ACIT 2(1), MUMBAI V. CANBANK INVESTMENT MANAGEMENT SERVICES LTD, MUMBAI

ITA 270/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4713 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 11-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: ANJANA SINGH
• Keywords: Depreciation; Question of law; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 270/MUN/2010 (ASSESSMENT YEAR: 2004-05) ACIT - 2(1) ROOM NO. 575, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD M/S. CANARA ROBECO ASSET MANAGEMENT COMPANY LTD. ( FORMERLY KNOWN AS CANBANK INVESTMENT MANAGEMNT SERVICES LTD.) MUMBAI 400020 CONSTRUCTION HOUSE, 4TH FLOOR, VS. 5, WALCHAND HIRACHAND MARG BALLARD ESTATE, MUMBAI 400001 PAN - AAACC 2031 J APPELLANT RESPONDENT APPELLANT BY: SHRI D. SONGATE RESPONDENT BY: SMT. ANJANA SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) IV, MUMBAI DATED 30.10.200 FOR A.Y. 2004-05. THE APPEAL IN THIS CASE WAS FILED BY THE REVENUE WITH RESPONDENT AS CANBANK INVESTME NT MANAGEMENT SERVICES LTD. THE ASSESSEE VIDE LETTER DATED 30 TH AUGUST 2010 INFORMED THAT THE NAME HAS BEEN CHANGED TO CANARA ROBECO ASSET M ANAGEMENT COMPANY LIMITED WITH EFFECT FROM 01.10.2007 AND ACCORDINGL Y REQUESTED FOR CHANGE OF NAME, WHICH WAS INCORPORATED. 2. REVENUE HAS RAISED FOUR GROUNDS REGARDING TWO ISSUE S WITH REFERENCE TO: (I) ALLOWING THE SCHEME EXPENSES OF ` 32,39789/- STATED TO BE IN EXCESS OF THE LIMITS PRESCRIBED BY THE SEBI MUTUAL FUND REGUL ATION ACT, 1996 AND (II) ALLOWING THE EXPENDITURE OF ` 27,58,617/- INCURRED ON CIVIL AND REPAIR WORK AS REVENUE EXPENDITURE. 3. REGARDING GROUND NOS. 1, 2 & 3, THE ASSESSEE HAS CL AIMED AN AMOUNT OF ` 84,53,66/- IN THE P & L ACCOUNT AGAINST SCHEME EXPE NSES. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ASSET MANAGEM ENT AND MANAGES VARIOUS MUTUAL FUND SCHEMES. FINDING THAT NOTE NO. 3 TO THE ACCOUNTS STATED THAT THE ASSESSEE COMPANY HAD INCURRED AN AM OUNT OF ` 32,39,789/- ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 2 ON SCHEME IN EXCESS OF THE LIMITS PRESCRIBED BY THE SEBI WHICH HAD BEEN ABSORBED BY THE COMPANY, THE A.O. WAS OF THE OPINIO N THAT THE AMOUNT IN EXCESS OF THE LIMIT PRESCRIBED BY THE SEBI WAS IN C ONTRAVENTION OF LAW AND DISALLOWED THE EXPENDITURE AS NOT A BUSINESS EXPEND ITURE OF THE COMPANY. IT WAS THE CONTENTION OF THE ASSESSEE THAT ONLY REGULA TION 52(6) PRESCRIBES THAT CERTAIN PERCENTAGE OF EXPENDITURE CAN BE CHARGED TO THE SCHEME WHEREAS THE EXPENDITURE IN EXCESS OF THE SAME IS TO BE BORNE BY THE ASSET MANAGEMENT COMPANY (OR BY THE TRUSTEE AS SPONSORS) AS PER REGU LATION 52(6) AND ACCORDINGLY THE AMOUNT IS ALLOWABLE EXPENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. THE CIT(A), AFTER EXTRACTING THE REGULATION VIDE PARA 4 OF THE ORDER ALLOWED THE EXPENDITURE NOT ONLY ON THE B ASIS OF REGULATION 52(6) BUT ALSO ON THE BASIS OF THE DECISION IN ASSESSEES OWN CASE FOR A.Y. 1994-95 AND ALSO FOLLOWING THE PRINCIPLES ESTABLISHED BY TH E ITAT MUMBAI IN THE CASE OF DSP MERRILL LYNCH INVESTMENTS MANAGERS LTD. 15 S OT 639 AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. 225 ITR 802 AND CIT VS. MALAYALAM PLANTATION LTD. 53 ITR 140. 4. WE HAVE HEARD THE LEARNED D.R. AND THE LEARNED COUN SEL IN THIS REGARD. 5. REGULATION 52(6), ON WHICH THE A.O. HAS RELIED UPON FOR DISALLOWANCE OF EXPENDITURE IS AS UNDER: - 52(6) THE TOTAL EXPENSES OF THE SCHEME EXCLUDING ISSUE OR REDEMPTION EXPENSES, WHERE INITIALLY BORNE BY THE ASSET MANAGE MENT COMPANY, BUT INCLUDING THE INVESTMENT MANAGEMENT AND ADVISORY FE E SHALL BE SUBJECT TO THE FOLLOWING LIMITS: A. ON THE FIRST RS.100 CRORE OF THE AVERAGE WEEKLY NET ASSETS 2.5% B. ON THE NEXT RS.300 CRORE OF THE AVERAGE WEEKLY NET ASSETS 2.25% C. ON THE NEXT RS.300 CRORE OF THE AVERAGE WEEKLY NET ASSETS 2.0% D. ON THE BALANCE OF ASSETS 1.755. PROVIDED THAT SUCH RECURRING EXPENSES SHALL BE LESS ER BY AT LEAST 0.25% OF THE WEEKLY AVERAGE NET ASSETS OUTSTANDING IN EACH FINANCIAL YEAR IN RESPECT OF A SCHEME INVESTING IN BONDS. ANY EXPENDITURE IN EXCESS OF THE LIMITS SPECIFIED I N SUB- REGULATIONS (6) SHALL BE BORNE BY THE ASSET MANAGEM ENT COMPANY (OR BY THE TRUSTEE OR SPONSORS ) ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 3 6. AS CAN BE SEEN FROM THE REGULATION ITSELF THE EXPEN SES OF THE SCHEME EXCLUDING THE ISSUE OR REDEMPTION EXPENSES ARE LIMI TED TO CERTAIN PERCENTAGE AS STATED IN THE REGULATION. HOWEVER, THE REGULATIO N ALSO SPECIFIES THAT ANY EXPENDITURE IN EXCESS OF THE LIMITS SPECIFIED IN SU B-REGULATION (6) SHALL BE BORNE BY THE ASSET MANAGEMENT COMPANY. ASSESSEE IS THE ASSET MANAGEMENT COMPANY AND AS PER REGULATION 52(6) THE EXPENSES ARE CHARGED TO THE SCHEME AS PER SUB-REGULATION (6) AND THE EXC ESS EXPENDITURE TO AN EXTENT OF ` 32,39789/- WAS CHARGED DIRECTLY TO P & L ACCOUNT OF THE ASSESSEE COMPANY. WE DO NOT FIND ANY REASON FOR THE A.O. TO DISALLOW THE EXPENDITURE AS THE SAME IS ALLOWABLE IN THE HANDS OF THE ASSET MANAGEMENT COMPANY WITHOUT ANY RESTRICTION. THE ONLY RESTRICTION PLACE D BY SECTION 52(6) IS THE AMOUNT OF EXPENDITURE THAT CAN BE CHARGED TO THE SC HEME WHILE MANAGING EACH OF THE SCHEMES. THIS DOES NOT MEAN THAT EXPEND ITURE CAN NOT BE ALLOWED EVEN IF THEY ARE INCURRED FOR THE PURPOSE O F BUSINESS. THE CIT(A) HAS RIGHTLY CONSIDERED THIS AND RELYING ON THE PRINCIPL ES ESTABLISHED BY THE DECISION OF THE ITAT MUMBAI IN THE CASE OF DSP MERR ILL LYNCH INVESTMENTS MANAGERS LIMITED 15 SOT 639, HE ALLOWED THE EXPENDI TURE AS IT HAD DIRECT NEXUS WITH ASSESSEES OWN BUSINESS OF ASSET MANAGEM ENT. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE CIT(A). 7. DURING THE COURSE OF HEARING THE LEARNED A.R. PLACE D ON RECORD THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF DSP MERRILL LYNCH INVESTMENTS MANAGERS LIMITED IN ITA NO. 1286 OF 200 8 DATED DECEMBER 10, 2008 WHEREIN THE HON'BLE BOMBAY HIGH COURT HAS UPHE LD THE ORDER OF THE ITAT REPORTED IN 15 SOT 639. THE ISSUE BEFORE THE H ON'BLE BOMBAY HIGH COURT WAS WITH REFERENCE TO INITIAL ISSUE EXPENSES OR REDEMPTION EXPENSES, WHICH ARE COVERED BY REGULATIONS 25 & 28 OF THE SEB I RULES. THE ISSUE IN THAT CASE WAS WITH REFERENCE TO TREATMENT OF ISSUE EXPENSES AS CAPITAL EXPENDITURE BY THE A.O. WHICH WERE ALLOWED AS REVEN UE EXPENDITURE BY THE ABOVE SAID DECISION OF THE ITAT REPORTED IN 15 SOT 639. THE HON'BLE BOMBAY HIGH COURT HAS UPHELD THE SAID DECISION STAT ING THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW INVOLVED AS THE ITAT OR DER IS BASICALLY ON FACTS. THE FINDING OF THE ITAT IN THE ABOVE SAID ORDER IN PARA 2.5 IS AS UNDER: - 2.5 THE NATURE OF THE EXPENSES IS TO BE SEEN IN TH E CONTEXT OF THE BUSINESS OF THE ASSESSEE. THE ASSESSEE IS THE BUSIN ESS OF ASSET ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 4 MANAGEMENT. THE ASSET MANAGEMENT BUSINESS, INTER AL IA, GOVERNED BY THE SECURITIES & EXCHANGE BOARD OF INDIA (IN SHORT SEBI). THERE IS NOTHING ON RECORD TO SUGGEST OUT THAT THE ASSESSEE HAD IN ANY MANNER VIOLATED THE RULES AND REGULATIONS SET OUT BY THE S AID REGULATORY AUTHORITY. FOR THE PURPOSES OF CONDUCTING ITS BUSIN ESS, THERE WAS NO BAR ON THE ASSESSEE TO INCUR EXPENSES, OTHERWISE THAN T HE EXPENSES INCURRED WERE NOT IN DISPUTE. THE EXPENSES INCURRED WERE THE ASSESSEES OWN EXPENDITURE AND IT WAS A PART AND PARCEL OF THE PRO FIT-MAKING ACTIVITY OF THE ASSESSEE. THE EXPENDITURE HAD A DIRECT NEXUS WI TH THE ASSESSEES OWN BUSINESS OF ASSET MANAGEMENT. THERE WAS NO VALI D BASIS TO TREAT THE EXPENSES IN QUESTION AS CAPITAL IN CHARACTER, A S INCURRING OF SUCH EXPENDITURE DID NOT RESULT IN ANY CREATION OF ANY C APITAL ASSET. NO BENEFIT OF LONG AND ENDURING NATURE HAD BEEN DERIVED BY INC URRING THE SAID EXPENDITURE. THE SCHEMES UNDER REFERENCE, AND THE B USINESS OF THE ASSESSEE IS INDEPENDENT ACTIVITIES OF EACH OTHER. T HE EXPENSES INCURRED BY THE ASSESSEE WAS AN INDEPENDENT ENTITY FOR CONDU CTING ITS OWN BUSINESS OF ASSET MANAGEMENT COULD NOT BE DISALLOWE D AS CAPITAL EXPENSES BY LINKING THEM WITH THE RAISING OF FUNDS FOR THE SCHEMES OF MUTUAL FUNDS, WHICH ARE AGAIN INDEPENDENT ENTITIES. 8. SIMILAR PRINCIPLE ALSO APPLIES HERE FOR REGULATION 52(6) AS WELL. AS ALREADY STATED, THE ASSESSEE IS ASSET MANAGEMENT CO MPANY AND IT WAS ALLOWED TO INCUR EXPENDITURE FOR THE PURPOSE OF MAN AGING VARIOUS SCHEMES BUT THE EXPENDITURE THAT CAN BE CHARGED TO A PARTIC ULAR SCHEME IS ACCORDING TO THE SUB-REGULATION (6). THE BALANCE OF THE EXPEN DITURE, VIDE THE SAME REGULATION, BECOMES THE EXPENDITURE OF THE ASSET MA NAGEMENT COMPANY (OR THE TRUSTEES OR SPONSORS). SINCE THE EXPENDITURE IN CURRED IS FOR THE PURPOSE OF ASSESSEES BUSINESS AND SINCE THERE IS NOTHING O N RECORD TO SUGGEST THAT THE ASSESSEE HAD IN ANY MANNER VIOLATED THE RULES O R REGULATIONS SET OUT BY THE SAID REGULATORY AUTHORITY, THE EXPENDITURE CANN OT BE DISALLOWED IN ASSESSEES HANDS. IT IS NOT THE CASE OF THE A.O. TH AT THE EXPENDITURE HAS NO CONNECTION WITH ASSESSEES BUSINESS. AS THE EXPENDI TURE HAS A DIRECT NEXUS WITH ASSESSEES BUSINESS, WE UPHOLD THE ORDER OF TH E CIT(A) AND REJECT GROUNDS NOS. 1 , 2 & 3 OF THE REVENUE. 9. GROUND NO. 4 IS WITH REFERENCE TO THE NATURE OF EXP ENDITURE OF ` 27,58,617/- INCURRED ON CIVIL AND REPAIR WORK DISAL LOWED AS CAPITAL EXPENDITURE BY THE A.O. BUT ALLOWED AS REVENUE EXPE NDITURE BY THE CIT(A). 10. BRIEFLY STATED, THE ASSESSEE HAS INCURRED AN AMOUNT OF ` 27,58,617/- TOWARDS CIVIL AND REPAIR WORKS AND THE DETAILS WERE FILED BEFORE THE A.O. THE A.O. ASKED FOR DETAILS OF ADDITIONS TO THE ASSETS A ND COST OF THE SAME, WHICH ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 5 WERE ALSO FURNISHED. SINCE NOTE TO THE SCHEDULE A. SIGNIFICANT ACCOUNTING POLICIES INDICATE THAT THE COST OF PARTITION/CONSTRUCTION NOT REMOVABLE/REUSABLE, WHICH ARE TEMPORARY IN NATURE I N COMPANYS RENTAL PREMISES ARE CHARGED TO REVENUE , THE A.O. ASKED THE DETAILS OF THE NATURE OF WORK UNDERTAKEN AND SINCE HE WAS OF THE OPINION THA T THE EXPENDITURE MADE ON CIVIL AND REPAIR WORKS WAS CAPITAL EXPENDITURE, THE SAME WAS DISALLOWED AND PROPORTIONATE DEPRECIATION WAS ALLOWED ON THE S AME. IT WAS THE SUBMISSION OF THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED ON LEASED PREMISES WHICH WAS HIRED ON LEAVE AND LICENCE BASIS AND ALSO THE NATURE OF EXPENDITURE INCURRED CANNOT BE TREATED AS CAPITAL E XPENDITURE AND WAS ALLOWABLE UNDER SECTION 30. IT WAS FURTHER SUBMITTE D THAT THE ANALYSIS OF EXPENDITURE REVEAL THAT THE EXPENDITURE WAS INCURRE D ON DEMOLITION OF WALL, FLOOR WORK, FALSE CEILING AND PLUMBING WORK. ASSESS EE ALSO RELIED ON VARIOUS DECISIONS IN CLAIMING THE EXPENDITURE AS REVENUE EX PENDITURE. THE CIT(A) HAS GIVEN THE FOLLOWING FINDING WHILE ALLOWING THE EXPENDITURE: - 11. I AGREE WITH THE SUBMISSIONS OF THE A.R. THAT CIVIL AND ELECTRICAL REPAIRS COMPLETED BY THE ASSESSEE IN LEASEHOLD PREM ISES CANNOT BE TREATED AS CAPITAL EXPENDITURE. ALSO THE NATURE OF EXPENDITURE CAN BE CATEGORIZED UNDER CURRENT REPAIRS ONLY. HENCE, THE A.O. IS NOT JUSTIFIED IN DISALLOWING THE CIVIL AND REPAIRS EXPENSES AS CAPIT AL EXPENSES. RELIANCE IS PLACED ON THE DECISION OF THE SUPREME COURT IN T HE CASE OF EMPIRE JUTE CO. VS. CIT (124 ITR 1) WHEREIN IT WAS HELD AS UNDE R: THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCU RRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY, NONE THE LES S, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY THE ASSESS EE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THE TEST. WH AT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANTAGE IN THE COMM ERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD TH AT THE EXPENDITURE WOULD BE DISALLOWABLE ON THE APPLICATION OF THIS TE ST. IF THE ADVANTAGE CONSIST MERELY IN FACILITATING THE ASSESSEES TRADI NG OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHIL E LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVE NUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE THE BENEFIT FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A C ERTAIN OR CONCLUSIVE TEST AND IT APPLIED BLINDLY OR MECHANICALLY WITHOUT REGA RD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. IN VIEW OF THE ABOVE DISCUSSION THE CLAIM OF THE A PPELLANT ON CIVIL AND ELECTRICAL REPAIRS ARE ALLOWABLE DEDUCTIONS. TH IS GROUND OF APPEAL IS ALLOWED. ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 6 11. AFTER HEARING THE LEARNED D.R. AND THE LEARNED COUN SEL FOR THE ASSESSEE, WHO PLACED ON RECORD THE DETAILS OF EXPEN SES INCURRED, WE ARE OF THE OPINION THAT THERE IS NO NEED TO DEVIATE FROM T HE FINDINGS OF THE CIT(A). THE EXPENDITURE INCURRED IS AS UNDER: - (A) DEMOLITION WORK ` 34,225/- (B) MASONRY WORK ` 26,664/- (C) FLOORING/SKIRTING/CLADDING ` 10,32,948/- (D) PLUMBING WORK ` 1,39,433/- (E) FALSE CEILING WORK ` 5,19,885/- (F) MOULDINGS/SKIRTING ` 8,636/- (G) MISCELLANEOUS WORK ` 4,49,320/- THIS TOTAL EXPENDITURE WAS TO THE EXTENT OF ` 22,11,114/- TO WHICH THERE WAS 2.5% DISCOUNT AND THE NET EXPENDITURE CLAIM WAS ` 21,55,836/-. THERE ARE OTHER MISCELLANEOUS EXPENSES WHICH WERE CLAIMED AS REVENUE EXPENDITURE UNDER VARIOUS HEADS TOTALLING TO ` 27,58,617/-. THE NATURE OF EXPENDITURE TOO INDICATE THAT THESE ARE REPAIR WORK ONLY WHICH DOES NOT YIELD ANY ENDURING ADVANTAGE AND NO NEW ASSET HAS BEEN FORMED BY INCURRING THESE EXPENSES. IN VIEW OF THIS, WE UPHOLD THE ORDER OF T HE CIT(A). 12. THE LEARNED COUNSEL PLACED ON RECORD VARIOUS DECISI ONS OF THE HON'BLE HIGH COURTS AND ITAT IN SUPPORT OF THE CONTENTIONS. THERE IS NO NEED TO REPEAT THE SAME HERE AS THE NATURE OF EXPENDITURES ITSELF REVEAL THAT THESE ARE EXPENDITURES OF REVENUE NATURE AND AS SUCH ALLO WABLE UNDER SECTION 30 OF THE I.T. ACT, HENCE, THIS GROUND OF THE REVENUE IS REJECTED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 9 TH SEPTEMBER 2010 ITA NO. 270/MUN/2010 CANBANK INVST. MGT. SERVICES LTD. 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.