ACIT CEN CIR 34, MUMBAI V. FRANKIN TEMPLETON ASSET MANAGEMENT (I) P. LTD, MUMBAI

ITA 3015/MUM/2010

• Counselvise Citation: 301519914 RSA 2010
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 13-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Keywords: Capital asset; Depreciation; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH: MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO.3015/MUM/2010 (ASSESSMENT YEAR: 2007-08) ASST. COMMISSIONER OF INCOME-TAX, CC -34, FIRST FLOOR, AAYAKAR BHAVAN, MUMBAI -400 020 ...... APPELLANT VS M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PV T. LTD., LEVEL 4, WOCKHARDT TOWERS, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI -400 051 ..... RESPONDENT PAN: AAACT 1609 B APPELLANT BY: SHRI SUBACHAN RAM RESPONDENT BY: SHRI FARROKH IRANI DATE OF HEARING: 08.02.2012 DATE OF PRONOUNCEMENT: 07 .03.2012 O R D E R PER R.S. PADVEKAR, JM : IN THIS APPEAL THE REVENUE HAS CHALLENGED THE IMPUG NED ORDER OF THE LD. CIT (A)-41, MUMBAI DATED 23.02.2010 FOR THE A.Y. 2007-08. THE GROUND NO.1 READS AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION OF ` 53,40,53,000/- MADE BY THE A.O. BEING THE DIFFERENC E BETWEEN THE AMOUNT OF INVESTMENT ADVISORY FEES COMP UTED AT THE MAXIMUM RATES SPECIFIED IN REGULATIONS 52(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUND ) REGULATION 1996 (SEBI REGULATION), AND ACTUALLY CHA RGED WITHOUT APPRECIATING THE FACT THAT BY CHARGING LESS AMOUNT OF FEES TO THE MUTUAL FUND SCHEME, THE ASSESSEE IS REDUCING ITS TAXABLE INCOME. ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 2 2. BRIEFLY STATED THE FACTS ARE AS UNDER. THE ASSE SSEE IS AN ASSET MANAGEMENT COMPANY FOR THE FRANKLIN TEMPLETON MUTUA L FUND (IN SHORT MUTUAL FUND) WHICH IS ESTABLISHED BY M/S. TEM PLETON WORLDWIDE INC., A NON-RESIDENT COMPANY WHICH IS SPO NSOR OF THE FUND. THE TEMPLETON WORLDWIDE INC.(THE SETTLER) HAS 75% S HAREHOLDING IN THE ASSESSEE COMPANY. VIDE AGREEMENT DATED 05.01.19 96. FRANKLIN TEMPLETON TRUST SERVICES PVT. LTD. (THE TRUSTEE COM PANY) AND ASSESSEE-COMPANY APPOINTED TEMPLETON ASSET MANAGEME NT (INDIA) PVT. LTD. AS AN ASSET MANAGEMENT COMPANY (AMC) FOR THE TEMPLETON MUTUAL FUND. 3. SO FAR AS ISSUE ARISING FROM GROUND NO.1 IS CONC ERNED, THE A.O. WAS OF THE VIEW THAT IT WAS OBLIGATORY ON THE PART OF THE ASSESSEE TO COMPLY WITH SEBI ACT AND SEBI REGULATIONS AS WELL A S TERMS AND CONDITIONS OF THE TRUST DEED AND INVESTMENT MANAGEM ENT AGREEMENT. IN VIEW OF THE A.O. AS PER THE AGREEMENT BETWEEN TH E ASSESSEE AND FRANKLIN TEMPLETON TRUST SERVICES P. LTD. THE INCOM E IN THE FORM OF INVESTMENT ADVISORY FEES HAS BEEN ACCRUED TO THE AS SESSEE AS PER THE PERCENTAGE PRESCRIBED BY THE SEBI. THE IDENTICAL I SSUE HAD COME FOR CONSIDERATION IN ASSESSEES OWN CASE BEFORE THE TRI BUNAL IN THE A.YS. 2002-2003 TO 2004-05 ONWARDS AND SAME HAS BEEN DECI DED IN FAVOUR OF THE ASSESSEE AND IT IS HELD AS UNDER: 4. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES. WE HAVE GIVEN OUR ANXIOUS CONSIDERATION TO THE REASONI NG GIVEN BY THE A.O FOR MAKING THE ADDITION AS WELL AS THE REASONING GIVEN BY THE LD CIT (A) FOR DELETING THE SAME. THE CASE OF THE A.O IS THAT THE ASSESSEE SHOULD HAV E COLLECTED/CHARGED INVESTMENT ADVISORY FEES (IDF) AS PER THE TERMS OF HIS AGREEMENT WITH TEMPLETON MUTUAL FUND. ON THE PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THA T THE A.O HAS REPRODUCED THE RELEVANT PORTION OF THE AGREEMEN T WHICH READS AS UNDER : ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 3 FOR THE SERVICES OF THE AMC, THE TRUSTEE SHALL CAUSE THE MUTUAL FUND TO PAY INVESTMENT MANAGEMENT FEES TO THE AMC, PAYABLE QUARTERLY IN ARREARS IN TH E FOLLOWING MANNER AND SUBJECT TO THE FOLLOWING CEILI NG: I) (A)1.25% OF THE WEEKLY AVERAGE NET ASSETS OUTSTANDING IN THE CURRENT YEAR FOR THE SCHEME CONCERNED, SO LONG AS THE NET ASSETS DO NOT EXCEED RS. 100 CRORES AND (B)1% OF THE EXCESS AMOUNT OVER RS. 100 CRORES, WHERE NET ASSETS SO CALCULATED EXCEED RS. 100 CRORES. 5. IN OUR OPINION, THE INTERPRETATION GIVEN BY THE A.O TO THE ABOVE MENTION CLAUSE IN THE AGREEMENT IS NOT CORREC T. WHAT WE FIND AS PER ABOVE CLAUSE, A CEILING IS PROVIDED FOR CHARGING OF THE SAID FEES AND IT IS NOT THE CASE TH AT THE ASSESSEE MUST HAVE CHARGED THE FEES AS PER REGULATI ONS 52(2) OF THE SEBI REGULATIONS. WE ALSO FIND FORCE IN THE ARGUMENTS OF THE LD COUNSEL SHRI F. V. IRANI THAT T HERE WAS NO ACCRUAL OF INCOME AND AS PER THE BUSINESS PRACTI CE ADOPTED BY ALL THE AMC, THE ASSESSEE HAS CHARGED TH E FEES AS PER THE PREVAILING MARKET RATE AT THAT TIME TO M AINTAIN THE NET VALUE OF THE ASSETS OF THE MUTUAL FUNDS. W E HAVE GIVEN OUR ANXIOUS CONSIDERATIONS TO THE REASONS GI VEN BY THE LD CIT(A) FOR DELETING THE ADDITION AND WE CONC UR WITH HIS FINDING THAT THE ADDITION MADE BY THE A.O IS ON LY ON THE NOTIONAL BASIS AND THERE WAS NO JUSTIFICATION FOR M AKING THE SAID ADDITION AS IT IS NOT A REAL INCOME. WE DO NOT FIND ANY REASON WITH THE ORDER OF THE LD CIT (A) ON THIS ISS UE IN ALL THE ASSESSMENT YEARS. WE, THEREFORE, CONFIRM THE O RDER OF THE LD CIT (A). IN THE RESULT, GROUND NO. 1 IN ALL THE ASSESSMENT YRS. ARE ACCORDINGLY DISMISSED. 4. IN THIS YEAR ALSO THE FACTS ARE IDENTICAL. WE, THEREFORE, FOLLOWING THE ORDER IN THE ASSESSEES OWN CASE ON THIS ISSUE FOR THE A.YS. 2002- ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 4 03 TO 2004-05 IN ITA NOS.2890 TO 2892/M/2007 DATED 2ND JULY, 2009 CONFIRM THE ORDER OF THE LD. CIT (A) AND GROUND NO. 1 IS DISMISSED. 5. GROUND NO.2 READS AS UNDER: 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE ADDITION RELATING TO THE RECURRING AND MARKETING EXPENSES AMOUNTING TO ` 98,48,000/- WITHOUT APPRECIATING THE FACT THAT THIS AMOUNT OF EXPENDITURE THE AMC WAS EMPOWERED TO CHARGE UNDE R SEBI REGULATION TO THE MUTUAL FUND, BUT IT HAS CHAR GED THE SAME TO ITS OWN ACCOUNTS, THEREBY REDUCING ITS TAXA BLE INCOME, AND HENCE NOT BE ALLOWABLE AS DEDUCTION IN VIEW OF THE PROVISIONS OF SECTION 37(1) OF THE I.T. ACT, 19 61. 6. THE LD. COUNSEL SUBMITS THAT THE ISSUE ARISING F ROM GROUND NO.2 HAS ALREADY BEEN CONSIDERED IN THE ASSESSEES OWN CASE FOR THE A.YS. 2002-03 TO 2004-05 IN ITA NOS.2890 TO 2892/M/ 2007 ORDER DATED 2ND JULY, 2009. THE LD. COUNSEL ALSO FILED A COPY OF THE TRIBUNAL ORDER AND OPERATIVE PART OF THE TRIBUNAL O RDER READS AS UNDER: 6.3. ON THE PERUSAL OF THE REASONS GIVEN BY THE C IT (A), WE FIND THAT HE HAS CONSIDERED THE REGULATION 52 OF THE SEB I REGULATIONS BY HOLDING THAT IT ONLY PROVIDES FOR A FACILITY TO CHARGE THE SCHEMES OF A MUTUAL FUND WITH EXPENSES U P TO A MAXIMUM LIMIT AND THE SAID OPTION BY ITSELF DOES NOT MAKE ANY EXPENSES INCURRED BY THE ASSESSEE AS AN AM C TO BE TREATED AS INCURRED ON BEHALF OF MUTUAL FUND TRU ST. THERE IS NO DISPUTE ABOUT THE FACT THAT FOR LAUNCHI NG THE FUNDS, THE ASSESSEE AS AN AMC, HAS TO DEVELOP INFRASTRUCTURE LIKE EMPLOYEES, OFFICE ETC., AND NOW HERE IT IS IN CLEAR TERMS SPECIFIED IN THE SEBI REGULATION TH AT ALL THE EXPENSES SHOULD BE CHARGED ON THE MUTUAL FUND ONLY. THE REASONS GIVEN BY THE A.O. FOR MAKING THIS ADDITION IS ONLY ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 5 ACADEMIC AND IN OUR OPINION, MERELY BECAUSE THE OPT ION IS GIVEN IN THE SEBI REGULATION TO CHARGE THE EXPENSES BY USING THE WORD MAY THAT DOES NOT MEAN THAT THE EX PENSES INCURRED BY THE ASSESSEE AS AN AMC, EVEN FOR LAUNCH ING THE MUTUAL FUND ASSET, WITHOUT CROSSING THE MAXIMUM LIMIT AND HENCE, THAT CANNOT BE SAID TO BE DISALLOWABLE U /S. 37(1) OF THE ACT. 7. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUE HAD COME FOR CONSIDERATION BEFORE T HE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEES OW N CASE BEING ACIT V/S. M/S. TEMPLETON ASSET MANAGEMENT (I ) PVT. LTD, ITA NO. 2943/MUM/2001, A.Y. 1997-98, ORDER DAT ED 8-12-2006 AND ITA NO. 4697/M/2006 DT. 27 TH AUGUST 2008. THE LD COUNSEL HAS FILED THE COPIES OF THE T RIBUNAL ORDER WHICH IS PLACED ON RECORD. WE HAVE ALSO HEARD THE LD D.R. ALSO. 8. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE FOR THE A.Y. 2000-01 (PAGE NO. 8 TO 12 OF THE PAPER BOOK). THE OPERATIVE PART OF THE ORDER IS PA RA PARA NO. 7 WHICH READS AS UNDER: 7. FURTHER WITH REFERENCE TO THE RECURRING FUND EX PENSES THE CIT(A) ALSO GAVE THE FOLLOWING FINDING :- I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF T HE LEARNED COUNSEL FOR THE APPELLANT AND FIND CONSIDER ABLE FORCE THEREIN. ON GOING THROUGH THE INVESTMENT MANAGEMENT AGREEMENT BETWEEN THE APPELLANT AND THE TRUSTEES OF TMF, I FIND THAT THE SAID AGREEMENT ALS O PROVIDES FOR THE MAXIMUM CEILING OF THE EXPENSES TH AT CAN BE CHARGED BY THE APPELLANT TO TMF. AS IN THE CASE OF INITIAL ISSUE EXPENSES, THE AGREEMENT, SEBI REGULAT IONS AND THE OFFER DOCUMENT NOWHERE COMPEL THE APPELLANT TO CHARGE EXPENDITURE TO THE MAXIMUM EXTENT PRESCRIBED THEREIN AND THE NON-CHARGING OF THESE EXPENSES TO T HE MAXIMUM CEILING CANNOT BE TREATED AS A GRATUITOUS O R VOLUNTARY ACT OF THE APPELLANT. THE DCIT WHILE DEAL ING WITH RECURRING EXPENSES ALSO APPEARS TO HAVE OVERLOOKED THE ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 6 VERY IMPORTANT FACT THAT THE APPELLANT DOES NOT HAV E A DIRECT OR INDIRECT STAKE IN TMF AND IS IN NO WAY BE NEFITED BY INCURRING THE EXPENSES ITSELF. IT IS ONLY MARKE T PRACTICE THAT COMPELS IT TO BEAR THE EXPENSES. BASED ON TH E ABOVE, I AM OF THE VIEW THAT THE EXPENSES ARE THAT OF THE APPELLANT AND ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF ITS BUSINESS. I ALSO HOLD THAT THE RATIO OF THE DE CISION OF THE TRIBUNAL IN CASE OF BIRLA SUNLIFE AMC (SUPRA) AND T HE APPELLANTS OWN CASE APPLIED EQUALLY TO THE FUND EX PENSES WHICH ARE IN THE NATURE OF RECURRING EXPENSES. THE DISALLOWANCE OF RS.45,41,797 IS THEREFORE ALSO DELE TED. 8. WE DO NOT SEE ANY REASON TO INTERFERE WITH THE S AID ORDER OF THE CIT(A) AS HE NOT ONLY FOLLOWED THE JUD ICIAL PRINCIPLES ESTABLISHED IN VARIOUS CASES BUT ALSO AN ALYSED THE EXPENDITURE VIS--VIS THE BUSINESS ACTIVITIES O F THE ASSESSEE COMPANY. FOR THESE REASONS THE GROUNDS AR E REJECTED. WE, THEREFORE, FOR THE REASONS GIVEN ABOVE AS WELL AS FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH IN ASSESSEES OW N CASE, UPHOLD THE FINDINGS OF THE LD CIT(A) ON THIS ISSUE, AND ACCORDINGLY, GROUND NO. 2 IS DISMISSED. 7. AS THE FACTS ARE IDENTICAL IN THIS YEAR. WE FIN D NO REASON TO TAKE A DIFFERENT VIEW. WE THEREFORE FOLLOWING DECISION O F THE TRIBUNAL IN 2002-03 TO 03-04, CONFIRM THE ORDER OF THE LD. CIT (A) AND GROUND NO.2 OF THE REVENUE STANDS DISMISSED. 8. GROUND NO.3 READS AS UNDER: 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF ` 2,76,11,000/- BEING TOWARDS 2/3RD SHARE OF THE RECU RRING EXPENSES IN EXCESS OF THE LIMITS SPECIFIED IN REGUL ATION 52(7) OF THE SEBI REGULATION WHICH WAS BORNE BY THE ASSES SEE WITHOUT APPRECIATING THE FACT THAT THE AMOUNT OF TH E EXPENDITURE, WHICH BECOMES THE LIABILITY EITHER OF THE SPONSOR OR THE TRUSTEE OF THE MUTUAL FUND, IS NOT D EDUCTIBLE U/S.37(1) OF THE I.T. ACT IN THE TERMS OF THE ASSES SEE COMPANY. ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 7 9. THE LD. COUNSEL SUBMITS THAT THE ISSUE ARISING F ROM GROUND NO.3 HAS ALREADY BEEN CONSIDERED IN THE ASSESSEES OWN CASE FOR THE A.YS. 2002-03 TO 2004-05 IN ITA NOS.2890 TO 2892/M/ 2007 ORDER DATED 2ND JULY, 2009. WE HAVE PERUSED THE ORDER OF THE TRIBUNAL AS SUBMITTED BY LD. COUNSEL AND FIND THAT THIS ISSUE I S ALSO DECIDED IN FAVOUR OF THE ASSESSEE, DISMISSING RELEVANT GROUND OF THE REVENUE. THE OPERATIVE PART OF THE TRIBUNALS ORDER READS AS UND ER: 9. THE NEXT ISSUE IS THE ADDITION MADE TOWARDS 2/3 RD SHARE OF RECURRING EXPENSES IN EXCESS OF THE LIMITS SPECIFIE D. IN ACCORDANCE WITH REGULATION 52(7) OF THE SEBI REGULA TION, THIS ISSUE ARISES FROM GROUND NO. 3 IN ALL THE APPE ALS. 10. WE HAVE HEARD THE PARTIES. THE A.O MADE THE F OLLOWING ADDITION TOWARDS 2/3 RD SHARE OF THE RECURRING EXPENSES WHICH IN THE OPINION OF THE A.O WAS IN EXCESS OF LI MITS SPECIFIED AND REGULATION 52(7) OF THE SEBI REGULATI ON, WHICH WAS BORNE BY THE ASSESSEE THAT IN FACT, IT WA S THE LIABILITY, EITHER OF THE SPONSOR OR THE MUTUAL FUND TRUST AND HENCE, THE SAME WAS NOT DEDUCTIBLE U/S. 37(1) OF TH E I.T. ACT : I) A.Y. 2002-03 RS.1,23,72,068/- II) A.Y. 2003-04 RS.5,35,20,184/- III) A.Y. 2004-05 RS.8,23,77,393/- WE HAVE HEARD THE PARTIES. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUE HAS BE EN DECIDED BY THE TRIBUNAL IN THE CASE OF ALLIANCE CAP ITAL ASSET MANAGEMENT INDIA PVT. LTD. V/S. DCIT, ITA N O. 6328 AND 6331/MUM/2003 VIDE ORDER DATED 27.5.2008. WE HAVE HEARD THE LD D.R. ON THIS ISSUE. IT IS SEEN T HAT ON ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 8 IDENTICAL SET OF FACTS, IN THE CASE OF ANOTHER AMC, NAMELY ALLIANCE CAPITAL ASSET MANAGEMENT (INDIA) PVT. LTD (SUPRA), THE TRIBUNAL HAS CONSIDERED THIS ISSUE AND HELD AS UNDER: 16.THUS THE REGULATIONS, THE LIABILITY FOR THE EXPENDITURE INCURRED IN CONNECTION WITH FLOATING NEW SCHEMES, MANAGING THEM AND REDEEMING THEM IS THAT OF THE AMC. THIS EXPENDITURES ARE INCURRED BY THE AMC IN THE COURSE OF AND FOR THE PURPOSES OF TH EIR BUSINESS OF ACTING AS THE AMC OF THE MUTUAL FUND. THE AMC CAN CHARGE AND RECOVER FROM THE AMC THESE EXPENDITURE ONLY UP TO THE LIMITS PRESCRIBED IN THE REGULATIONS. BALANCE EXPENDITURE IS TO BE BORNE BY THE AMC. THIS IS SO WHETHER THE EXPENDITURE IS INITIALLY BORNE BY THE MUTUAL FUND OR THE AMC. THEREFORE, EVEN IF THE EXPENDITURE IS INITIALLY BOR NE BY THE MUTUAL FUND, THE AMC HAS TO REIMBURSE THE MUTUAL FUNDS, PART OF THE EXPENDITURE SO THAT THE EXPENDITURE FINALLY BORNE BY THE MUTUAL FUND IS WITHIN THE LIMITS PRESCRIBED UNDER THE REGULATIONS AND THE AMOUNT SO REIMBURSED BY AMC TO THE MUTUAL FUND IS NOTHING BUT THE EXPENDITURE OF AMC IN CONNECTION WITH THE SCHEMES AND HENCE ALLOWABLE IN THE HANDS OF THE AMC. HENCE AS THE TOTAL EXPENSES IN RESPECT OF SOME OF THE SCHEMES EXCEED THE LIMITS PRESCRIBED BY THE REGULATION BY RS.77,91,161/-, THE ASSESSEE AMC REIMBURSED THIS AMOUNT TO THE AMF. 17. THE REASONING FOR DISALLOWABILITY OF ISSUE EXPENSES INCURRED BY THE AMC IN EXCESS OF THE PRESCRIBE LIMIT IN SEBI REGULATION WILL BE EQUALLY APPLICABLE TO THE CASE OF TOTAL EXPENDITURE INCURRE D IN CONNECTION WITH THE MANAGEMENT OF THE SCHEME IN EXCESS OF THE PRESCRIBED LIMITS UNDER THE REGULATIO NS. FOR THE REASONS STATED IN THE EARLIER PART OF THE O RDER, EXPENDITURE INCURRED IN CONNECTION WITH THE SCHEME IN EXCESS OF THE LIMIT PRESCRIBE BY THE SEBI REGULATION WHICH IS BORNE BY THE AMC IS ALLOWABLE I N THE HANDS OF THE AMC. REGULATION52(7) CLEARLY PROVIDES THAT SURPLUS EXPENDITURE MAY BE BORNE BY THE AMC. THE REGULATION 52(6) ALSO CONTEMPLATE THE EXPENDITURE BEING INITIALLY INCURRED EITHER BY THE FUND OR BY THE AMC. THEREFORE THE TWO REGULATIONS WHEN READ TOGETHER PERMITS EXPENDITURE IN EXCESS OF THE LIMIT PRESCRIBED MAY BE INCURRED FIRST BY THE AMC WHICH MAY BE LATER BE REIMBURSED BY THE AMF. EVEN THOUGH REGULATION 52(7) PROVIDES THAT THE EXPENDITURE CAN BE BORNE BY THE AMC OR BY THE TRUSTEE OR SPONSORS, IT DOES NOT BAR ANY ONE OF THE M ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 9 BEARING THE ENTIRETY OF THE EXPENDITURE. THE AMC I S THE MAIN BENEFICIARY OF THIS SCHEME AND EARNS INCOME FROM THE AMF FOR MANAGING THE SCHEMES. THEREFORE IT IS IN THE INTEREST OF THE BUSINESS OF THE AMC TO BEAR THE EXPENDITURE FOR THE PURPOSE OF RUNNING THE SCHEME WHICH COULD NOT BE BORNE BY THE FUND. 18. IN THE CIRCUMSTANCES, WE HOLD THAT THE EXPENDITURE OF RS.77,91,161/- REIMBURSED BY THE ASSESSEE TO THE FUND IN ACCORDANCE WITH AND AS PER THE TERMS OF REGULATION 52(6) & 52(7) OF THE SEBI REGULATION IS ALLOWABLE DEDUCTION IN THE HAND OF TH E ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME IN COMPUTING THE INCOME OF THE ASSESSEE. AS THE FACTS ARE IDENTICAL IN THE SAID CASE AND BEI NG THE DECISION OF THE CO-ORDINATE BENCH AND ALSO THE DISALLOWANCE WAS MADE UNDER THE SEBI REGULATIONS, A FTER CONSIDERING THE SEBI REGULATIONS, THE ADDITION WAS DELETED BY THE TRIBUNAL. FOLLOWING THE ABOVE DECISION OF T HE TRIBUNAL ON THIS ISSUE, WE UPHOLD THE ORDER OF THE LD CIT (A). ACCORDINGLY, GROUND NO. 3 IN ALL THE APPEALS STANDS DISMISSED. 10. THE FACTS ARE IDENTICAL IN THIS YEAR ALSO. WE FIND NO REASON TO TAKE A DIFFERENT VIEW IN THIS YEAR. WE, THEREFORE, FOLLOWING ORDER OF THE TRIBUNAL FOR A. YS. 2003-04 TO 04-05 ON THIS ISSUE, CONFIRM THE ORDER OF THE LD. CIT (A) AND GROUND NO.3 OF THE REVENUE S TANDS DISMISSED. 11. GROUND NO.4 READS AS UNDER: 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) WAS NOT CORRECT IN DELETING TH E DISALLOWANCE OF INITIAL ISSUE EXPENSES OF ` 47,71,000/- OF THE MUTUAL FUND SCHEME INCURRED BY THE ASSESSEE WHI CH PERTAINS TO THE BUSINESS OF THE MUTUAL FUND, WITHOU T APPRECIATING THE FACT THAT THESE ARE THE EXPENSES I NCURRED BY THE ASSESSEE COMPANY ON BEHALF OF THE MUTUAL FUN D AND ARE PERTAINING TO SCHEMES WHICH ARE OF THE MUTU AL FUND WHICH THE ASSESSEE COMPANY WAS EMPOWERED BY TH E SEBI REGULATIONS TO CHARGE TO THE MUTUAL FUND. THE LD. ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 10 CIT (A) HAS FAILED TO APPRECIATE THAT THESE INITIAL ISSUE EXPENSES ARE CAPITAL IN NATURE. THEREFORE, SUCH EXPENDITURE BORNE BY THE ASSESSEE COMPANY CANNOT BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 37(1) OF THE I.T. ACT, 1961. 12. THE LD. COUNSEL SUBMITS THAT THE ISSUE ARISING FROM GROUND NO.4 HAS ALREADY BEEN CONSIDERED IN THE ASSESSEES OWN CASE FOR THE A.YS. 2002-03 TO 2004-05 BEING ITA NOS.2890 TO 2892 /M/2007 ORDER DATED 2ND JULY, 2009. THE LD. COUNSEL ALSO FILED C OPY OF THE TRIBUNAL ORDER AND OPERATIVE PART OF THE TRIBUNAL ORDER READ S AS UNDER: 11. GROUND NO. 4 IS IN RESPECT OF DISALLOWANCE OF INITIAL ISSUE EXPENSES OF THE MUTUAL FUND SCHEME INCURRED BY THE ASSESSEE. 12. WE HAVE HEARD THE PARTIES. THE A.O MADE THE DI SALLOWANCE TOWARDS THE INITIAL ISSUE EXPENSES INCURRED BY THE ASSESSEE TOWARDS THE MUTUAL FUND SCHEME AS UNDER: A.Y. 2002-03 RS.1,48,25,118/- A.Y.2003-04 RS. 58,26,852/- A.Y.2004-05 RS 8,40,728/- THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY CO-ORDINATE BEN CH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 20 00-01 BEING ITA NO. 4697/M/2006, ORDER DATED 27.8.2008. THE LD COUNSEL HAS ALSO FILED COPY OF THE TRIBUNAL ORDE R IN ASSESSEES OWN CASE FOR THE A.Y. 2000-01 WHICH IS P LACED ON RECORD. 13. WE HAVE ALSO HEARD THE LD D.R. IT IS SEEN THA T IN ASSESSEES OWN CASE FOR THE A.Y. 1997-98 IN ITA NO. 2943/MUM/2001, ORDER DATED 8.2.2005, THE TRIBUNAL H AS HELD AS UNDER: ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 11 8. THERE IS NO BASIS FOR ALLEGING THAT THE ABOVE EXPENDITURES WERE IN THE NATURE OF CAPITAL EXPENDITURE. IT IS THE BUSINESS OF THE ASSESSEE- COMPANY TO INTRODUCE NEW PRODUCTS IN THE INVESTMENT MARKET FROM TIME TO TIME. EVERY ISSUE IS THEREFORE BY ITSELF AN EVENT IN THE INVESTMENT MARKET. IT IS NECESSARY FOR THE COMPANY TO LAUNCH THE NEW SCHEMES IN SUCH AN EFFECTIVE MANNER THAT THEY ARE A LL FULLY SUBSCRIBED BY THE PUBLIC. THOSE EXPENDITURE CANNOT BE HELD AS CAPITAL EXPENDITURE ONLY FOR THE REASON THAT THEY ARE INCURRED AS INITIAL EXPENSES WITH REFERENCE TO THE LAUNCHING OF EVERY SCHEME. I T IS TO BE SEEN THAT SCHEME AFTER SCHEME IS THE REGULAR FEATURE OF THE BUSINESS CARRIED ON BY THE ASSESSEE- COMPANY. THEREFORE, EVEN THOUGH THE ASSESSEE HAS TO INCUR INITIAL EXPENSES ON THE LAUNCH OF SCHEMES, SUCH EXPENDITURE HAS TO BE INCURRED FROM TIME TO TI ME AT THE TIME OF LAUNCHING OF VARIOUS SCHEMES. IN FA CT THEY ARE ALL REPETITIVE IN NATURE DEPENDING UPON TH E NUMBER OF PRODUCTS OFFERED IN THE INVESTMENT MARKET . THEREFORE, THERE IS NO BASIS IN HOLDING THAT THEY A RE OF THE NATURE OF CAPITAL EXPENDITURE. IN FACT THE VERY SAME ISSUE WAS CONSIDERED BY THE ITAT MUMBAI BENCH I IN THE CASE OF BIRLA SUNLIFE (AMC) LTD. V S. ACIT MUMBAI IN ITA NO.5980/MUM/2000 AND OTHERS FOR THE ASSESSMENT YEARS 1995-96 TO 2000-2001, THROUGH ITS ORDER DATED 4 TH JUNE, 2004. AFTER EXAMINING THE ISSUE IN DETAIL IN THE LIGHT OF THE BUSINESS CARRIED ON BY THE ASSESSEE, THE TRIBUNAL HELD THEREIN THAT ALL THOSE LAUNCH EXPENSES ARE REVENUE IN NATURE. 9. IN VIEW OF THE MATTER, WE FIND THAT THE ORDER PASSED BY THE CIT (A) IS JUST, PROPER AND SUSTAINAB LE IN LAW. THE REVENUE FAILS IN ITS APPEAL FILED BEFO RE US. THE ABOVE-REFERRED ORDER OF THE CO-ORDINATE BENCH H AS BEEN FOLLOWED IN OTHER YEARS ALSO, MORE PARTICULARLY, A. Y.1998- 99 AND 2000-01. AS THE FACTS ARE IDENTICAL IN THIS YEAR ALSO FOLLOWING THE ORDER OF THE TRIBUNAL, WE UPHOLD THE ORDER OF THE LD CIT (A) IN THIS A.Y. ALSO. IN THE RESULT, G ROUND NO.4 OF THE REVENUE IN ALL THESE APPEALS ARE ACCORDINGLY DISMISSED. ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 12 13. THE FACTS ARE IDENTICAL IN THIS YEAR. WE FIND NO REASON TO TAKE A DIFFERENT VIEW ON THE ISSUE ARISING FROM GROUND NO. 4 IN THIS YEAR. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT (A) A ND GROUND NO.4 OF THE REVENUE STANDS DISMISSED. 14. LD. COUNSEL FOR THE ASSESSEE SPECIFICALLY SUBM ITS THAT ALL ISSUES ARISING FROM GROUND NOS.1 TO 4 OF THIS APPEAL HAVE BEEN CONSIDERED BY THE HONBLE HIGH COURT OF BOMBAY IN THE APPEAL FILE D BY THE REVENUE I.E. CIT-CENTRAL-III MUMBAI VS. M/S. FRANKLIN TEMPL ETON ASSET MANAGEMENT (INDIA) PVT. LTD. - INCOME TAX APPEAL NO .1043 OF 2010 JUDGMENT DATED 12.09.2011 AND THE TRIBUNALS ORDER IN ITA NO.2891/M/2007 HAS BEEN AFFIRMED, DISMISSING THE AP PEAL FILED BY REVENUE. THE LD. COUNSEL HAS FILED COPY OF THE JUD GMENT OF THE HONBLE HIGH COURT DATED 12.09.2011 WHICH IS PLACED ON RECORD. 15. GROUND NO.5 READS AS UNDER: 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) WAS NOT CORRECT IN DELETING THE DISALLO WANCE OF DEPRECIATION ON COMPUTER PERIPHERALS WITHOUT APPREC IATING THE FACT THAT THESE ITEMS SUCH AS NETWORK EQUIPMENT , MODEM, PORT, SWITCHES ETC. ONLY BE CATEGORIZED AS PERIPHERALS AND CANNOT BE CLUBBED WITH COMPUTERS FO R DEPRECIATION PURPOSES. 16. THE LD. COUNSEL SUBMITS THAT THE ISSUE ARISING FROM GROUND NO.5 HAS ALREADY BEEN CONSIDERED IN THE ASSESSEES OWN CASE FOR THE A.Y. 2006-07 IN ITA NO.3131/M/2009 ORDER DATED 25TH MARCH, 2011. THE LD. COUNSEL ALSO FILED COPY OF THE TRIBUNAL ORD ER AND OPERATIVE PART OF THE TRIBUNAL ORDER READS AS UNDER: 11. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E RELIES ON THE SPECIAL BENCH DECISION OF THIS TRIBUNAL RENDERE D IN DCIT V/S DATACRAFT INDIA LTD., (2010) 40 SOT 295 (S B) (MUM.) AND CONTENDS THAT DEPRECIATION SHOULD BE GRA NTED @ ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 13 60%. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OT HER HAND, TOOK THIS BENCH THROUGH PAGES19 AND 20 OF TH E ASSESSMENT ORDER, WHEREIN EACH OF THE COMPONENT OF THE COMPUTER IS GIVEN AND ARGUED THAT ON AN ANALYSIS OF THE FUNCTIONS OF EACH OF THESE COMPUTER PERIPHERALS AND APPLYING THE RATIO LAID DOWN BY THE SPECIAL BENCH, THE ASSESSEE SHOULD NOT BE ALLOWED GRANT OF DEPRECIATIO N @ 60% IN THE CASE OF ONE CISCO IP PHONES, RAM, RIC CONNECTOR, TERMINAL EQUIPMENT, ETC. LEARNED COUNSEL DISPUTES THIS CLAIM AND SUBMITS THAT ALL THESE PERI PHERALS ARE USED ONLY WITH THE COMPUTER. HE FURTHER SUBMITS THAT IN THE EARLIER ASSESSMENT YEAR, THE LEARNED CIT (A) DI RECTED GRANT OF DEPRECIATION @ 60% AND THE REVENUE HAS NOT GONE IN APPEAL BEFORE THE TRIBUNAL. HE SUBMITTED THAT ON CE AN ITEM BECOMES A PART ON A PARTICULAR BLOCK OF ASSET, ON WHICH 60% RATE OF DEPRECIATION WAS GRANTED IN THE E ARLIER ASSESSMENT YEAR, THE QUESTION OF REMOVING THE ITEM FROM THE BLOCK OF ALLOWING DEPRECIATION AT A DIFFERENT R ATE IS NOT PERMISSIBLE. 12. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND T HAT THE ASSESSING OFFICER HAS SPECIFICALLY STATED THAT ALL THE EQUIPMENT IN QUESTION ARE COMPUTER PERIPHERALS. THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT ALL THESE ITEMS ARE USED ALONG WITH THE COMPUTER SY STEM OF THE ASSESSEE COMPANY. IT IS NOT THE CASE THAT SOME OF THESE COMPONENTS LISTED AT PAGES19 AND 20 OF THE ASSESSE ES PAPER BOOK ARE USED INDEPENDENT OF THE COMPUTER SYS TEM OF THE ASSESSEE. THE ARGUMENT THAT A PARTICULAR COM PONENT IS CAPABLE OF BEING USED INDEPENDENT OF THE COMPUTE R AND, HENCE, DEPRECIATION SHOULD NOT BE GRANTED AT A HIGH ER RATE IS A FALLACIOUS ARGUMENT FOR THE REASON THAT THE TE ST LAID DOWN BY THE SPECIAL BENCH IS WHETHER THE COMPONENT IN QUESTION IS USED ALONG WITH THE COMPUTER THE MAIN F UNCTION BEING THAT OF THE COMPUTER. HERE THE PREDOMINANT US E IS ITA 3015/M/2010 M/S. FRANKLIN TEMPLETON ASSET MANAGEMENT (INDIA) PVT. LTD 14 THAT OF THE COMPUTER AND ALL THESE COMPONENTS ARE A NCILLARY COMPONENTS USED ALONG WITH THE COMPUTER. IN VIEW OF THE ABOVE FINDINGS, WE UPHOLD THE ORDER OF THE FIRST AP PELLATE AUTHORITY AND DISMISS THE GROUND OF APPEAL RAISED B Y THE REVENUE. 17. AS THE FACTS ARE IDENTICAL IN THIS YEAR, WE FI ND NO REASON TO TAKE A DIFFERENT VIEW ON THIS ISSUE ARISING FROM GROUND NO.5 IN THIS YEAR. WE, ACCORDINGLY, CONFIRM THE ORDER OF THE LD. CIT ( A) AND GROUND NO.5 OF THE REVENUE ALSO STANDS DISMISSED. 18. IN THE RESULT, REVENUES APPEAL STANDS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 7 TH MARCH, 2012. SD/- ( RAJENDRA SINGH, ACCOUTANT MEMBER SD/- ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 7TH MARCH, 2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-33, MUMBAI. 4) THE CIT-22, MUMBAI. 5) THE D.R. F BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN