ACIT (OSD) 2(1), MUMBAI V. CANARA ROBECO ASSET MANAGEMENT CO.LTD, MUMBAI

ITA 2469/MUM/2010

• Counselvise Citation: 246919914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: TEJAS MEHTA
• Section: 37(1)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. K.AGARWAL (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.2469/M/2010 ASSESSMENT YEAR 2006-07 THE ACIT 2(1), AAYAKAR BHAVAN M/S.CANARA ROBECO A SSET R. NO.561, M.K.ROAD MANAGEMENT CO.LTD. MUMBAI 400 020. 4 TH FLOOR, CONSTRUCTION HOUSE WALCHAND HIRACHAND MARG MUMBAI 400 001. PAN : AAACC2031J APPELLANT RESPONDENT REVENUE BY : SHRI L.K.AGRAWAL ASSESSEE BY : SHRI TEJAS MEHTA ORDER PER RAJENDRA SINGH (AM) THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST ORD ER DATED 12.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DI SPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING DISALLOWANCE OF SCHEME EXPENSE IN RELATION TO THE MUTUAL FUND. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD DEBITED EXPENDITURE OF RS.62,61,559/- IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD SCHEME EXPENSES. THE ASSESSEE HAD SHOWN AN AMOUNT OF RS.2 8,00,100/- BEING THE EXPENDITURE INCURRED IN SCHEMES IN EXCESS OF LIMIT PRESCRIBED BY SEBI (MUTUAL 2 FUND REGULATIONS) 1996. THE AO DISALLOWED EXCESS EX PENSES ON THE GROUND THAT AS PER SUB-REGULATIONS 2 & 4 OF SEBI REGULATIONS, A N ASSET MANAGEMENT COMPANY (AMC) CAN CHARGE MUTUAL FUNDS WITH EXPENSES AND THE SUB REGULATION 5 GAVE AN OPTION TO THE AMC TO BEAR THE EXPENSES OR CHARGE THE SAME TO THE TRUSTEE OR SPONSOR. THE AO ALSO OBSERVED THAT THE A MC AND THE MUTUAL FUNDS WERE SEPARATE ENTITIES AND THEREFORE THE EXPENSES I NCURRED BY THE MUTUAL FUND COULD NOT BE THE LEGITIMATE EXPENSE OF THE ASSESSEE . IT WAS NOTED BY HIM THAT THE ASSESSEE HAD RECEIVED PROFESSIONAL FEES BUT HAD SOUGHT TO ABSORB EXCESS EXPENDITURE INCURRED BY THE MUTUAL FUNDS WHICH COUL D NOT BE ALLOWED UNDER SECTION 37(1) OF THE INCOME-TAX ACT. AO THEREFORE D ISALLOWED THE SUM OF RS.28,00,100/- AND ADDED TO THE TOTAL INCOME. 3. IN APPEAL, THE ASSESSEE SUBMITTED THAT THE EXPEN SES HAD BEEN INCURRED/ CHARGED AS PER REQUIREMENT OF STATUTORY REGULATIONS AND THEREFORE HAVE TO BE TREATED AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IT WAS ALSO SUBMITTED THAT IN CASE THE EXPENSES WERE NOT B ORNE BY THE ASSESSEE AND CHARGED TO THE MUTUAL FUNDS, IT WOULD HAVE REDUCED THE NET ASSET VALUE OF THE FUND AND THEREFORE FEES OF THE ASSESSEE WHICH WAS B ASED ON NET ASSET VALUE OF THE FUND WOULD ALSO HAVE BEEN DECREASED. THE REDUCT ION IN NET ASSET VALUE WOULD ALSO HAVE DISTRACTED THE INVESTORS FURTHER AF FECTING THE BUSINESS OF THE ASSESSEE. CIT(A) WAS SATISFIED BY THE EXPLANATION G IVEN. HE REFERRED TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN CASE OF DSP MERRILL LYNCH INVESTMENT MANAGERS LTD. (15 SOT 639) IN WHICH IT WAS HELD THA T THERE WAS NO BAR ON THE ASSESSEE TO INCUR THE EXPENSES AND THE EXPENSES INC URRED WERE NOT IN DISPUTE. IT WAS ALSO HELD THAT THE EXPENSES INCURRED WERE PA RT AND PARCEL OF THE PROFIT MAKING ACTIVITY OF THE ASSESSEE AND WERE ALLOWABLE. CIT(A) THEREFORE ALLOWED THE CLAIM OF THE ASSESSEE AGGRIEVED BY WHICH THE RE VENUE IS IN APPEAL. 3 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE SAME ISSUE REGAR DING DISALLOWANCE OF SCHEME EXPENSES HAS ALREADY BEEN CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2004-05 IN ITA NO.270/M /2010. THE TRIBUNAL NOTED THAT THE SUB-REGULATION 6 OF SEBI REGULATION 52 REG ULATIONS THE EXPENSES INCURRED IN RELATION TO DIFFERENT SCHEMES AND IT PR OVIDES THAT EXPENSES INCURRED IN EXCESS OF THE LIMIT PROVIDED IN THE SAID SEBI RE GULATION SHALL BE BORNE BY THE ASSET MANAGEMENT COMPANY (OR BY THE TRUSTEES OR SPO NSORS). THE EXCESS EXPENDITURE INCURRED BECOMES EXPENDITURE OF THE ASS ET MANAGEMENT COMPANY AND THE SAME IS FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. TRIBUNAL OBSERVED THAT THERE WAS NOTHING TO SUGGEST THAT THE ASSESSEE HAD IN ANY MANNER VIOLATED THE RULES SET OUT BY THE REGULATORY AUTHOR ITY. THEREFORE IT WAS HELD THAT EXPENSES INCURRED IN THE EXCESS OF LIMIT HAVE TO BE ALLOWED AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. THE FACTS ARE IDENTICAL. RESPECTIVELY FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA) WE S EE NO INFIRMITY IN THE ORDER OF CIT(A) IN ALLOWING THE CLAIM AND THE SAME IS THEREF ORE UPHELD. 5. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 20.05.2011. SD/- SD/- ( D. K. AGARWAL ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 20.05.2011 AT :MUMBAI COPY TO : 4 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR C BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK