF SECURITIES TO REDUCE THE PROFITS AS IT IS NOT THE CASE OF THE REVENUE THAT IT SHALL MAKE SOME DIFFERENCE FROM THE TAX POI NT OF VIEW. THEREFORE, WE RESIST FROM ENTERING INTO THAT CONTROVERSY. 37. NEXT, WE PROCEED TO EXPLAIN THE EXPRESSION SUC H TRANSFER USED IN SECTION 48 OF THE ACT. THE EXPRESSION TRANSFER IS DEFINED SECTION 2(47) OF THE ACT AND IT IS AN INCLUSIVE ONE. HOWEVER, THERE IS NO EXPLANATI ON AS TO FROM WHICH POINT THE CONCEPT OF TRANSFER BEGINS. DOES IT START FRO M THE POINT OF ACQUISITION OF THE ASSET/SHARE? THUS, IN OUR OPINION, THE EXPRESSION TRANSFER INVOLVES VARIOUS SUBCOMPONENTS AND THE FIRST SUB-COMPONENT MUST OF P URCHASE AND POSSESSION OF THE IMPUGNED SECURITIES. UNLESS THE A SSESSEE IS IN POSSESSION OF THE ASSET, HE CANNOT TRANSFER THE SAME. THEREFOR E, THE EXPRESSION 21 EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CON NECTION WITH SUCH TRANSFER READ WITH AS A RESULT OF THE TRANSFER OF THE CAPIT AL ASSET MENTIONED IN SECTION 48 AND 48(I) OF THE ACT MUST NECESSARILY ENCOMPASSE S THE TRANSFER INVOLVED IN THE STAGE OF ACQUISITION OF THE SECURITIES TILL THE STAGE OF TRANSFER INVOLVED IN THE STEP OF SALE OF THE IMPUGNED SECURITIES. SUCH AN IN TERPRETATION OF SEC 48 OF THE ACT IS THE NECESSITY HERE TO AVOID THE LIKELY ABSUR DITY. 38. IN THE PECULIAR CIRCUMSTANCES OF THE PRESENT CA SE, IN OUR CONSIDERED OPINION THE CLAIM OF THE MUST NOT BE REJECTED FOR W ANT OF THE EXPRESS PROVISIONS IN SECTION 48 OF THE ACT AND SUCH AN INTERPRETATION GOES WITH THE SPIRIT OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF M/S SHAKUNTHALA KANTILAL (SUPRA). FURTHER, AS PER THE PRINCIPLES OF ACCOUNTING IE AS-13, AS DISCUSSED ABOVE, THE EXPENDITURE OF THIS KIND IS AL LOWED TO BE LOADED TO THE COST OF ACQUISITION OF THE SECURITIES. THEREFORE, I N PRINCIPLE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE UNDER THE PROVISIONS OF SECTI ON 48 OF THE ACT. HONBLE SUPREME COURT IN THE CASE OF UP STATE INDUSTRIAL DE VELOPMENT CORPORATION (225 ITR 703) WAS DEALING WITH THE ISSUE OF LOADING OF AN UNDERWRITER COMMISSION TO THE COST OF SHARES, HELD THAT THE GEN ERAL PRINCIPLES OF ACCOUNTING HAVE TO BE OBSERVED. REGARDING THE OBJEC TIONS OF THE REVENUE REGARDING THE QUANTIFICATION OF THE CLAIMS OF EXPEN DITURE, IN OUR OPINION, THE JUDGMENTS OF THE SUPREME COURT IN THE CASES OF BHAR AT EARTH MOVERS LTD (SUPRA) AND THE CALCUTTA CO LTD (SUPRA) HELPS THE A SSESSEE AND THEREFORE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE. ACCORDINGLY, RE LEVANT GROUND RELATING TO THE SECOND ISSUE. 10. THE ABOVE DECISION OF THE TRIBUNAL WAS NOT AVAI LABLE BEFORE THE CIT(A) WHILE ADJUDICATING THE ISSUE. WE FIND THE R EVENUE HAS GONE ON APPEAL AGAINST THE ORDER OF THE TRIBUNAL ON THE ISS UE OF TREATMENT OF INCOME FROM PORTFOLIO MANAGEMENT SCHEME AS CAPITAL GAIN OR BUSINESS INCOME. THE RELEVANT ORDER OF THE HONBLE HIGH CO URT IN ITA NO. 3482 OF 2010 DATED 19-07-2011 READS AS UNDER: HEARD. ADMIT ON THE FOLLOWING QUESTION OF LAW :- WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE ITAT WAS JUSTIFIED IN HOLDING THAT THE INCOME EARNED BY THE ASSESSEE BY T HE PORTFOLIO MANAGEMENT SCHEME WAS LIABLE TO BE ASSESSED UNDER THE HEAD CA PITAL GAINS INSTEAD OF BEING ASSESSED UNDER THE HEAD PROFIT &GAINS OF BUSINESS OR PROFESSION? NOTHING WAS FILED BEFORE US TO SUBSTANTIATE THAT TH E REVENUE HAS GONE ON APPEAL AGAINST THE ORDER OF THE TRIBUNAL ALLOWING T HE CLAIM OF PORTFOLIO MANAGEMENT FEES AS AN EXPENDITURE FROM SUCH CAPITAL GAINS. 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR NOTICE BY THE LEA RNED DR WHEREIN IT WAS HELD THAT PORTFOLIO MANAGEMENT SCHEME FEES IS NOT DEDUCT IBLE AGAINST CAPITAL GAINS. THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF KRA HOLDING & TRADING WAS NOT FOLLOWED BY THE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWING OTHER DECISIONS OF THE COORD INATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CAS E OF KRA HOLDING & TRADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRODUCTS 88 ITR 192 (SC)]. FURT HER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALREADY TAKEN A VIEW IN FAVOUR OF THE ASSESSEE. SINCE THE AO & CIT(A) HAVE FOLLOWED THE ORDER FOR EARLIER YEAR IN CASE OF THE ASSESSEE AND SINCE THE ORDER OF CIT(A) FOR E ARLIER YEAR HAS BEEN REVERSED BY THE TRIBUNAL, THEREFORE, UNLESS AND UNTIL THE DE CISION OF THE TRIBUNAL IS REVERSED BY A HIGHER COURT, THE SAME IN OUR OPINION SHOULD BE FOLLOWED. IN THIS 22 VIEW OF THE MATTER, WE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 ALLOW THE CLAI M OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPENDITURE. THE G ROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 11. SINCE BOTH OF US ARE PARTIES TO THE ABOVE CITED DECISION, THEREFORE, FOLLOWING OUR OWN DECISION WE HOLD THAT THE FEES PAID TO THE PMS PROVIDER IS AN ALLOWABLE EXPENDITURE FROM THE CAPITAL GAINS DECLARED BY THE ASSESSEE. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED AND THE GROUNDS IN THE CO FILED BY THE ASSESSEE ARE ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 31 ST DAY OF AUGUST 2012 SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 31 ST AUGUST 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CCIT, PUNE 4. ACIT, RANGE-2, PUNE 5. THE ASSESSING OFFICER (CIRCLE/WARD, RANGE-2, PUN E) 6. THE D.R, A PUNE BENCH 7. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE