RDA Holding & Trading Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 2166/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85091 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Assessee Lawyers: R D ONKAR
• Keywords: Business income; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.2166/PN/2013 (ASSESSMENT YEAR : 2007-08) RDA HOLDING & TRADING PVT. LTD., 12, BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE 411 001. PAN : AAACR9831K . APPELLANT VS. ADDL. COMMISSIONER OF INCOME TAX, RANGE- 6, PUNE. . RESPONDENT ASSESSEE BY : MR. R. D. ONKAR DEPARTMENT BY : MR. P. S. NAIK DATE OF HEARING : 21-10-2014 DATE OF PRONOUNCEMENT : 29-10-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE DATED 17.10.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 15.12.2009 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS AGAINST THE ACTION OF THE INCOME-TAX AUTHORITIES IN NOT ALLOWIN G THE DEDUCTION OF PORTFOLIO MANAGEMENT SERVICES (PMS) FEES PAID BY THE ASSESSEE OF RS.2,23,05,158/- WHILE COMPUTING INCOME FROM CAPITAL GAINS. AS PER THE ASSESSEE, THE PMS FEE REPRESENTS EXPENDITURE INCURRED WHOLLY AND EXCLUSIV ELY IN CONNECTION WITH THE PURCHASE AND SALE OF SECURITIES MANAGED UNDER A POR TFOLIO MANAGEMENT BY THE PMS MANAGER AND IS THUS A DEDUCTIBLE EXPENDITUR E WHILE COMPUTING CAPITAL GAINS. ITA NO.2166/PN/2013 3. THE APPELLANT BEFORE US IS A COMPANY INCORPORATE D UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS REGISTERED WITH R ESERVE BANK OF INDIA AS AN INVESTMENT COMPANY BELONGING TO THE PROMOTERS OF THE THERMAX GROUP OF COMPANIES. FOR THE ASSESSMENT YEAR UNDER CONSIDERA TION, ASSESSEE WAS FOUND TO HAVE PLACED ITS FUNDS WITH THE PORTFOLIO M ANAGER FOR INVESTMENT IN SHARES. ASSESSEE EARNED CAPITAL GAINS ON SALE OF S HARES/UNITS AND CLAIMED THE PMS FEE PAID AS DEDUCTIBLE FROM THE CAPITAL GAI NS. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HELD THAT A SUM OF RS.2,23,05 ,158/- ON ACCOUNT OF PMS FEE WAS NOT AN ALLOWABLE DEDUCTION WHILE COMPUTING CAPITAL GAINS IN TERMS OF SECTION 48 OF THE ACT. THE CIT(A) HAS HELD THE ISS UE AGAINST THE ASSESSEE FOLLOWING HER PREDECESSORS ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. IN-FACT, THE CIT(A) HAS REPRODUCED THE OR DER OF HER PREDECESSOR FOR ASSESSMENT YEAR 2008-09 AND FOLLOWED THE REASONING CONTAINED THEREIN TO DENY THE CLAIM OF THE ASSESSEE. HENCE, THE PRESENT APPEAL OF THE ASSESSEE BEFORE US. 4. AT THE TIME OF HEARING, LEARNED REPRESENTATIVE F OR THE ASSESSEE POINTED OUT THAT THE ORDER OF THE CIT(A) FOR ASSESSMENT YEA R 2008-09 DATED 31.01.2012, WHICH HAS BEEN FOLLOWED BY THE CIT(A) I N THE PRESENT IMPUGNED ORDER, HAS SINCE BEEN SET-ASIDE BY THE TRIBUNAL VID E ITS ORDER IN ITA NO.825/PN/2013 DATED 30.07.2014. A COPY OF THE SAI D PRECEDENT HAS BEEN PLACED ON RECORD. THE LEARNED DEPARTMENTAL REPRESE NTATIVE APPEARING FOR THE REVENUE HAS NOT CONTROVERTED THE AFORESAID FACTUAL MATRIX BROUGHT OUT BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE. 5. THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2008-09 (SUPRA) CONSIDERED AN IDENTICAL ISSUE RELATING TO T HE DEDUCTION OF PART OF PMS FEE PAID BY THE ASSESSEE WHILE COMPUTING CAPITAL GA INS. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL IS RELEVANT :- ITA NO.2166/PN/2013 6. THE ISSUE BEFORE US IS WITH REGARD TO DEDUCTION OF PART OF PORTFOLIO MANAGERS (PMS) FEE PAID BY THE ASSESSEE WHILE COMPUTING CAPITAL GAIN. WE FIND THAT ITAT PUNE A BENCH IN THE CASE OF ARA HOLDING & TRADING PVT. LTD. AND OTHERS IN ITA NO.94/PN/2012, HAS DECI DED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS AND ALSO THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIBUNAL DATED 25.07.2012 (SUPRA). IN THE SAID CASE , THE TRIBUNAL CONSIDERED THE ALLOWABILITY OF EXPENDITURE INCURRED BY WAY OF PAYMENT OF FEES OF ENAM ASSET MANAGEMENT COMPANY PVT. LTD. IN TERMS OF THE INVESTMENT AGREEMENT DATED 01.01.2005, WHICH IS PRE CISELY THE ISSUE BEFORE US ALSO. THE TRIBUNAL REFERRED TO ITS EARLIE R DECISION IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 VID E ORDER DATED 31 ST MAY, 2011 (SUPRA) AND NOTICED THAT THE ISSUE HAS B EEN DECIDED IN FAVOUR OF THE ASSESSEE. THEREAFTER, THE TRIBUNAL NO TED THAT AGAINST THE DECISION OF THE TRIBUNAL DATED 31 ST MAY, 2011 (SUPRA), REVENUE PREFERRED AN APPEAL BEFORE THE HONBLE SUPREME COUR T ONLY ON THE ISSUE TREATMENT OF INCOME FROM THE SALE OF SHARES A S CAPITAL GAIN OR BUSINESS INCOME AND THAT THE REVENUE HAD NOT PREF ERRED ANY APPEAL AGAINST THE ORDER OF THE TRIBUNAL ALLOWING THE CLAI M OF DEDUCTION OF EXPENDITURE BY WAY OF PORTFOLIO MANAGEMENT FEE REPR ESENTING PAYMENTS TO ENAM ASSET MANAGEMENT COMPANY PVT. LTD. WHILE COMPUTING THE INCOME UNDER THE HEAD CAPITAL GAINS . AFTER NOTICING THE AFORESAID THE TRIBUNAL CONCLUDED AS UNDER IN PA RA 11 OF ITS ORDER DATED 25.07.2012 :- 11. THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR N OTICE BY THE LEARNED DR WHEREIN IT WAS HELD THAT PORTFOLIO M ANAGEMENT SCHEME FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS . THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF KRA HOLDING & TRADING WAS NOT FOLLOWED BY THE MUMBAI BE NCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWIN G OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE OF KRA HOLDING & TR ADING (SUPRA). IT IS THE SETTLED PROPOSITION OF LAW THAT WHEN TWO VIEW ARE POSSIBLE ON THE SAME ISSUE THE VIEW WHICH IS FA VOURABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PRODUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALREADY TAKEN A VIEW IN FAV OUR OF THE ASSESSEE. SINCE THE AO & CIT(A) HAVE FOLLOWED THE O RDER FOR EARLIER YEAR IN THE CASE OF THE ASSESSEE AND SINCE THE ORDER OF CIT(A) FOR EARLIER YEAR HAS BEEN REVERSED BY THE TR IBUNAL, THEREFORE, UNLESS AND UNTIL THE DECISION OF THE TRI BUNAL IS REVERSED BY A HIGHER COURT, THE SAME IN OUR OPINION SHOULD BE FOLLOWED. IN THIS VIEW OF THE MATTER, WE RESPECTFUL LY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A. Y. 2004-05 ALLOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPENDITURE. THE GROUND RAISED BY THE ASS ESSEE IS ACCORDINGLY ALLOWED. 14. FOLLOWING THE AFORESAID PRECEDENT, WHICH HAS CO NSIDERED THE SIMILAR OBJECTIONS OF THE CIT(A), IN OUR CONSIDERED OPINION, THE ORDER OF THE CIT(A) IN THE PRESENT CASE IS UNTENABLE AND WE ACCORDINGLY SET- ASIDE THE SAME AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. ITA NO.2166/PN/2013 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AC CORDINGLY ALLOWED. 6.1 WE ALSO FIND IN THE CASE OF DCIT VS. KRA HOLDIN G & TRADING PVT. LTD. IN ITA NO.356/PN/2011, ITAT, PUNE A BEN CH HAS DECIDED A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UND ER: 10. THE ABOVE DECISION OF THE TRIBUNAL WAS NOT AVA ILABLE 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 HONB LE HIGH COURT 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 THE PORTFOLIO MANAGEMENT SCHEME WAS LIABLE TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS INSTEAD OF BEING ASS ESSED 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 ALLOWIN G THE CLAIM OF PORTFOLIO MANAGEMENT FEES AS AN EXPENDITURE FROM SU CH CAPITAL GAINS. 11. THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HOMI K. BHABHA VS. ITO WAS BROUGHT TO OUR NOTICE BY THE LEARNED DR WHEREIN IT WAS HELD THAT PORTFOLIO MANAGEMENT SCHEM E FEES IS NOT DEDUCTIBLE AGAINST CAPITAL GAINS. THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KRA HOLDING & TRADING W AS NOT FOLLOWED BY THE MUMBAI BENCH IN THE ABOVE CITED DECISION. THE MUMBAI BENCH FOLLOWING OTHER DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL DECLINED TO FOLLOW THE DECISION IN THE CASE 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 FAVOUR ABLE TO THE ASSESSEE HAS TO BE FOLLOWED. [CIT VS. VEGETABLE PR ODUCTS 88 ITR 192 (SC)]. FURTHER, IN THE INSTANT CASE THE TRIBUNAL I N 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 EARLIER YEAR HAS BEEN REVERSED BY THE TRIBUNAL THEREFORE, UNLESS AND UNTIL THE DECISION O F THE TRIBUNAL IS REVERSED BY A HIGHER COURT, THE SAME IN OUR OPINION SHOULD BE ALLOWED. IN THIS VIEW OF THE MATTER, WE RESPECTFULLY FOLLOWI NG THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-05 AL LOW THE CLAIM OF THE PORTFOLIO MANAGEMENT FEES AS AN ALLOWABLE EXPEN DITURE. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE ON BEHALF OF REVENUE. FACTS BEING SIMILAR, SO FOLLOWING THE SAM E REASONING, WE DO NOT AGREE WITH THE FINDINGS OF CIT(A) ON THE ISSUE. IN VIEW OF ABOVE, WE HOLD THAT PORTFOLIO MANAGEMENT FEES IS ALLOWABLE EXPENDITURE AS HELD IN KRA HOLDINGS & TRADING PVT. LTD. (SUPRA). THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME AS CLAIMED BY THE ASSESSEE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ITA NO.2166/PN/2013 6. FOLLOWING THE AFORESAID PRECEDENT IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEAR 2008-09, WHICH HAS BEEN RENDERED UN DER IDENTICAL SET OF FACTS, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIR ECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014. SD/- SD/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 29 TH OCTOBER, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE