Smt. Pushpa Agarwal, CHENNAI V. ITO, CHENNAI

ITA 213/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81164 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-08-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Keywords: Capital asset; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHE NNAI . , , ! ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 213/MDS/2014 / ASSESSMENT YEAR : 2009-10 SMT.PUSHPA AGARWAL, A7 & 8, T.V.K.INDUSTRIAL ESTATE, GUINDY, CHENNAI-600 032 [PAN: AADPA 4479 L] ( # /APPELLANT) VS INCOME TAX OFFICER, WARD-IV(3), CHENNAI-600 034 ( $% # /RESPONDENT) / APPELLANT BY : SHRI PHILIP GEORGE , ADVOCATE / RESPONDENT BY : SHRI S.DAS GUPTA, JCIT / DATE OF HEARING : 05-08-2014 ! / DATE OF PRONOUNCEMENT : 26-09-2014 & / O R D E R PER VIKAS AWASTHY, J.M: THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUGNIN G THE ORDER OF COMMISSIONER OF INCOME TAX(APPEALS)-V, CHE NNAI DATED 29-10-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 9-10. 2. THE ONLY ISSUE IN APPEAL IS DIS-ALLOWANCE OF PAY MENT OF PORTFOLIO MANAGEMENT SERVICE [PMS] FEE AMOUNTING TO ` 56.00 LAKHS. ITA NO. 213/MDS/2014 2 THE ASSESSEE FILED HER RETURN OF INCOME FOR THE AY. 2009-10 ON 27-07-2009 DECLARING INCOME OF ` 52,136/-. IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED LONG TERM CAPITAL LOSS OF ` 1,04,33,500/- ON REDEMPTION OF DEBT INSTRUMENTS. T HE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE ASSESSEE ON 23-08-2010. THE ASSESSEE HAD INVESTED AN AMOUNT OF ` 20.00 CRORES IN NCD 156 ISIN SERIES ISSUED BY CITI CORP FINANCE INDIA LTD. THE ASSESSE E HAD ALSO PAID PMS FEE TO RELIANCE PORTFOLIO MANAGEMENT FOR MAKING AFORESAID INVESTMENTS. THE PMS FEE WAS PAID ONLY ONCE I.E., AT THE TIME OF PURCHASE OF DEBT INSTRUMENTS. AT THE TIME OF REDEM PTION OF SECURITIES, THE ASSESSEE TREATED PMS FEE TOWARDS TH E COST OF ACQUISITION OF INSTRUMENTS. THE ASSESSING OFFICER HELD THAT THE AMOUNT OF ` 56.00 LAKHS PAID AS PMS CHARGES CANNOT BE A PART OF PURCHASE COST OF INSTRUMENTS AND DIS-ALLOWED THE SA ME. AGGRIEVED BY THE ASSESSMENT ORDER DATED 26-12-2011 , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS ). THE CIT(APPEALS) BY PLACING RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT REPORTED AS 50 DTR 369; 132 ITD 173 (MUM) UPHELD THE FINDINGS OF ASSESSING OFFICER AND DISMISSED THE APPEAL OF TH E ASSESSEE. ITA NO. 213/MDS/2014 3 AGGRIEVED BY THE ORDER OF FIRST APPELLATE AUTHORITY , NOW, THE ASSESSEE HAS COME IN SECOND APPEAL BEFORE THE TRIBU NAL. 3. SHRI PHILIP GEORGE, APPEARING ON BEHALF OF THE A SSESSEE SUBMITTED THAT ASSESSEE IS NOT INTO TRADING OF SECU RITIES. THE ONLY INVESTMENT MADE BY THE ASSESSEE IN SECURITIES WAS T HE PRESENT INVESTMENT IN DEBT INSTRUMENTS AND THE PMS FEE WAS PAID FOR THIS SINGLE INVESTMENT. THEREFORE, THE AMOUNT PAID IS I NEXTRICABLY LINKED WITH THE PARTICULAR PURCHASE AND SALE OF DEB T INSTRUMENT. THE PAYMENT OF PMS CHARGES ARE WHOLLY AND EXCLUSIVE LY IN CONNECTION WITH THE ACQUISITION OF DEBT INSTRUMENTS . THE LD.COUNSEL FURTHER SUBMITTED THAT PMS FEE PAID BY THE ASSESSEE WAS PERCENTAGE OF THE COST OF INVESTMENT PAID AT THE TI ME OF PURCHASE WHICH IS SIMILAR TO BROKERAGE PAID TO INTERMEDIARY AND THE COST IS DIRECTLY ATTRIBUTABLE TO THE SAID SECURITY. HENCE, PMS FEE PAID BY ASSESSEE IS ELIGIBLE FOR DEDUCTION IN COMPUTING CAP ITAL GAINS U/S.48 OF THE ACT. THE LD.COUNSEL FURTHER PLACED ON RECOR D A PHOTO COPY OF THE DISCRETIONARY PORTFOLIO MANAGEMENT AGREEMENT ENTERED BETWEEN THE ASSESSEE AND RELIANCE CAPITAL ASSET MAN AGEMENT LTD. THE LD.COUNSEL POINTED THAT IN PARA 5.3 OF TH E SAID AGREEMENT IT HAS BEEN SPECIFICALLY STATED THAT THE INITIAL AM OUNT OF FUNDS TO BE PLACED BY THE CLIENT IS AGREED AT ` 20,56,00,000/- ONLY. THE ITA NO. 213/MDS/2014 4 LD.COUNSEL IN ORDER TO BUTTRESS HIS SUBMISSIONS PLA CED RELIANCE ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KRA HOLDING AND TRADING (P) LTD., VS. DCIT REPORTED AS 46 SOT 19 (PUNE). WHEREIN PMS FEE HAS BEEN ALLOWED AS EXPENDITURE. 4. AU CONTRAIRE SHRI S.DAS GUPTA, APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF CIT(APPEA LS). THE LD.DR IN ORDER TO STRENGTHEN THE FINDINGS OF CIT(AP PEALS) PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRI BUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT (SUPRA). THE LD.DR CONTENDED THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE SAID CASE HAS EXPRESSLY HELD THAT FEE PAID FOR PMS IS NOT WHO LLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER OF SHAR ES AND SECURITIES, THEREFORE, IS NOT ELIGIBLE FOR DEDUCTION IN COMPUTI NG CAPITAL GAIN U/S.48 OF THE ACT. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVAL PARTIES. WE HAVE ALSO EXAMINED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS ON WHICH BOTH THE SIDES HAVE PLACED RELIA NCE. THE ONLY ISSUE IN APPEAL IS; WHETHER PMS CHARGES ARE ALLOWAB LE EXPENDITURE IN COMPUTING LONG TERM CAPITAL GAINS U/ S.48 OF THE ACT? ITA NO. 213/MDS/2014 5 IN OUR CONSIDERED VIEW, THIS IS A QUESTION OF FACT WHICH HAS TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH C ASE. IN THE PRESENT CASE, THE ASSESSEE TREATED THE PAYMENT OF P MS FEE, AS COST OF ACQUISITION OF ASSET. THE REVENUE DIS-ALLO WED THE SAME BY FOLLOWING THE DECISION OF MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT (SUPRA). AS PER THE PROVISIONS OF SECTION 48 OF THE ACT, FOR COMPUTING CAPITAL GAINS, EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH TRANSFER OF THE ASSET, THE COST OF ACQUISITION OF T HE ASSET AND THE COST OF IMPROVEMENTS IF ANY, HAVE TO BE DEDUCTED FR OM THE FULL VALUE OF SALE CONSIDERATION. IN THE INSTANT CASE, THE ASSESSEE HAS PURCHASED DEB T INSTRUMENT TO THE TUNE OF ` 20.00 CRORES AND HAS MADE FURTHER PAYMENT OF ` 56.00 LAKHS TO PORTFOLIO MANAGEMENT SERVICE PROVIDER FOR ACQUIRING DEBT INSTRUMENTS. THE PAYME NT OF PMS IS AT THE TIME OF ACQUIRING THE DEBT INSTRUMENTS AND IS N OT A RE-OCCURRING FEATURE. IT IS FURTHER EVIDENT FROM RECORDS, THAT THE ASSESSEE HAS INVESTED THE AMOUNT OF ` 20.00 CRORES IN SOLE DEBT INSTRUMENT AND DOES NOT HAVE DIVERSIFIED INVESTMENT PORTFOLIO. TH US, THE FACTS ARE EXPLICIT THAT THE ASSESSEE MADE PAYMENT OF ` 56.00 LAKHS TOWARDS PMS FEE WHOLLY AND EXCLUSIVELY FOR ACQUIRING DEBT I NSTRUMENTS. THERE IS A DIRECT NEXUS WITH THE PURCHASE & SALE OF DEBT ITA NO. 213/MDS/2014 6 INSTRUMENTS AND THE PAYMENT OF PMS FEE. A PERUSAL OF PORTFOLIO MANAGEMENT AGREEMENT BETWEEN THE ASSESSEE AND RELIA NCE CAPITAL ASSET MANAGEMENT LTD., DT.28-11-2006 SHOWS THAT THE ASSESSEE HAS PAID A TOTAL SUM OF ` 20,56,00,000/- FOR THE INVESTMENT PURPOSES. ANNEXURE-I TO THE SAID AGREEM ENT FURTHER INDICATES, THAT THE FIXED MANAGEMENT FEE SHALL BE C HARGED @ 2.8% OF THE INITIAL PORTFOLIO VALUE. THE SAID MANAGEMEN T FEE IS ONLY FOR UP FRONT LOAD. THE FACTS ARE ELOQUENT ENOUGH TO SH OW THAT PMS CHARGES ARE INEXTRICABLY LINKED WITH THE PURCHASE A ND SALE OF DEBT INSTRUMENTS. 6. THE LD.DR AND THE AUTHORITIES BELOW HAVE PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT (SUPRA) TO REJECT THE CLAIM OF THE ASSESSEE. IN THE SAID CASE, THE FEE PAID BY THE AS SESSEE FOR PMS WAS ADDED TO THE PURCHASE COST OF SHARES WHILE COMP UTING THE LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAINS . THE REVENUE REJECTED THE CLAIM OF THE ASSESSEE. THE AS SESSEE CARRIED APPEAL TO THE TRIBUNAL. THE TRIBUNAL OBSER VED, THAT THE ASSESSEE HAD FAILED TO EXPLAIN HOW THE SAID FEE COU LD BE CONSIDERED AS COST OF ACQUISITION OF SHARES AND SEC URITIES OR THE COST OF ANY IMPROVEMENT THERE TO. THE ASSESSEE FAI LED TO SHOW ITA NO. 213/MDS/2014 7 THE DIRECT NEXUS WITH THE PURCHASE AND SALE OF SHAR ES AND THE PAYMENT OF FEE. THE FEE WAS PAID BY THE ASSESSEE E VEN WITHOUT THERE BEING ANY PURCHASE OR SALE OF SHARES IN A PAR TICULAR PERIOD. HAVING REGARDS TO THE FACTS OF THE CASE, THE TRIBUN AL HELD THAT THE FEE PAID BY THE ASSESSEE FOR PMS WAS NOT INEXTRICAB LY LINKED WITH PARTICULAR INSTANCES OF PURCHASE AND SALE OF SHARES AND SECURITIES, SO AS TO TREAT THE SAME AS EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY IN CONNECTION WITH SUCH SALE OR THE COS T OF ACQUISITION/IMPROVEMENT OF THE SHARES AND SECURITIE S. THEREFORE, IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE , THE PAYMENT OF PMS CHARGES WERE HELD TO BE NOT ELIGIBLE FOR DEDUCT ION IN COMPUTING CAPITAL GAINS U/S.48 OF THE ACT. 7. THE FACTS OF THE CASE ON WHICH REVENUE HAS PLACE D RELIANCE ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE CASE I N HAND. IN THE INSTANT CASE, IT IS EVIDENT FROM RECORDS THAT PMS C HARES HAVE BEEN PAID BY THE ASSESSEE ONLY ONCE THAT IS AT THE TIME OF ACQUIRING DEBT INSTRUMENTS. IT IS NOT IN DISPUTE THAT THE ASSESSE E HAS INVESTED IN ONLY ONE SECURITY/DEBT INSTRUMENT. THUS, THE PAYME NT OF PMS FEE IS IDENTIFIABLE WITH THE ACQUISITION OF SECURITY. THE DIRECT NEXUS BETWEEN THE PAYMENT OF FEE AND ACQUISITION OF SECUR ITIES/DEBT INSTRUMENT IS ESTABLISHED. WE ARE OF THE CONSIDERE D OPINION, THAT ITA NO. 213/MDS/2014 8 THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DEVENDRA MOTILAL KOTHARI VS. DCIT (SUPRA) WILL HAVE NO APPLICATION IN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN VIEW OF OUR DETAILED FINDINGS, WE ACCEPT THE CON TENTIONS OF THE ASSESSEE. WE HOLD, THAT IN THE FACTS OF THE CA SE, PMS FEE PAID BY THE ASSESSEE IS ALLOWABLE AS COST OF ACQUISITION FOR COMPUTING CAPITAL GAINS U/S.48 OF THE ACT. THE IMPUGNED ORDER IS SET ASIDE. THE APPEAL OF TH E ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY , THE 26 TH SEPTEMBER, 2014 AT CHENNAI. SD/- SD/- ( . ) ( ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER (VIKAS AWASTHY) ! / JUDICIAL MEMBER '# /CHENNAI, $% /DATED: 26 TH SEPTEMBER, 2014 TNMM %& '()( /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. *+, /CIT(A) 4. * /CIT 5. (-. / /DR 6. .01 /GF