SCIL CAPITAL INDIA P. LTD ( FORMERLY KNOWN AS SCIL CAPITAL INDIA LTD), MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 1337/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71891 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: K K VED
• Keywords: Revised return

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E B ENCH, MUMBAI . . , , , ! ' BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY AROR A, AM ./ I.T.A. NO. 1337/MUM/2012 ( # # # # $ $ $ $ / ASSESSMENT YEAR : 2007-08 M/S. SCIL CAPITAL INDIA PVT. LTD., (FORMERLY KNOWN AS SCIL CAPITAL INDIA LTD.), MITTAL CHAMBERS, 228, NARIMAN POINT, MUMBAI-400 021 THE DCIT, CIRCLE-3(3), AAYAKAR BHAVAN, MUMBAI-400 020 % ! ./ & ./PAN/GIR NO. : AAACS 8065J ( %' /APPELLANT ) .. ( ()%' / RESPONDENT ) %' * / APPELLANT BY : ` SHRI K.K. VED ()%' + * /RESPONDENT BY : SHRI M. L. PERUMAL # + ,-! / DATE OF HEARING :10.12.2013 .$ + ,-! / DATE OF PRONOUNCEMENT : 10.12.2013 / / O R D E R PER I.P. BANSAL, JM: THIS APPEAL IS FILED BY THE ASSESSEE. IT IS DIRECT ED AGAINST THE ORDER PASSED BY THE LD. CIT(A) DT. 25.10.20-11 PERTAINING TO A.Y. 2007-08. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : RE.: DISALLOWANCE OF PORTFOLIO MANAGEMENT FEES OF R S. 1,42,411/- WHILE COMPUTING SHORT TERM CAPITAL 2AINS: ITA NO.1337/M/2012 2 1.1. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF D ISALLOWING THE PORTFOLIO MANAGEMENT FEES OF RS. 1,42,411/- WHI LE COMPUTING THE SHORT TERM CAPITAL GAINS FOR THE YEAR UNDER CONSIDERATION. 1.2. THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AN D CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE PORTFOLIO MANAGEMENT FEES IS AN EXPENDI TURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF THE SHORT TERM ASSETS WHICH HAS RESULTE D IN SHORT TERM CAPITAL GAINS AND HENCE NO DISALLOWANCE IS CAL LED FOR WHILE COMPUTING THE SAID SHORT TERM CAPITAL GAINS A ND THE STAND TAKEN BY THE ASSESSING OFFICER IS ERRONEOUS A ND THE COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE HELD AS SUCH. 1.3. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO DELETE THE DISALLOWANCE SO MADE BY HIM AND TO RE -COMPUTE ITS TOTAL INCOME ACCORDINGLY. 3. AS IT CAN BE SEEN FROM THE GROUNDS OF APPEAL, TH E ONLY ISSUED RAISED BY THE ASSESSEE IS REGARDING DISALLOWANCE OF PORTFO LIO MANAGEMENT FEES OF RS. 1,42,411/- OUT OF SHORT TERM CAPITAL GAIN IN COME ASSESSED IN THE HANDS OF THE ASSESSEE. 4. THIS ISSUE WAS STATED TO BE COVERED IN FAVOUR OF THE REVENUE BY SEVERAL DECISIONS OF MUMBAI ITAT. THE LATEST BEING ONE CITED BEFORE US IS THE ORDER OF THE TRIBUNAL DT. 13.2.2013 PASSED I N ITA NO. 3713/M/2011 IN THE CASE OF SHRI HARISH Z BHUPTANI VS ITO, COPY OF WHICH WAS PLACED BEFORE US AND WAS ALSO GIVEN TO LD. AR. THE ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE WITH THE FOLLOWING OBSERVATIONS: 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A NON- RESIDENT RESIDING IN UGANDA FILED A REVISED RETURN OF INCOME, INTER ALIA SHOWING SHORT TERM CAPITAL GAINS ON SALE OF S HARES AMOUNTING ITA NO.1337/M/2012 3 TO RS. 1,61,850/-. THE ASSESSING OFFICER NOTICED T HAT THE ASSESSEE HAD DEDUCTED A SUM OF RS. 3,29,540/- FROM SHORT TER M CAPITAL GAINS TOWARDS PORTFOLIO MANAGEMENT FEES AND OTHER RELATED EXPENSES. HE REFUSED SUCH DEDUCTION AND ADOPTED THE INCOME FROM SHORT TERM CAPITAL GAINS AS INCREASED BY SUCH AMOUNT. NO RELI EF WAS ALLOWED IN THE FIRST APPEAL. 4. AFTER CONSIDERING RIVAL SUBMISSIONS AND PERUSING RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSU E HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE MUMBAI BENCHES OF THE TRIBUNAL ON SEVERAL OCCASIONS. IN THE CASE OF HOMI K. BHABHA VS. ITO (2011) 48 SOT 102 (MUM), THE TRIBUNAL HAS HELD THAT THE PORTFOLIO MANAGEMENT FEES IS NOT DEDUCTIBLE IN THE COMPUTATION OF CAPITAL GAINS. IN TAKING THIS DECISION, THE TRIBUNA L FOLLOWED ANOTHER ORDER PASSED BY THE MUMBAI BENCH OF THE TRI BUNAL IN DEVENDRA MOTILAL KOTHARI (2011) 50 DTR 369 (MUM-TRI B) IN PREFERENCE TO THE CONTRARY ORDER PASSED BY THE PUNE BENCH IN KRA HOLDING AND TRADING VS. DCIT (2011) 46 SOT 19(PUNE) . THE LEARNED AR WAS FAIR ENOUGH TO CONCEDE THAT THE MUMB AI BENCHES OF THE TRIBUNAL HAVE DECIDED SIMILAR ISSUE AGAINST THE ASSESSEE IN CERTAIN OTHER CASES ALSO INCLUDING CASE OF DEVENDRA KOTHARI, SHRI KUSHAL N. DESAI AND PRADEEP KUMAR HARLAKA. A LIST O F SUCH CASES HAS BEEN VERY FAIRLY PROVIDED BY LEARNED AR AT PAGE 94 OF THE PAPER BOOK. 5. IT WAS HOWEVER CONTENDED BY THE LD. AR THAT THE DECISION TAKEN BY THE MUMBAI BENCHES IN SUCH CASES SHOULD NOT BE FOLLOWED BECAUSE THE AMOUNT OF PORTFOLIO MANAGEMENT FEES WAS NOT PAID BY THE ASSESSEE DIRECTLY, BUT IT WAS A CASE OF THE PROFIT REALIZED NET OF PORTFOLIO MANAGEMENT FEES. IT WAS, THEREFORE , SUBMITTED THAT THE DEDUCTION OUGHT TO HAVE BEEN ALLOWED. HE ALSO A RGUED THAT THE DECISION IN THESE CASES AGAINST THE ASSESSEE HAS BE EN RENDERED WITHOUT CONSIDERING THE JUDGEMENT OF HON'BLE SUPREM E COURT IN THE CASE OF CIT VS. SITALDAS TIRATHDAS (1961), 41 I TR 367. 6. IN OUR CONSIDERED OPINION, THE JUDGEMENT RENDERE D BY HON'BLE SUPREME COURT IN THE CASE OF SITALDAS TIRTH DAS (SUPRA) IS NOT RELEVANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THAT CASE, DEDUCTION WAS CLAIMED FROM THE TOTAL INCOME T OWARDS AMOUNT PAID UNDER CONSENT DECREE AS MAINTENANCE TO WIFE AN D CHILDREN. THE ITO, AAC AND TRIBUNAL DECIDED AGAINST THE GRANT ING OF DEDUCTION. HOWEVER, THE HON'BLE HIGH COURT HELD THA T THE INCOME TO THE EXTENT OF DECREE MUST BE TAKEN TO HAVE BEEN DIVERTED TO THE ITA NO.1337/M/2012 4 WIFE AND CHILDREN AND NEVER COMING IN THE HANDS OF THE ASSESSEE. SETTING ASIDE THE JUDGEMENT, THE HON'BLE SUPREME CO URT HELD THAT THERE IS A DIFFERENCE BETWEEN AN AMOUNT WHICH A PER SON IS OBLIGED TO APPLY OUT OF HIS INCOME AND AN AMOUNT WHICH BY T HE NATURE OF THE OBLIGATION CANNOT BE SAID TO BE A PART OF THE I NCOME OF THE ASSESSEE. RESULTANTLY, THE ASSESSEE WAS HELD TO BE NOT ENTITLED TO DEDUCTION. 7. AT THIS JUNCTURE, IT IS RELEVANT TO NOTE ANOTHER JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF J .B. BODA & CO. PVT. LTD. VS. CBDT (SC) (1997) 223 ITR 271 (SC) . IN THIS CASE, THE QUESTION WAS ABOUT THE GRANTING OF DEDUCTION U/ S. 80-O ON RECEIPT FROM FOREIGN ENTERPRISES IN CONVERTIBLE FOR EIGN EXCHANGE. THE ASSESSEE AFTER COLLECTING REINSURANCE PREMIUM F ROM THE INSURANCE COMPANY IN INDIA REMITTED THE SAME TO THE FOREIGN REINSURERS AFTER DEDUCTING ITS BROKERAGE. THE CBDT DISAPPROVED THE ARRANGEMENTS FOR THE PURPOSE OF SECTION 80-O FO R THE REASON THAT THE BROKERAGE INCOME WAS GENERATED IN INDIA AN D, HENCE, NOT RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE AS REQUIRE D UNDER THE PROVISIONS OF SECTION 80-O. WHEN THE MATTER CAME U P BEFORE THE HON'BLE SUPREME COURT, THE ASSESSEE WAS HELD TO BE ENTITLED TO DEDUCTION U/S. 80-O BECAUSE A TWO WAY TRAFFIC WAS F OUND UNNECESSARY. HON'BLE SUPREME COURT OBSERVED THAT T O INSIST ON A FORMAL REMITTANCE TO THE FOREIGN REINSURERS FIRST A ND THEREAFTER TO RECEIVE THE COMMISSION FROM THE FOREIGN REINSURER, WOULD BE AN EMPTY FORMALITY AND A MEANINGLESS RITUAL. 8. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT I S OBSERVED THAT THERE IS QUALITATIVE DIFFERENCE BETWEEN TWO SI TUATIONS, VIZ., ONE , WHERE PORTFOLIO MANAGEMENT FEES IS DIRECTLY PAID AND TWO, WHERE SALE PROCEEDS OR PROFIT IS RECEIVED NET OF PORTFOLI O MANAGEMENT FEES. IN BOTH THE CASE, IT IS NOT A CASE OF DIVERSI ON OF INCOME BUT THAT OF THE APPLICATION OF INCOME. IN OUR CONSIDERE D OPINION NO ASSISTANCE CAN BE TAKEN FROM THE JUDGEMENT IN THE C ASE OF SITALDAS THIRATHDAS (SUPRA). RESPECTFULLY FOLLOWING SEVERAL ORDERS PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL, WE UPHOLD THE IMPUGNED ORDER DISALLOWING THE PORTFOLIO MANAGEMENT FEE IN C OMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS. 9. IN THE RESULT, THE APPEAL IS DISMISSED. ITA NO.1337/M/2012 5 5. AS AGAINST ABOVE, IT IS THE CASE OF THE ASSESSEE THAT PUNE BENCH ON THE SIMILAR ISSUE HAS ALLOWED THE CLAIM REGARDING P ORTFOLIO MANAGEMENT FEES AND REFERENCE WAS MADE TO THE DECISION OF PUNE BENCH IN THE CASE OF KRA HOLDING & TRADING PVT. LTD. VS DCIT VIDE ORDER DT. 25.7.2012 IN ITA NO. 240/PN/2011. 6. THE ASSESSEE ALSO SOUGHT REFERENCE TO SPECIAL BE NCH WHICH WAS REFERRED BY THE BENCH TO HONBLE PRESIDENT. HOWEVE R, THE REQUEST FOR CONSTITUTION OF THE SPECIAL BENCH WAS REJECTED BY H ONBLE PRESIDENT IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT VS ROSHANBABU MOHAMMED HUSSEIN MERCHANT 275 ITR 231 AND ALSO THE DECISION OF MUMBAI ITAT IN THE AFOREMENTIO NED CASE OF SHRI HARISH Z BHUPTANI (SUPRA). ACCORDINGLY, THIS CASE WAS AGAIN FIXED FOR HEARING BY THE DIVISION BENCH. 7. THOUGH THE LD. AR ACCEPTED THAT THIS ISSUE IS C OVERED IN FAVOUR OF THE REVENUE BY THE SEVERAL DECISIONS OF ITAT MUMBA I BUT AT THE SAME TIME HE SUBMITTED THAT PUNE BENCH SUBSEQUENT TO THE EARLIER DECISION HAS TAKEN THE VIEW WHICH IS FAVOURABLE TO THE ASSESSEE. HE, IN THIS REGARD REFERRED TO THE DECISION OF THE PUNE BENCH OF TRIBU NAL WHICH IS DT. 31 ST AUGUST, 2012 PASSED IN THE CASE OF DCIT VS ASHA PAR AKH IN ITA NO. 630/PN/2011 AND C.O. NO. 13/PN/2011 . HE SUBMITTED THAT IN THIS CASE, TRIBUNAL HAS TAKEN NOTE OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS ROSHANBABU MOHAMMED HUS SEIN MERCHANT (SUPRA). HOWEVER, LD. AR ADMITTED THAT THE DECISIO N OF PUNE BENCH OF TRIBUNAL HAS RELIED UPON THE EARLIER DECISION OF BO MBAY HIGH COURT IN THE CASE OF CIT VS SHAKUNTALA KANTILAL 190 ITR 56. THE LD. AR IS ALSO AWARE OF THE FACT THAT THE SAID DECISION OF BOMBAY HIGH COURT HAS BEEN HELD TO BE NOT A GOOD LAW IN THE SUBSEQUENT DECISIO N IN THE CASE OF CIT VS ITA NO.1337/M/2012 6 ROSHANBABU MOHAMMED HUSSEIN MERCHANT WITH THE FOLLO WING OBSERVATION: AS REGARDS THE DECISIONS OF THIS COURT IN THE CASE OF SHAKUNTALA KANTILAL (SUPRA) FOLLOWED IN THE CASE OF ABRAR ALVI (SUPRA) AND THE DECISIONS OF THE KERALA HIGH COURT IN THE CASE OF SMT. THRESSIAMMA ABRAHAM (SUPRA) WHICH ARE STRONGLY RELIED UPON BY THE COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THE SAID DECISIONS ARE NO LONGER GOOD LAW IN THE LIGHT OF THE SUBSEQUENT DECISIONS OF THE APEX COURT REFERRED TO HEREINABOVE . 8. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, RESPECTFULLY FOLLOWING THE DECISION OF ITAT MUMBAI IN THE CASE OF SHRI HARISH Z BHUPTANI VS ITO (SUPRA), WE DISMISS THE AP PEAL FILED BY THE ASSESSEE. THE RELEVANT OBSERVATION OF THE TRIBUNAL HAVE ALREADY BEEN REPRODUCED ABOVE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.12.2013 . / + $ ! 0 1#2 10.12.2013 + 3 SD/- SD/- (SANJAY ARORA) (I.P. BANSAL ) ! / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 1# DATED 10/12/2013 . # . ./ RJ , SR. PS ITA NO.1337/M/2012 7 / / / / + ++ + (,4 (,4 (,4 (,4 5 4$, 5 4$, 5 4$, 5 4$, / COPY OF THE ORDER FORWARDED TO : 1. %' / THE APPELLANT 2. ()%' / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 473 (,# , , / DR, ITAT, MUMBAI 6. 38 9 / GUARD FILE. /# /# /# /# / BY ORDER, )4, (, //TRUE COPY// : :: : / ; ; ; ; (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI