K.R.A HOLDING & TRADING P LTD, Pune V. Addl.CIT,Range- 2, Pune

ITA 434/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49807 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 15-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A S SINGH
• Assessee Lawyers: R D ONK; M P MAHAJANI
• Keywords: Capital asset; Business income; Depreciation; Cost of acquisition
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I. C. SUDHIR, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER S. NO ITA NO ASSTT.YEAR 1. 500/PN/08 2004-05 2. 1320/PN/08 2005-06 3. 434/PN/09 2006-07 KRA HOLDING & TRADING P. LTD. .. APPE LLANT 12 BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE PAN AAACK7301F VS. DY. COMMISSIONER OF INCOME-TAX .. RESPONDENT RANGE 11(1), PUNE AND S. NO ITA NO ASSTT.YEAR 4. 499/PN/08 2004-05 5. 1321/PN/08 2002-03 6. 1322/PN/08 2005-06 7. 806/PN/09 2006-07 ARA TRADING & INVESTMENTS P. LTD. .. A PPELLANT 12 BOAT CLUB ROAD, RIVERSIDE ESTATE, PUNE PAN AABCA5138R VS. DY. COMMISSIONER OF INCOME-TAX .. RESPONDEN T RANGE 11(1), PUNE APPELLANTS BY : SHRI M P MAHAJANI & R.D. ONK AR RESPONDENT BY : SHRI A. S. SINGH CIT -DR ORDER PER BENCH: THERE ARE SEVEN (7) APPEALS UNDER CONSIDERATION IN VOLVING TWO GROUP ASSESSEES, NAMELY, M/S KRA HOLDING & TRADING P. LTD. (AYS 2004-05, 2005-06 & 2006-07) AND M/S ARA TRADING & INVESTMENT (P) LTD (AYS 2002-03, 2004-05 , 05-06 & 06-07). DURING THE PROCEEDINGS BEFORE US, A T THE OUTSET, LD COUNSEL MENTIONED THAT THESE TWO ASSESSEES GOT AMALGAMATED WITH RDA HOLDING & TRADING LTD VIDE JUDGMENT NO 1323 OF 2008 AND IN TH IS REGARD, THE ASSESSEES COUNSEL FILED A COPY OF THE JUDGMENT OF THE HONBLE HIGH COURT EVIDENCING SUCH AMALGAMATION,. FURTHER LD COUNSEL MENTIONED THAT TH ERE IS DELAY OF 40 DAYS IN FILING APPEAL IN THE CASE OF ARA TRADING & INVESTME NTS P, LTD. IN ITA NO 2 1322/P/08. IN THIS REGARD, THE COUNSEL MENTIONED TH AT THE ASSESSEE FILED APPEAL ON 20.10.2008 AS AGAINST DUE DATE 10.9.2008 AND THE DELAY IS NOT WITHOUT ANY REASON. IN THIS REGARD, THE COUNSEL MENTIONED THAT THE CONCERNED EMPLOYEES AS WELL AS CONSULTANTS WERE BUSY WITH THE SCHEME OF AM ALGAMATION AND THE PROCEEDINGS BEFORE THE HONBLE HIGH COURT. IN THIS REGARD, THE COUNSEL FILED AN AFFIDAVIT OF SHRI VASANT A POTBHARE, WHO IS KEY PER SON IN FILING OF THE SAID APPEAL. ON EXAMINING THE FACTS DETAILED IN THE SAID AFFIDAV IT, WHICH ARE NOT CONTROVERTED BY THE REVENUE WITH EVIDENCES AND AFTER HEARING THE LD. DR, WE FIND THAT THE DELAY IS REQUIRED TO BE CONDONED . 2. ASSESSEES COUNSEL FILED THE FOLLOWING TABLE PRO VIDING THE BIRDS VIEW OF THE APPEALS AND THE ISSUES PENDING FOR ADJUDICATION BEF ORE US ARE TABULATED AS UNDER: TWO ISSUES RAISED IN GROUNDS ITA NO/A.Y 1 ST ISSUE: BUSINESS INCOME/ CAPITAL GAINS 2 ND ISSUE: ALLOWABIL ITY OF FEE PAID TO ENAM, THE AMC REMARKS 2 3 4 5 1. KRA HOLDING AND TRADING P LTD 500/PN/08 2004-05 ALREADY ADJUDIC ATED IN THE 1 ST ROUND OF THE PROCEE- DINGS BEFORE ITAT. ORDER OF TRIBUNAL IS RECALLED ONLY FOR ADJUDICA TING THIS ISSUE. IN THE FIRST ROUND, ITAT PASSED AN ORDER DT 31.8.09. THE OTHER ISSUE RELATING TO FEE PAID TO ASSET MANAGEMENT COMPANY VIDE GROUND- 5, WAS OMITTED FROM ADJUDICATION. THE SAID ORDER WAS RECALLED VIDE MA NO 11, 12/PN/ DT 23. 4.2010 FOR THIS PURPOSE. GR 5 RELATING TO FEE PAID TO ENAM IS REQUIRED TO BE ADJUDICATED HERE. 1320/PN/08 2005-06 PRESENT PRESENT BOTH ISSUES ARE TO BE ADJUDICATED. HOWEVER, THE 1ST ISSUE STANDS COVERED BY ORDER OF THE ITAT DATED 31.8.09. THUS, ONLY GROUND 4 RELATING TO FEE PAID TO ENAM IS REQUIRED TO BE ADJUDICATED HERE. 434/P/08 2006-07 PRESENT PRESENT -DO- 2. ARA TRADING & INVESTMENT P LTD 1321/PN/08 2002-03 PRESENT NO WE FIND THE LONE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL DT 31.8.09 BY ITA NOS 499 & 500/PN/08. 499/PN/08 2004-05 PRESENT PRESENT 1 ST ISSUE WAS ALREADY ADJUDICATED VIDE ITA NOS 499 & 500/PN/08 DT 31.8.09 IN THE FIRST ROUND. THUS THE 2 ND ISSUE AT GROUND 4 RELATING TO FEE PAID TO ENAM IS REQUIRED TO BE ADJUDICATED HERE. 1322/PN/08 2005-06 PRESENT NO 1 ST ISSUE WAS ALREADY ADJUDICATED VIDE ITA NOS 499 & 500/PN/08 DT 31.8.09 IN THE FIRST ROUND. HENCE IT IS A COVERED ISSUE. 3 806/PN/08 2006-07 PRESENT NO 1 ST ISSUE WAS ALREADY ADJUDICATED VIDE ITA NOS 499 & 500/PN/08 DT 31.8.09 IN THE FIRST ROUND. HENCE IT IS A COVERED ISSUE. 3. THE ABOVE TABLE REFLECTS THAT A COUPLE OF ISSUES ARE INVOLVED IN ALL THE GROUNDS OF THE APPEALS INVOLVING TWO ASSESSEES, (I) RELATING TO WHETHER THE INCOME EARNED ON SALE OF SHARES IS TO BE ASSESSED U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR UNDER THE HEAD CAPITAL GAINS AND (II) ALLOWABILITY OF THE FEE PAID TO THE ASSET MANAGEMEN T COMPANY. 4. REGARDING THE FIRST ISSUE , THE PARTIES MENTIONED THAT IT WAS THE SUBJECT MATTER OF THE APPEAL FOR ADJUDICATION BEFORE THIS T RIBUNAL IN THE FIRST ROUND OF THE PROCEEDINGS IN THE ASSESSEES OWN CASE IN CONNECTIO N WITH APPEALS ITA NOS 499 & 500/PN/08 AND THE TRIBUNAL HELD THAT THE SECURITI ES IN QUESTION BEING THE INVESTMENTS, THE SALE PROCEEDS OF THE SAME ARE ASSE SSABLE UNDER THE HEAD CAPITAL GAINS AND CONSEQUENTLY, THE TRIBUNAL UPHE LD THE ASSESSEES DECISION OF TAXING THE SAME UNDER THE HEAD CAPITAL GAINS. IN TH IS REGARD, THE COUNSEL REFERRED TO PARA 27 OF THIS ORDER 0F THE TRIBUNAL. THE SAID PARAGRAPH READS AS UNDER: 27. TO CONCLUDE, THE CIRCUMSTANCES AND THE PLETHOR A OF PRECEDENTS UNMISTAKABLY POINTS OUT THAT THE ASSESSEE WAS NOT D IRECTLY INVOLVED IN THE TRADING ACTIVITY. THEREFORE ITS HOLDING WAS NOTHING BUT AN INVESTMENT. WHAT IS DECISIVE IS THE CONDUCT AND THE INTENTION O F AN INVESTOR WHICH HAS BEEN ESTABLISHED IN THE PRESENT APPEAL THAT THE APP ELLANT HAD SIMPLY ACTED IN THE FASHION TO MAXIMIZE THE VALUE OF ITS WEALTH HOLDING, IN THE SHAPE OF SHARES. SUCH AN ACTIVITY CANNOT BE HELD A PROFIT MAKING ACT IVITY OF A BUSINESS CONCERN BUT SAFELY IT CANE HELD AS A PRO FIT SEEKING ACTIVITY OF AN INVESTOR . RESULTANTLY OUR VIEW GOES IN FAVOUR OF THE ASSESSEE , THUS THE GROUNDS ARE ALLOWED. 5. ON MENTIONING THAT THE SAID GROUND RELATING TO T HE CHARGEABILITY OF THE EARNING ON SALE OF THE SHARES UNDER THE CAPITAL GA INS IS ALREADY ADJUDICATED, LD COUNSEL MENTIONED THAT THE SAID ORDER OF THE TRIBUN AL HAD TO BE RECALLED AS IT FAILED TO ADJUDICATE OTHER GROUND RELATING TO THE A LLOWABILITY OF THE CLAIM OF DEDUCTION RELATING TO THE FEE PAID TO THE ASSET MAN AGEMENT COMPANY DEBITED TO THE P& L ACCOUNT. THEREFORE, THE TRIBUNAL RECALLED THE SAID ORDERS IE ITA NOS 499 & 500/PN/08 FOR LIMITED PURPOSE OF ADJUDICATION OF THE GROUND 2 RELATING TO THE SAID FEE ISSUE. THUS, THE LD COUNSEL MENTIONED THAT THE FIRST ISSUE RELATING TO THE CHARGEABILITY (HEAD OF INCOME) OF THE EARNING ON SALE OF THE SHARES UNDER THE CAPITAL GAINS IS ALREADY ADJUDICATED AND BY THIS A DJUDICATION, RELEVANT GROUNDS OF THE OTHER APPEALS MENTIONED THE TABLE ABOVE STAND C OVERED IN FAVOUR OF BOTH THE ASSESSEES APPEALS. IN VIEW OF THE HOMOLOGY OF FACT S, LD DR RESPECTFULLY RELIED ON THE ORDERS OF THE AO. FURTHER, NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE TO SUPPORT THAT THE SAID DECISION OF THE TRIBUNAL IS A NYWAY REVERSED OR INTERFERED WITH BY THE HIGHER JUDICIAL AUTHORITIES. THUS, THE SAID ORDER OF THE TRIBUNAL HOLDS 4 RELEVANT AS ON DATE TO THE IDENTICAL ISSUES RAISED IN THE APPEALS UNDER CONSIDERATION. 6. CONSEQUENTLY, SO FAR AS THE APPEALS BY M/S KRA HOLDING & TRADING P. LTD IS CONCERNED, THE GROUNDS 1 TO 3 OF ITA NO 1320 FOR A.Y 2005-06 AND THE GROUND NOS 1 TO 3 OF ITA NO 434 /PN/09 FOR AY 2006-07 RELATING TO THE ISSUE OF HEAD OF INCOME, STAND COVERED AND ACCORDINGLY, AD JUDICATED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE SAID GROUNDS ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 7. FURTHER, SO FAR AS THE APPEALS BY M/S ARA TRADING & INVESTMENTS P LTD IS CONCERNED, THE GROUND NOS 1 TO 4 OF ITA NO 1321 & 1322 /PN/08 & 806 /PN/09 ARE ALSO COVERED IN FAVOUR OF THE ASSESSEE. ACCORDI NGLY, THE RELEVANT GROUNDS OF ALL THESE APPEALS ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 8. NOW WE PROCEED TO TAKE UP THE SECOND ISSUE RELA TING TO THE FEE PAID TO ASSET MANAGEMENT COMPANY IN THE SUCCEEDING PARAGRAP HS. ALLOWABILITY OF THE FEE PAID TO M/S ENAM, PORTFOLIO MANAGER 9. AS EVIDENT FROM THE ABOVE REFERRED CHART, THE ON LY ISSUE THAT IS REQUIRED TO BE ADJUDICATED BY US IN APPEALS (ITA NOS 500/PN/08, 1320/PN/08, 434/PN/09 OF KRA HOLDING & TRADING P.LTD., AND 499/PN/08 OF ARA TRADING & INVESTMENTS P LTD), RELATE TO THE ISSUE OF ALLOWABILITY OF THE FE E PAID TO THE ASSET MANAGEMENT COMPANY. IN THE PROCESS, WE PICK UP THE RECALLED AP PEALS WITH ITA NO 499/P/08 IN THE CASE OF ARA TRADING & INVESTMENTS P LTD AND ITA NO 500/PN/08 IN THE CASE OF KRA HOLDING & TRADING P. LTD FOR THE PURPOS E OF EXTRACTION OF THE FACTS. THE FINDINGS OF THE TRIBUNAL IF ANY IN THESE APPEAL S WOULD BE APPLICABLE TO REST OF THE APPEALS, UNDER CONSIDERATION, WHEREVER THIS ISS UE IS RAISED BY THE ASSESSEE. PARAGRAPHS 5 OF THE IMPUGNED ORDER IN THE CASE OF KRA HOLDING & INVESTMENT P. LTD FOR THE ASSESSMENT YEAR 2004-05 IS RELEVANT FOR FA CTS AND DISCUSSIONS. 10. OTHERWISE, THE AO DEALT WITH THIS ISSUE OF PAYM ENT OF FEE TO ENAM ASSET MANAGEMENT P. LTD (IN SHORT ENAM) IN HIS ORDER. RELEVANT KRA HOLDING & INVESTMENT P. LTD FOR THE ASSESSMENT YEAR 2004-05 ARE THAT THE ASSE SSEE DEBITED A SUM OF RS 69,22,396/-, WHICH INCLUDES TER MINATION FEE ( TF ) OF RS 59,15,574/- AND ANNUAL MAINTENANCE FEE (MF) OF RS 1 0,06,823/-. AFTER HEARING THE ASSESSEE AND CONSIDERING HIS SUBMISSIONS, THE A O FOUND THAT TF HAS TO BE DISALLOWED. ACCORDINGLY, HE MADE AN ADDITION OF RS 59,15,574/-. WHILE DISALLOWING THE CLAIM, THE CASE OF THE AO IS THAT T HE SAID PAYMENT CONSTITUTES PROFIT SHARING FEE PAID TO ENAM AND THE SAME IS NOT AUTHORIZED OR BOR NE OUT 5 OF EITHER BY ANY AGREEMENT BETWEEN THE ASSESSEE AND THE ENAM OR THE SEBI (PORTFOLIO MANAGERS) RULES & REGULATIONS, 1993. AS PER THE AO, VIDE SUB-CLAUSE (C), CLAUSE 7, A TERMINATION FEE OF UPTO 5% WILL BE PAYABLE AND THE SAME CALCULALED ON THE NET ASSET VALUE (NAV) OF THE PORT FOLIO ON THE DATE OF TERMINATION OF THE AGREEMENT PERIOD. AS PER THE AO, THE AGREEMENT WAS NEVER TERMINATED AS IT IS RENEWED FROM TIME TO TIME . FURTHER, THE AO RELIED ON CLAUSE 14(3) OF THE CHAPTER 3 OF SEBI (PORTFOLIO MA NAGERS) RUES & REGULATIONS, 1993 FOR THE PROPOSITION THAT THE PORTFOLIO MANAGER SHALL CHARGE ON AGREED FEE FROM THE CLIENT FOR RENDERING PORTFOLIO MANAGEMENT SERVICE AND SHALL NOT ON A RETURN SHARING BASIS . THUS, THERE IS EXPRESS PROHIBITION AGAINST THE AS SESSEE. THE RELEVANT CLAUSE READS AS UNDER: THE PORTFOLIO MANAGER SHALL CHARGE ON AGREED FEE F ROM THE CLIENT FOR RENDERING PORTFOLIO MANAGEMENT SERVICES WITHOUT GUA RANTEEING OR ASSURING, EITHER DIRECTLY OR INDIRECTLY ANY RETURN AND SUCH FEE SHALL BE INDEPENDENT OF THE RETURN OF THE CLIENT AND SHALL NOT BE ON A RETURN SHARING BASIS . 11. THE AO WHILE DISALLOWING THE CLAIM, RELIED ESSE NTIALLY ON THE ABOVE CLAUSE 14(3) WHICH IS AGAINST THE ASSESSEES CLAIM AND HEL D THAT THE ASSESSEE PAID THE SAID AMOUNT OF RS 59,15,574/- IN THE NAME OF TF /PERFORMANCE FEE BY CALCULATING THE FEE ON RETURN SHARING BASIS, WHICH IS AGAINST T HE SAID CLAUSE 14(3). AS PER THE AO, THE ABOVE PAYMENT TO ENAM CONSTITUTES THE TRANS FER OF GAINS OF THE ASSESSEE TO THE TUNE OF 38% OF THE TOTAL GAINS, I.E. RS 59,1 5,574/1,56,76,802. THE CONCLUDING PARA OF THE AO READS AS FOLLOWS: IT IS THEREFORE CLEAR THAT PAYMENT OF RS 59,15,574 /- AS TERMINATION FEES WHICH IS COMPUTED ON PROFIT SHARING BASIS IS NEITHE R SPECIFICALLY PROVIDED IN THE AGREEMENT NOR IS AS PER SEBI RULES AND REGULATI ONS. THE SAME IS THEREFORE DISALLOWED. FURTHER NO MENTION OF FEES PA ID IS MADE IN THE RETURN AS GAINS ON SALE OF SHARES ARE NET OF SUCH F EES PAID IS MADE IN THE RETURN AS GAINS ON SALE OF SHARES ARE NET OF SUCH F EES AND COMPUTATION OF SUCH GAINS IS NOT ENCLOSED WITH THE RETURN. 12. AGGRIEVED WITH THE ABOVE ADDITION, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND MADE VARIOUS SUBMISSIONS WHICH ARE REPRO DUCED IN PARA 5.1 AND 5.2.1 OF THE IMPUGNED ORDER. BY THESE SUBMISSIONS, THE ASSESSEE SUBMITTED THAT THE SAID EXPENDITURE WAS INCURRED IN CONNECTION WIT H THE ACQUISITION OF SHARES . THEREFORE, THE EXPENDITURE IS REQUIRED TO BE CAPITALIZED AS DONE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. AS PER THE AS SESSEE, THIS EXPENDITURE IS PART OF THE COST OF ACQUISITION OF SHARES. AS THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE FEES PAID TO ENAM AND THE PROCESS OF A CQUISITION OF THE SECURITIES AND THE SALE OF SECURITIES. AS PER THE A SSESSEE, TERMINATION OF AGREEMENT AND TERMINATION OF PERIOD OF AGREEMENT ARE DISTINCTIVE ACTIVITIES, SO THE AMOUNT IN QUESTION IS PAYABLE ON TERMINATION OF THE PERIOD AND NOT THE TERMINATION OF THE AGREEMENT AND RELIED ON CLAUSE 2 OF THE AGREEMENT RELATING TO THE FEE. REGARDING BASIS OF TERMINATION FEE COMPUT ATION, THE SAME IS PAYABLE AT THE RATE OF 5% OF THE NAV OF THE PORTFOLIO OF THE C LIENT AND MENTIONED THAT NAV 6 IS DEFINED IN THE SAID AGREEMENT. EXPANDING ON THE ISSUE OF T HE BASIS OF 5%, THE ASSESSEE ARGUED THAT THE BASIS IS SCIENTIFIC AND CONSISTENTLY FOLLOWED BY THE ASSESSEE OVER THE YEARS. THE ACTUAL PAYMENT IN FACT IS WITHIN THE LIMITS PROVIDED UNDER THE AGREEMENT. FURTHER, HE ARGUED TH AT AS OF NOW, THERE IS NO ISSUE ABOUT WHETHER THE SAID INCOME IS TAXABLE UNDE R THE HEAD PROFITS AND GAINS FROM THE BUSINESS OR PROFESSION; OR UNDER THE HEAD CAPITAL GAINS SINCE THE SAID ISSUE IS ALREADY DECIDED BY THE TRIBUNAL VIDE ORDER DATED 31.8.2009 IN FAVOUR OF THE ASSESSEE, I.E. THE SAID PROFIT CONSTITUTES CAPI TAL GAINS TAXABLE UNDER THE HEAD CAPITAL GAINS AS THE SECURITIES IN QUESTION CONSTIT UTES CAPITAL ASSETS/INVESTMENT. CONSIDERING THE FACT THAT THERE IS NO DISPUTE ABOUT GENUINENESS OF THE PAYMENT, THE SAID PAYMENT TO ENAM IS INCURRED ONLY FOR ACQUISITION OF THE SHARES/SECURITIES, AS PER THE ASSESSEE, THE SAID PA YMENT CONSTITUTES COST OF ACQUISITION AND SALE OF SECURITIES . 13. WITHOUT PREJUDICE, THE ASSESSEE ARGUED THAT PAR T OF THE FEE IS ATTRIBUTABLE TO ACT OF SELLING OF SECURITIES AND, THEREFORE, PAR T OF THE FEES CAN BE SAID TO BE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER . FURTHER, HE ARGUED THAT FEE IS PAID WHOLLY AND EXCL USIVELY FOR ACQUIRING AND SELLING SECURITIES DURING THE YEAR UNDER REVIEW. TH EREFORE, THE FEES SO PAID SHOULD BE LOADED ON THE SHARES/SECURITIES PURCHASED AND SOLD DURING THE YEAR IN THE VALUE PROPORTION. IN RESPECT OF THE SHARES P URCHASED DURING THE YEAR, THE FEES LOADED WOULD BE COST OF ACQUISITION AND IN RES PECT OF SHARES SOLD DURING THE YEAR,THE FEES LOADED WOULD REPRESENT EXPENDITURE IN CURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. FURTHER THE ASSESS EE FILED ANOTHER LETTER DT 1.10.2007 EXPLAINING THE REASON FOR PAYMENT TO ENAM AND THE NATURE OF THE SAME AND THE MODE OF CALCULATION OF THE PAYMENT. TH E DETAILS ARE MENTIONED IN PARA 5.2.1 OF THE IMPUGNED ORDER. THE SUMMARY OF TH E SAME IS AS UNDER: IN SUMMATION, THE FOLLOWING FACTS EMERGE FROM THE ABOVE SUBMISSIONS: A) THE FEES ARE PAID WHOLLY AND EXCLUSIVELY FOR EAR NING THE INCOME OFFERED TO TAX UNDER THE HEAD CAPITAL GAINS. B) THE FEES PAID HAVE A DIRECT, PROXIMATE AND ONE T O ONE NEXUS WITH EARNING OF CAPITAL GAINS AND C) THE COMPANY HAS ALREADY UNDERTAKEN A CONTRACTUAL OBLIGATION TO DIVERT ITS PROFITS TO THE EXTENT OF PROFIT SHARING FEES TO THE PORTFOLIO MANAGER AND HAS ACCEPTED TO RECEIVE THE SALE CONSID ERATION/PROFITS NET OF SUCH FEES. ON HEARING THE APPEAL OF THE ASSESSEE AND AFTER CON SIDERING THE SUBMISSION, THE CIT(A) IS OF THE VIEW THAT THE ASSESSEES SUBMISSIO N ARE NOT ACCEPTABLE AND ACCORDINGLY DISMISSED THE RELEVANT GROUNDS OF THE A SSESSEE. BEFORE THE TRIBUNAL 14. AGGRIEVED WITH THE ABOVE ORDER OF THE CIT(A), T HE ASSESSEE FILED THE PRESENT APPEAL WITH THE GROUND 2 (GROUND 1 WAS ALRE ADY ADJUDICATED BY THE 7 BENCH IN THE FIRST ROUND OF THE PROCEEDINGS AND THI S IS THE SECOND ROUND OF THE PROCEEDINGS CONSEQUENT TO THE RECALLED ORDER ON THE GROUND OF THE FAILURE OF THE TRIBUNAL IN ADJUDICATING THE GROUND 2 COMPLETELY) AND MADE VARIOUS SUBMISSION BEFORE US. SOME OF THE CRUCIAL ARGUMENTS ARE NARRATED AS UNDER: (I) LD COUNSEL REFERRED TO THE PROVISIONS OF SECTION 48 OF THE I.T ACT AND MENTIONED THAT THE SAID SECTION ALLOWS DEDUCTION OF ANY EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER AND THE INSTANT EXPENDITURE BEING THE OUTFLOW TO THE ASSESSEE, SHOULD BE LOADED TO TH E COST OF THE INVESTMENTS. IN THIS REGARD, THE ASSESSEE RELIED ON GUJARAT HIGH CO URT JUDGMENT IN THE CASE OF RAJKOT DIST. GOPALAK CO-OP. MILK PRODUCERS UNION L TD. V. CIT 204 ITR 590, FOR THE PROPOSITION THAT WHAT IS TAXABLE IN THE HANDS O F THE ASSESSEE IS THE ACTUAL INCOME THAT REACHED THE ASSESSEE AND THEREFORE, THE FEE PAID TO M/S ENAM HAS TO BE DEDUCTED FROM THE CAPITAL GAINS EARNED BY THE ASSESSEE. LD COUNSEL REMINDED THAT THE TAXING OF THE SAID PROFITS ON SAL E OF THE SECURITIES UNDER THE HEAD OF CAPITAL GAINS HAS REACHED FINALITY. THERE FORE THE FEE INCURRED BY THE ASSESSEE SHOULD BE GIVEN DEDUCTION U/S 48 OF THE AC T. RELEVANT PARA OF THE SAID DECISION IS REPRODUCED AS UNDER: WHAT IS TAXABLE IS THE REAL INCOME, IT IS THAT INCOME WHICH REACHES THE ASSESSEE THAT HAS TO BE REGARDED AS THE REAL INCOME . PAYMENT TO BE MADE AS A RESULT OF STATUTORY OR CONTRACTUAL OBL IGATION, EVEN THOUGH IT MAY BE RELATED TO THE PROFITS, MAY BE IN THE NATURE OF AN OBLIGATION AS A RESULT O WHICH PROFITS TO THAT EXTENT IS DIVERTED B Y AN OVERRIDING TITLE. THUS, IN SUCH A CASE, WHAT IS REQUIRED TO BE CONSIDERED I S THE TRUE NATURE OF THE OBLIGATION AND THE PAYMENT TO BE MADE TO DISCHARGE THE SAME. 15. FURTHER, THE COUNSEL RELIED ON THE JURISDICTION AL HIGH COURT DECISION IN THE CASE OF CIT V SHAKUNTALA KANTILAL 190 ITR 56 (BOM) FOR EXPLAINING THE PROVISIONS OF SEC. 48 OF THE ACT AND FOR THE PROPOSITION THAT WHEN THE GENUINENESS AND CERTAINTY AND NECESSITY OF THE PAYMENTS IS BEYOND D OUBT AND IF IT IS ONLY THE CASE OF ABSENCE OF THE ENABLING PROVISIONS IN SECTION 48 OF THE ACT, SUCH TYPE OF PAYMENTS ARE DEDUCTIBLE IN TWO WAYS , ONE BY TAKING FULL VALUE OF CONSIDERATION IE NET OF SUCH PAYMENTS OR DEDUCTING THE SAME AS EX PENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. AS PER HONBLE HIGH COURT OPINED THAT T HE LEGISLATURE, WHILE USING THE EXPRESSION FULL VALUE OF CONSIDERATION , HAS CONTEMPLATED BOTH ADDITIONS AS WELL AS DEDUCTIO NS FROM THE APPARENT VALUE . WHAT IT MEANS IS THE REAL AND EFFECTIVE CONSIDERATION . THE EFFECTIVE CONSIDERATION IS THE AFTER ALLOWING THE D EDUCTIBLE EXPENDITURE. FURTHER, AS PER THE HIS LORDSHIP, SO FAR AS CLAUSE (I) OF SECTION 48 IS CONCERNED, WE FIND THAT THE EXPRESSION USED BY THE LEGISLATURE IN ITS WISDOM, IS WIDER THAN THE EXPRESSION FOR THE TRANSFER . THE EXPRESSION USED IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRAN SFER. THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS, IN OUR VIEW, CERTAINLY WIDER THAN THE EXPRESSION FOR THE TRANSFER. HERE AGAIN, WE ARE OF THE VIEW THAT ANY AMOUNT THE PAYMENT OF WHICH IS ABSOLUTELY NECESSARY TO EFF ECT THE TRANSFER WILL BE AN 8 EXPENDITURE COVERED BY THIS CLAUSE. EVENTUALLY, HONBLE HIGH COURT ALLOWED THE LEGAL FEE GENUINELY AND NECESSARILY INCURRED BY THE ASSESSEE IN CONNECTION WITH THE TRANSFER OF THE TRANSFER OF THE CAPITAL ASSET, AS DEDUCTION IN THE COMPUTATION OF CAPITAL GAINS. IN OTHER WORDS, THE HONBLE HIGH COURT CAME TO THE CONCLUSION THAT THE EXPRESSION IN CONNECTION WITH USED IN 48 (I) OF THE ACT SHOULD BE READ AS FOR THE TRANSFER OF THE CAPITAL ASSET WITH WIDER IMPLICATIONS AND INCLUSIONS. 16. THUS, THE ASSESSEE SUBMITTED BEFORE THE FIRST A PPELLATE AUTHORITY THAT THE FEE PAID WAS CORRECTLY CLAIMED AS DEDUCTION THE COM MUTATION OF CAPITAL GAINS. ON HEARING THE ABOVE, THE CIT(A) PERUSED THE ORDER OF THE AO AND EXTRACTED THE SAME IN HIS ORDER, AS SEEN FROM PARA 5.3 OF THE IMP UGNED ORDER AND HELD THAT THE AO HAS RIGHTLY DISALLOWED THE SUM OF RS 59,15,5 74/- AND ALSO FOR OTHER REASONS THAT THE SAID PAYMENT WAS PAID IN VIOLATION OF THE SEBI REGULATIONS, I.E. CLAUSE 14(3) OF THE SEBI (PORTFOLIO MANAGERS) RULES & REGULATIONS, 1993. 17 . ARGUMENTS OF THE REVENUE: PER CONTRA , LD DR FOR THE REVENUE ARGUED VEHEMENTLY AND SOME OF HIS ARGUMENTS ARE AS FOLLOWS . (I) THE EXPENDITURE IS QUESTION IS DIRECTLY UNCONNECTED TO THE SECURITIES IN QUESTION AND THERE IS THE SAME CANNOT BE LOADED TO THE COST OF THE ACQUISITIO N; (II) SECURITIES IS A PLURAL WORD, WHERE AS THE CAPITAL GAINS IS CALCULATED CONS IDERING EACH CAPITAL ASSET ON STAND ALONE BASIS AND FOR THIS THERE IS NEED FOR ID ENTIFICATION OF THE ASSET SPECIFIC EXPENDITURE BE IS FOR ARRIVING AT COST OF ACQUISITI ON OR FOR TRANSFER SPECIFIC EXPENDITURE. RELYING ON THE DECISION OF THE TRIBUNA L IN THE CASE OF DAVENDRA KOTHARI (136 TTJ 188), DR ARGUED STATING THAT THE PM FEE I S NOT ALLOWABLE. 18. DURING THE REBUTTAL TIME, LD COUNSEL FOR THE ASSESSEE TOOK ON THE SAID DECISION OF THE TRIBUNAL OF MUMBAI BENCH AND MENTIO NED THAT THE SAID DECISION IS DISTINGUISHABLE ON FACTS. AS PER THE ASSESSEES COU NSEL, THE SAID DECISION WAS DELIVERED ON THE FACTS AND THE CIRCUMSTANCES OF THA T CASE, WHERE THE ASSESSEE CLAIMED THE DEDUCTION WHICH WAS CALCULATED BASED O N THE GLOBAL TURN OVER REPORTED BY THE PORTFOLIO MANAGER AND WHERE SUCH TU RNOVER ALSO INCLUDES THE DIVIDEND INCOME, THE BASIS IS UNSCIENTIFIC AND UNSP ECIFIC ETC. FURTHER, THE LD COUNSEL MENTIONED THAT THE ASSESSEE IN THAT CASE FI LED TO DISCHARGE THE ONUS OF ESTABLISHING THE NEXUS THAT THE FEE PAID TO THE POR TFOLIO MANAGER IS INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANS FER OF THE ASSETS. WHEREAS, IN THE INSTANT CASE, AS SRI MAHAJANI, THE ASSESSEE NOT ONLY DEMONSTRATED THE DIRECT NEXUS OF THE IMPUGNED EXPENDITURE TO THE ACQUISITIO N AND SALE/TRANSFER OF THE SECURITIES SUCCESSFULLY BUT ALSO THE FEE IN QUESTIO N IS STRICTLY ON THE NAV OF THE SECURITIES AND NOT ON THE DIVIDENDS OR OTHER MISCE LLANEOUS INCOME. REGARDING THE BASIS OF CALCULATIONS, LD COUNSEL MENTIONED THA T THE CLAUSE 14(3) HAS 9 UNDERGONE CHANGE BY VIRTUE OF THE AMENDMENTS BY THE SEBI AND PROFIT SHARING BASIS IS THE SEBI APPROVED BASIS NOW. FURTHER ON THE ISS UE OF AGREED RATE OF 5% ON THE NAV OF SECURITIES, LD COUNSEL ARG UED STATING THAT THE BASIS IS TOTALLY AND EXCLUSIVELY CAPITAL-VALUE-ORIENTED, CON SISTENTLY FOLLOWED BY THE ASSESSEE AND IT CONSTITUTES ACCEPTABLE BASIS IN VIE W OF THE JUDGMENT OF THE APEX COURT IN THE CASE OF BHARAT EARTH MOVERS LTD (SUPRA ). FINALLY, THE COUNSEL MENTIONED THAT THE IF THE CLAIMED DEDUCTION IS NOT ALLOWED U/S 48 OF THE ACT, THE SAME IS NOT ALLOWED BY THE REVENUE UNDER ANY OTHER PROVISIONS OF THE ACT AND IT CONSTITUTES AN UNFAIR ACT ON PART OF THE REVENUE. M ORE SO, WHEN THE EXPENDITURE OF FEE PAID TO PORTFOLIO MANAGER IN QUESTION IS GEN UINE AND AN ALLOWABLE CLAIM, THE CLAIM MUST BE ALLOWED UNDER THE PROVISIONS OF S ECTION 48 OF THE ACT. THUS, THE ASSESSEES COUNSEL ARGUED FOR REVERSING THE ORD ER OF THE CIT(A). 19. WE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. ALLOWABILITY OF THE FEE PAID TO THE M/S ENAM, THE PORTFOLIO MANA GER FOR PURCHASE AND SALE OF THE SECURITIES UNDER SECTION 48 OF THE ACT IS THE I SSUE FOR ADJUDICATION BEFORE US. THE STANDS OF THE PARTIES ON THIS ISSUE ARE AS FOLL OWS. AS PER THE REVENUE, WHILE THE AO MADE DISALLOWANCE FOR COUPLE OF REASONS: (I) THE PAYMENT IS NOT AS PER THE AGREEMENT , AS THE AGREEMENT WAS NEVER TERMINATED IN REALITY; (II) THE PAYMENT WAS NOT AUTHORIZED BY THE SEBI REGULATIONS, 1993, CIT(A) AUTHORITY CONFIRMED THE S AID DISALLOWANCE ALSO FOR ANOTHER REASONS THAT THE SAID PAYMENT ATTRACTS PROVISIONS OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 OF THE IT ACT. TH E SAID FEE IS NOT ALLOWABLE IN VIEW OF THE DECISION OF THE TRIBUNAL O F MUMBAI BENCH IN THE CASE OF DAVENDRA KOTHARI (136 TTJ 188) WHERE THE TRIBUNAL HELD THAT WHEN TH E ASSESSEE FAILED TO DEMONSTRATE THE NEXUS OF THE SAI D EXPENDITURE WITH THE PURCHASE AND SALE TRANSACTIONS OF THE SAID CAPITAL ASSETS IE SECURITIES, THE FEE PAID TO THE PORTFOLIO MANAGERS IS NOT AN ALLOWABLE EXPENDITURE U/S 48 OF THE ACT. 20. PER CONTRA, THE CASE OF THE ASSESSEE IS THAT THE SAID DECISION OF THE MUMBAI BENCH TRIBUNAL IS DISTINGUISHABLE ON FACTS R ELATING TO DISCHARGE OF ONUS RELATING TO NEXUS ISSUE AND ALSO IN MATTERS OF GLOB AL TURNOVER BASED CLAIM OF FEE INCLUDING THE MISCELLANEOUS RECEIPTS SUCH AS DIVIDE NDS AND INTEREST. AS PER THE ASSESSEE, THERE ARE OTHER DECISIONS TO SUPPORT THE CLAIM OF THE ASSESSEE. FURTHER, ASSESSEES STAND IS THAT REVENUE AUTHORITIES HAVE L ISTED THREE REASONS CUMULATIVELY FOR DENIAL OF DEDUCTION IE NOT AS PER THE AGREEMENT ; (II) NOT AUTHORIZED BY THE SEBI REGULATIONS, 1993 AND THEREFORE IT ATT RACTS THE PROVISIONS OF THE EXPLANATION TO SUB-SECTION (1) OF SECTION 37 IE INFRINGEMENTS OF THE LAW, AND THE SAID REASONS DO N OT STAND THE TEST OF LEGAL SCRUTINY AS THE IT AUTHORITIES MISINTERPRETED THE F ACTS. IN THIS REGARD, THE FACTS ARE THAT THE FEE PAID TO ASSESSEE AS PER THE AGREEM ENT IE AT THE EXPIRY OF THE 10 AGREEMENT PERIOD AND EXPIRY OF THE AGREEMENT IS DIFFERENT FROM THE EXPIRY THE AGREEMENT . IN THE EARLIER CASE, THE AGREEMENT DOES NOT EXPIR E AND ONLY THE PERIOD EXPIRES. SECONDLY, REGARDING THE ALLEGATION OF SEBI REGULATIONS, ASSESSEES STAND IS THAT THE SAID CLAUSE 14(3) HAS BEEN AMENDED TO INCLUDE THE PAYMENT OF FEE ON PROFITS SHARING BASIS TOO . THEREFORE, THERE IS NOT INFRINGEMENT OF THE SAID CLAUSE AND CONSEQUENTLY, T HE INVOKING BY THE CIT(A) OF THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF T HE ACT DOES NOT ARISE. 21. IN THE CONTEXT OF THE ABOVE RIVAL POSITIONS, WE PROCEED TO EXAMINE THE SCOPE OF THE PROVISIONS OF SECTION 48 OF THE ACT, A MENDED SEBI REGULATIONS IN MATTERS RELATING TO FEE PAYABLE TO PORTFOLIO MANAGE RS, THE MATTERS RELATING TO THE DISTINGUISHING OF THE DECISIONS CITED BY THE REVENU E ETC. A. SCOPE OF THE PROVISIONS OF SECTION 48 OF THE ACT: 22. SECTION 48 PROVIDES FOR THE METHOD OF COMPUTATI ON OF CAPITAL GAINS. THE RELEVANT PROVISIONS READ AS FOLLOWS: THE INCOME CHARGEABLE UNDER THE HEAD CAPITAL GAIN S SHALL BE COMPUTED BY DEDUCTING FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET T HE FOLLOWING AMOUNTS, NAMELY: (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER, (II) THE COST OF ACQUISITION OF THE CAPITAL ASSET A ND THE COST OF ANY IMPROVEMENT THERETO. HONBLE JURISDICTIONAL HIGH COURT HAS AN OCCASION T O EXPLAIN THE ABOVE PROVISIONS OF SECTION 48 OF THE ACT IN THE CASE OF CIT V SHAKUNTALA KANTILAL 190 ITR 56 (BOM) EXPLAINED THE SAME AND HELD THAT THE DEDUCTIB ILITY OF CERTAIN EXPENDITURE MUST CONSIDERED FAVORABLY TO THE ASSESSEE AS THE PR OVISIONS OF CLAUSE (I) AND (II) ARE WIDER . AS THE HONBLE HIGH COURT, SUCH TYPE OF PAYMENT S ARE DEDUCTIBLE IN TWO WAYS, ONE BY TAKING FULL VALUE OF CONSIDERATION IE NET OF SUCH PAYMENTS OR DEDUCTING THE SAME AS EXPENDITURE INCURRED WHOLLY A ND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER. IN OTHER WORDS, SO LONG AS THE EXPENDITURE IN QUESTION IS GENUINE AND ARE INCURRED IN CONNECTION WITH THE TRA NSFER OF THE SECURITIES, THE EXPENDITURE IS ALLOWABLE FROM THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING, ITSELF . MEANING THEREBY, THE IMPUGNED EXPENDITURE IS REDUCE D FROM THE GROSS VALUE OF THE CONSIDERATION RECEIVED OR ACCRU ING, AND THE NET VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING WILL BE FURTHER REDUCED BY THE EXPENDITURE MENTIONED IN CLAUSES (I) AND (II) OF SECTION 48 OF THE ACT. THE SECOND WAY OF DEALING WITH THE SAID GENUINE EXPENDITURE RELATES T O THE ONE SPECIFIED IN CLAUSE (I) AND CLAUSE (II). THE ASSESSEE MUST BE GIVEN BEN EFIT OF THE DEDUCTION AS THE SAME IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE TRA NSFER OF THE SECURITIES. FOR THE SAKE COMPLETENESS OF THIS ORDER, RELEVANT PARA 5 & 6 ARE REPRODUCED AS FOLLOWS: 11 5. IT MUST BE STATED IN FAIRNESS TO DR BALASUBRAMA NIAN FOR THE REVENUE THAT HE DID NOT DISPUTE THE FACT OF PAYMENT OR EVEN THE NECESSITY OF MAKING SUCH A PAYMENT. HIS CONTENTION IS THAT THE LANGUAG E IN WHICH SECTION 48 IS COUCHED DOES NOT CONTEMPLATE DEDUCTION OF SUCH AN AMOUNT. REFERENCE IN THIS REGARD WAS MADE TO SECTIO N 48 OF THE ACT TO SHOW THAT THE PAYMENT HEREIN COULD BE NEITHER BE TE RMED AS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE TRANSFER OR THE COST OF ACQUISITION OR OF ANY IMPROVEMENT THERETO.. 6. IN ORDER TO APPRECIATE DR SUBMISSION, IT IS DESIREABLE TO REFER TO THE PROVISIONS OF SECTION 48 WHICH READ AS UNDER: THE SECTION (SECTION 48) BROADLY CONTEMPLATES THREE AMOUNTS FOR THE PURPOSE OF COMPUTING INCOME CHARGEABLE UNDER THE HE AD CAPITAL GAINS. THE FIRST IS THE FULL VALUE OF THE CONSIDERATION FOR WHICH THE CAPITAL ASSET HAS BEEN TRANSFERRED. THE SECOND IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AND THE THIRD AND THE LAST IS THE COST OF ACQUISITION OF THE CAPITAL ASSET INCLUDING THE COST OF ANY IMPROVEMENT THERETO. WE HAVE ALREADY REFERRED TO TH E FACTS OF THE CASE IN DETAIL EARLIER. IT CANNOT BE DISPUTED THAT UNLESS THE ASSESSEE HAD SETTLED THE DISPUTE WITH RADIA AND SONS (P) LTD., THE SALE TRANSACTION WITH M/S COSMOS CO-OP HOUSING SOCIETY LTD. UNDER THE AGREEM ENT DATED MARCH 30,1967, WOULD NOT, RATHER COULD NOT, HAVE MATERIALIZED . IF THIS TRANSACTION HAD NOT MATERIALIZED THERE WOULD PERHAP S HAVE BEEN NO QUESTION OF CAPITAL GAINS . THE SALE WOULD THEN HAVE TAKEN PLACE AT THE RATE OF RS 29 PER SQ. YARD AS AGAINST RS 51 PER SQ. YARD. ONE WAY OF LOOKING AT THE PROBLEM COULD BE TO SAY THAT THE FUL L VALUE OF THE CONSIDERATION IN THIS CASE WAS NOT THE APPARENT CO NSIDERATION, I.E. RS 2,58,672/-, BUT RS 2,23,168/- (I. E 2,58,672 MINUS RS 35,501). THE LEGISLATURE, WHILE USING THE EXPRESSION FULL VALUE OF CONSIDERATION , IN OUR VIEW, HAS CONTEMPLATED BOTH ADDITIONS AS WELL AS DEDUCTIO NS FROM THE APPARENT VALUE . WHAT IT MEANS IS THE REAL AND EFFECTIVE CONSIDERATION . THAT APART, SO FAR AS CLAUSE (I) OF SECTION 48 IS C ONCERNED, WE FIND THAT THE EXPRESSION USED BY THE LEGISLATURE IN ITS WISDOM IS WIDER THAN THE EXPRESSION FOR THE TRANSFER . THE EXPRESSION USED IS THE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONN ECTION WITH SUCH TRANSFER. THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER IS, IN OUR VIEW, CERTAINLY WIDER THAN THE EXPRESSION FOR THE TRANSFER . HERE AGAIN, WE ARE OF THE VIEW THAT ANY AMOUNT THE PAYMENT OF WHICH IS ABSOLUTELY NECESSARY TO EFFECT THE TRANSFER WILL BE AN EXPENDITURE COVERED BY THIS CLAUSE. IN CONCLUSION, IT IS RESPECTFULLY SUBMITTED THAT THE FEES PAID HAVE BEEN CORRECTLY CLAIMED AS DEDUCTION IN THE COMPUTATION OF CAPITAL GAINS 23. THE SCOPE OF SECTION 48 AS PER THE BINDING JUDG MENT OF THE HONBLE HIGH COURT IS THAT THE CLAIM OF BONA FIDE OR GENUINE EXPENDITURE SHOULD BE ALLOWABLE IN FAVOUR OF THE ASSESSEE SO LONG AS THE INCURRING OF THE EXPENDITURE IS A MATTER OF FACT AND THE NECESSITY OF MAKING SUCH A PAYMENT IS THE IMMINENT AND THE REQUIREMENT FOR THE TRANSFER THE TRANSFER OF THE AS SET . IT IS NOW BINDING ON OUR PART TO TAKE THE VIEW THAT THE EXPRESSIONS IN CONNECTION WITH HAS WIDER MEANINGS THAN THE EXPRESSION FOR THE TRANSFER . THE REVENUES CONTENTION IS THAT THE LANGUAGE IN WHICH SECTION 48 DOES NOT CONTEMPLATE DEDUCTION OF SUCH AN AMOUNT WAS OVERRULED AND ALLOWED THE DEDUCTION OF T HE FEE INCURRED BY THE 12 ASSESSEE FOR REMOVAL OF THE ENCUMBRANCES, WHICH IS NECESSARY FOR TRANSFER OF THE ASSET IN THAT CASE. 24. WE HAVE ALSO PERUSED SOME OF THE OTHER CITATION S RELIED UPON BY THE PARTIES TO DRAW THE BOUNDARY LINES FOR THE KIND OF EXPENDITURE WHICH FALL WITHIN THE SCOPE OF THE ALLOWABLE EXPENDITURE U/S 48 OF TH E ACT IN COMPUTATION OF THE CAPITAL GAINS. WE FIND THAT ALL THESE CITATIONS INV ARIABLY FOLLOWED THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF SANTHILAL KANTIL AL (SUPRA). A. CALCUTTA HIGH COURT HELD IN THE CASE OF GOPEENATH P AUL AND SONS & ANR (278 ITR 240) THAT WHEN ASSETS OF THE ASSESSEE GNP, EARLIER CARRYING N BUSINESS IN THE NAME OF GSM COULD NOT BE SOLD AS GOING CONCERN UNDER ORDERS OF COURT WITHOUT MEETING THE LIABILITI ES OF GSM TOWARDS THE BANK, PAYMENTS FOR MEETING SUCH LIABILITIES OF GSM TOWARDS BANK WAS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER, HENCE DEDUCTIBLE U/S 48(I) OF THE ACT. B. AAR HELD IN THE CASE OF COMPAGNIE FINANCIERE HAMON, IN RE (310 ITR 1), THAT THE PROFESSIONAL FEE PAID TO THE LAWYERS DISTINCTLY REL ATED TO AND INTEGRALLY CONNECTED WITH THE TRANSFER OF SHARE S IS ADMISSIBLE FOR DEDUCTION U/S 48(I) OF THE ACT AAR HELD THAT THE W HAT IS ATTRIBUTABLE TO THE FINAL ACT OF TRANSFER OF SHARES IS ADMISSIBLE F OR DEDUCTION PROVIDED THE INTIMATE CONNECTION BETWEEN THE EXPENDITURE AND THE ACT OF TRANSFERRING SHARES IS ESTABLISHED. C. IN THE CASE OF BRADFORD TRADING CO P LTD, THE MADRA S HIGH COURT HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO A THIRD PARTY TO SET TLE THE PRE EXISTING CLAIMS AGAINST THE TRANSFER OF THE ASSETS AS ALSO LITIGATION EXPENSES CONSTITUTED EXPENDITURE INCURRED WHOLLY AN D EXCLUSIVELY FOR TRANSFER OF CAPITAL ASSET AND WAS DEDUCTIBLE IN COM PUTATION OF CAPITAL GAINS; THE AMOUNT REIMBURSED BY VENDEE TO THE ASSES SEE TOWARDS SUCH CLAIM CONSTITUTED PART OF SALE CONSIDERATION BUT DE DUCTIBLE WHILE COMPUTING CAPITAL GAINS. D. BOMBAY HIGH COURT IN THE CASE OF ABRAR ALVI (247 IT R 312) HELD THAT THE AMOUNT PAID BY THE ASSESSEE TO HIS SON TO RESOL VE THE PROPERTY DISPUTE WAS AN ALLOWABLE EXPENDITURE IN COMPUTING T HE CAPITAL GAINS. SAME HIGH COURT IN THE CASE OF MISS PIROJA C PATEL (242 ITR 582) HELD THAT THE COMPENSATION PAID BY THE ASSESSEE TO THE H UTMENT DWELLERS IS AN ALLOWABLE EXPENDITURE IN COMPUTING THE CAPITAL G AINS. 13 E. IN THE CASE OF MOTILAL KOTHARI VIS DCIT (136 TTJ 18 8), THE MUMBAI TRIBUNAL HELD THAT THE PAYMENT OF FEE TO THE PMS TO DISCHARGE HIS CONTRACTUAL LIABILITY DID NOT AMOUNT TO DIVERSION O F INCOME BY OVERRIDING TITLE. IT IS A CASE OF APPLICATION OF INCOME. IN TH IS CASE, THE ASSESSEE CLAIMED EXPENDITURE OF THE FEE PAID TO PMS ON HIS G LOBAL TURN OVER AND ASSESSEE FAILED TO DISCHARGE ONUS IN ESTABLISHING T HE NEXUS OF THE EXPENDITURE WITH THE ASSETS TRANSFER. TRIBUNAL DID NOT REFER TO THE EXPLANATION GIVEN BY THE BINDING JURISDICTIONAL HIG H COURT ON THE PROVISIONS OF SECTION 48 OF THE ACT. 25. FROM THE ABOVE, IT IS INVARIABLY LEARNT THAT TH E SCOPE OF THE PROVISIONS OF SECTION 48 ARE EXPLAINED BY THE JURISDICTIONAL HIGH COURT AND IT IS BINDING ON US AS THEY REMAIN UNDISTURBED AS INFORMED TO US. THE C ITATION AT E ABOVE DID NOT HAVE BENEFIT OF THE SAID EXPLAINING OF THE PROVISIO NS OF SECTION 48 OF THE ACT. FOR ALLOWING THE CLAIM OF DEDUCTION IN THE COMPUTATION OF THE CAPITAL GAINS, THE EXPENDITURE HAS TO BE DISTINCTLY AND INTRICATELY LI NKED TO THE ASSET AND ITS TRANSFER AND THE ONUS IS ON THE ASSESSEE TO DEMONSTRATE THE SAID LINKAGE BETWEEN THE EXPENDITURE AND THE ASSETS TRANSFER. IT IS EVIDENT AND BINDING THAT THE EXPENDITURE IF UNDISPUTEDLY, NECESSARILY AND GENUIN ELY SPENT FOR THE ASSETS TRANSFER WITHIN THE SCOPE OF THE PROVISIONS OF SECT ION 48 OF THE ACT, THE CLAIM CANNOT BE DISALLOWED FOR WANT OF THE EXPRESS PROVIS IONS IN SECTION 48 OF THE ACT. 26. WHOLLY AND EXCLUSIVELY: IN THIS REGARD, IT IS A SETTLED LAW THAT THE EXPRESSION WHOLLY AND EXCLUSIVELY IS EXPLAINED FOR THE PURPOSE OF THE IDENTICAL EXPRESSIONS USED IN SECTION 37 OF THE ACT. IN THE CASE OF SASOON J DAVID & CO P LTD V CIT 118 ITR 261(SC), HONBLE SUPREME COURT EX PLAINED THE TWIN ADVERBS STATING THAT THE FIRST ADVERB, WHOLLY REFERS TO THE QUANTUM OF THE EXPENDITURE, THE SUM OF MONEY SPENT AND THE SECOND ADVERB EXCLUSIVELY HAS REFERENCE TO THE PURPOSE BEHIND THE EXPENDITURE AND NOT THE MOTIVE OR OBJE CT OF EXPENDITURE. 27. AFTER EXPLAIN THE SCOPE OF SECTION 48 OF THE AC T, WE SHALL NOW PROCEED TO EXAMINE THE FACTS OF THE CASE IN GENERAL AND THE AP PLICABILITY OF THE PROVISIONS OF SECTION 48 IN PARTICULAR. 28. WE HAVE ALREADY DETAILED THE FACTS OF THE IMPUG NED PAYMENTS IN THE PRECEDING PARAGRAPHS. TO SUM UP THE SAME, THE UNDIS PUTED FACTS ARE: (I) THE ASSESSEE MADE THE PAYMENT OF FEE TO M/S ENAM, THE A SSET MANAGEMENT COMPANY AND THE GENUINENESS OF THE SAID PAYMENT IS UNDISPUTED; (II) THE 14 REVENUE AUTHORITIES HAVE ALSO NOT DISPUTED THE REQU IREMENT OR NECESSITY OF THE SAID PAYMENTS; (III) QUANTITATIVELY SPEAKING IN VIE W OF THE ADVERBIAL EXPRESSION, WHOLLY USED IN SECTION 48(I) OF THE ACT , WE FIND THAT THE PAYMENT OF FEE @ 5% ONLY RESTRICTED TO THE NAV OF THE SECURITIES AND N OT ONLY THE GLOBAL TURN OVER INCLUDING THE OTHER INCOME; (IV) REGARDING THE PURP OSE OF PAYMENT IN VIEW OF THE ADVERBIAL EXPRESSION, EXCLUSIVELY USED IN SECTION 48(I) OF THE ACT , WE FIND THAT THE SAME IS INTENDED ONLY TWIN PURPOSE OF THE ACQUISITION OF THE SECURITIES AND ALSO FOR SALE OF THE SAME; (V) THE NAV IS DEFINED IN PARA 1(D) A S THE NET ASSET VALUE OF THE SECURITIES OF THE CLIENT AND THE ASSESSEE CALCULATED THE IMPUGNED FEE IS LINKED TO THE SECURITIES VALUE ONLY AND NOT INCLUDES OTHER INCOME SUCH INTEREST OR DIVIDEND ETC; (V) CONSIDERING THE CONTENTS OF THE PARA 7.01(C), TERMINATION FEE UPTO 5% WILL BE PAYABLE ON THE NET ASSET VALUE (NAV) OF THE PORTFOLIO OF THE CLIENT AS ON THE DATE OF TERMINATI ON OF THE AGREEMENT PERIOD AND NOT THE AGREEMENT ITSELF AND THEREFORE PAYMENT IS P ERIOD SPECIFIC; (VI) IT IS A FACT THAT THE CLAUSE 14(3) WAS AMENDED SUBSEQUENTLY AND THEREFORE, THE ACTION OF THE REVENUE IS BASED ON THE INAPPLICABLE OR PRE-AMENDED FACTS. THE DETAILS ARE DETAILED BELOWS. CLAUSE 14(3) OF SEBI (PORTFOLIO MANAGERS) RULES & R EGULATIONS 1993: 29. REVENUE IS OF THE BONA FIDE BELIEF OR OPINION THAT THE CLAUSE 3(A) PROHIBITS THE PAYMENT OF FEE ON THE BASIS OF RETURNS SHARING BASIS AS THEY RELIED ON THE ORIGINAL CLAUSE 14(3) OF SEBI (PORTFOLIO MANAGERS) RULES & REGULATIONS 1993 WHICH GOVERNS THE PORTFOLIO MANAGER WHICH BANS THE PAYMENT OF FEE TO THE PORTFOLIO MANAGER. IN THIS REGARD, LD COUNSEL FILE D A GAZETTE COPY SHOWING THE AMENDED CLAUSE 3 VIDE SEBI (PORTFOLIO MANAGERS) (AMENDMENT) RULES, 2002 WHICH PROVIDES FOR RETURN BASED FEE ALSO. THE SAID CLAUSE ORIGINALLY CAME INTO FORCE WITH EFFECT FROM 7.1.1993, A DATE OF PUBLICAT ION IN THE OFFICIAL GAZETTE, WHEREBY THE SEBI PROVIDED FOR THE FEE RELATING TO T HE PORTFOLIO MANAGERS VIDE PARA 3(A) WHICH HAS COME INTO EFFECT W.E.F. 11.10.2 002. THE SECURITIES & EXCHANGE BOARD OF INDIA (PORTFOLIO MANAGERS) REGULA TIONS, 1993 PROVIDE THAT THE DISCRETIONARY PORTFOLIO MANAGER IS OBLIGED TO INDIV IDUALLY AND INDEPENDENTLY MANAGE THE FUNDS OF EACH CLIENT IN ACCORDANCE WITH THE NEEDS OF THE CLIENT. THESE REGULATIONS, 1993 PROVIDE THAT FEE TO BE CHARGED MAY BE A FIXED AMOUNT OR A RETURN BASED FEE OR A COMBINATION OF BOTH. WE HAVE EXTRACTED THE AMENDED CLAUSE 14(3) AND THE SAME IS AS FOLLOWS. (3)(A) : THE PORTFOLIO MANAGER SHALL CHARGE AN AGR EED FEE FROM THE CLIENTS FOR RENDERING PORTFOLIO MANAGEMENT SERVICES WITHOUT GUARANTEEING OR ASSURING, EITHER DIRECTLY OR INDIRECTLY, ANY RET URN AND THE FEE SO CHARGED MAY BE A FIXED FEE OR A RETURN BASED FEE OR A COMBINATION OF BOTH. 15 THUS, IN OUR OPINION, THE AMENDED PROVISIONS ALLOWS THE PAYMENT OF FEE TO AMC ON RETURN BASED FEE AND THEREFORE, ALL THE THREE REASONS OF THE REVENUE FOR DENYING THE CLAIM OF DEDUCTION IN FAVOUR OF THE ASS ESSEE, AS DISCUSSED IN THE ABOVE PARAGRAPHS OF THIS ORDER, REQUIRE TO BE REJECTED AND IN FAVOUR OF THE ASSESSEE. CAPITAL GAINS VS DEDUCTIONS 30. WE HAVE DISCUSSED IN THE PRECEDING PARAGRAPHS T HAT THE PROFITS EARNED BY THE ASSESSEE IS CHARGEABLE TO TAX UNDER THE HEAD C APITAL GAINS. IT IS SO ORDERED BY THIS TRIBUNAL VIDE THE ORDER DT 31.8.2009 IN CON NECTION WITH APPEALS ITA NO 499/PN/08 IN THE CASE OF ARA TRADING & INVESTMENTS P LTD. AND ITA NO 500/PN/08 IN THE CASE OF KRA HOLDING & TRADING P. L TD. RELEVANT PARA 27 OF THE SAID ORDER WAS ALREADY EXTRACTED IN THE PRECEDING P ARAGRAPHS. IN THE LIGHT OF THE ABOVE UNDISTURBED PROPOSITION, OUR ATTENTION IS RES TRICTED TO THE LIMITED ISSUE OF IF THE IMPUGNED FEE PAID TO THE M/S ENAM IS ALLOWABLE U/S 48 OF THE ACT OR NOT. LOADING OF THE EXPENDITURE TO THE COST OF THE SHARE S, DISTINGUISHING OF THE TRIBUNALS ORDER IN THE CASE OF DEVENDRA KOTHAR I (SUPRA): 31. LD DR FOR THE REVENUE RELIED ON THE ABOVE DECIS ION OF THE TRIBUNAL AND MENTIONED THAT THE ORDER OF THE CIT(A) DOES NOT CAL L FOR ANY INTERFERENCE DESPITE THE FACT THAT THE ORDER IS NOT CONSIDERED THE ABOVE CITATIONS. IN THIS REGARD, LD COUNSEL FILED AT OUR REQUEST A BRIEF NOTE ON THE IS SUE OF LOADING AND OTHER ANCILLARY ISSUES AND THE RELEVANT PORTIONS ARE IMPO RTED FOR THIS ORDER AND THE SAME ARE AS UNDER: THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY I N RESPECT OF FEES PAID IS TO PROPORTIONATELY LOAD THESE TYPES OF FEES AS PART OF THE PURCHASE COST OF THE SECURITIES DURING THE GIVEN PERIOD. AUTOMAT ICALLY THESE FEES ARE TAKEN INTO ACCOUNT FOR COMPUTING CAPITAL GAINS OR THE CAR RYING COST OF UNSOLD INVESTMENTS. THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE FEES PAID AND THE PROCESS OF ACQUISITION AND SALE OF THE SECURITIES WHICH IS A CAUSATIVE FACTOR FOR MAKING CAPITAL GAINS AND THAT THE FEES ARE PAI D WHOLLY AND EXCLUSIVELY FOR EARNING THE INCOME OFFERED TO TAX U NDER THE HEAD CAPITAL GAINS. RELIANCE IS PLACED ON THE DECISION IN THE CASE OF C IT V. SHAKUNTALA KANTILAL [1991] 58 TAXMAN 106/190 ITR 56 (BOM.) WHE RE IT WAS HELD THAT AMOUNT PAID FOR REMOVING AN ENCUMBRANCE WAS ALLOWABLE U/S 48(I). IN COMING TO THIS VIEW THE COURT OBSERVED THAT WITHOUT THIS PAYMENT THE SALE COULD NOT HAVE BEEN MATERIALIZED AND HENCE THERE WO ULD HAVE BEEN NO QUESTION OF THE CAPITAL GAINS BEING BROUGHT TO TAX. IN THE PRESENT CASE THE CAPITAL GAINS HAVE ARISEN AS A RESULT OF THE EFFORTS OF THE PM FOR WHICH THE FEES HAVE BEEN PAID. A MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DAVEN DRA KOTHARI (136 TTJ 188) HAS CONFIRMED DISALLOWANCE OF PMS FEES WHI LE COMPUTING CAPITAL GAINS. 16 IN THAT CASE FEES WERE PAID BASED ON VALUE OF THE A SSETS. THE HONOURABLE BENCH HAS OBSERVED AT PARA 7 OF THE SAID ORDER THAT THE CIT(A) FOUND THAT THE,- QUANTIFICATION OF FEES: WAS BASED ONLY ON EITHER THE MARKET VALUE OF THE ASSET OR THE NET VALUE OF THE ASSETS OF THE ASSESSEE AS HELD EITHER AT THE BEGINNING OR AT THE END OF EACH QUARTER. AT PARA 8 OF THE ORDER, THE HONOURABLE BENCH HAS OB SERVED THAT THE CIT(A) HELD THAT THE ASSESSEE WAS PAYING THE FEES AS AFORESAID TO PORTFOLIO MANAGESR EVEN ON THE INTEREST/DIVIDEND RECEIVED ON THE INVESTMENTS AND THEREFORE THE CIT(A) CAME TO HOLD T HAT IT COULD NOT BE SAID THAT THERE WAS NEXUS BETWEEN THE PMS FEES PAID AND PURCHASE AND SALE OF INVESTMENTS. THE HONOURABLE MUMBAI TRIBUNAL HAS LAID STRESS ON T HE SAID FINDINGS OF THE CITA. PRESENT CASE OF THE APPELLANT IS CLEARLY DISTINGUIS HABLE IN THE LIGHT OF THE FACT THAT RETURN BASED FEES IS ALSO PAYABLE IN RESPECT O F PROFITS EARNED ON SALE OF INVESTMENTS AND THEREFORE THE PMS FEES HAS A DIRECT NEXUS WITH THE PURCHASE AND SALE OF INVESTMENTS DURING THE YEAR AN D FEES IS NOT PAID ON INTEREST AND DIVIDEND RECEIVED BY THE APPELLANT. IT IS RESPECTFULLY SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE AS IT TURNS ON ITS OWN FACTS APART FROM BEING PATENTLY WR ONG. THE ASSESSEE IN THAT KOTARIS CASE HAD FAILED TO DEMONS TRATE THE NEXUS BETWEEN THE FEES PAID AND THE ACTIVITY OF PURCHASE AND SALE THE ASSESSEE COULD NOT EXPLAIN HOW THE FEES PAID ON SUC H EXPLICIT BASIS COULD BE CONSIDERED DIFFERENTLY SO AS TO CONSTITUT E COST OF EITHER ACQUISITION OR AS EXPENDITURE IN CONNECTI ON WITH TRANSFER. THE ASSESSEE COULD NOT DEMONSTRATE HOW ALLOCATION OF FE ES HAD BEEN MADE . IT COULD NOT FURNISH DETAILS OF HOW OR THE BASIS ON WHICH ALLOCATION OF SAID FEES WAS POSSIBLE FURTHER FEES HAD TO BE PAID EVEN WHEN NO PURCHASE OR SALE TOOK PLACE THE CIT(A) HAD HELD THAT IT WAS NOT POSSIBLE TO BREAK U P THE FEES SO AS TO HOLD THAT THE SAME WAS RELATABLE TO PURCH ASE OR SALE OF SHARES. FURTHER, FEES WERE PAID EVEN ON INTEREST ACCRUED AND DIVIDEN D RECEIVED THE TRIBUNAL HELD THAT THE BASIS ON WHICH FEES WERE PAID IS SUCH THAT THERE WAS NO RELATIONSHIP WITH EITHER PURCHASE OR SALE. I N VIEW OF THIS IT HELD THAT THERE WAS NO NEXUS WITH PURCHASE OR SALE. IT IS RESPECTFULLY SUBMITTED THAT THE HONORABLE TRI BUNAL OUGHT TO HAVE INDEPENDENTLY DETERMINED WHETHER THE FEES WERE PAID FOR AN ACTIVITY WHICH HAD A DIRECT NEXUS WITH THE PURCHASE OR SALE OF THE SHARES INSTEAD OF ALLOWING ITSELF TO BE PERSUADED MERELY BY THE DI FFICULTY IN ALLOCATING SUCH FEES TO PURCHASES BY A DIRECTLY CONCEIVABLE BASIS IN THE PRESENT CASE BEFORE YOU HONOURS THE ANNUAL TERMINATION FEE IS TO BE DETERMINED WITH REFERENCE TO THE NAV OF THE PORTFOLIO WHICH HAS BEEN DEFINED TO BEEN THE MARKET VALUE OF THE SECURI TIES AS ON THE RELEVANT DATE. NO FEES WERE PAID ON INTEREST ACCRUED AND DIVIDEND RECEIVED. IT IS FURTHER SUBMITTED THAT THE ACT DOES NOT DEFINE THE EXPRESSIONS COST OF ACQUISITION OR COST OF IMPROVEMENT REFERRED T O IN SECTION 48 . THESE EXPRESSIONS THUS HAVE TO BE GIVEN THEIR NATUR AL COMMERCIAL MEANING AS MEN OF TRADE AND COMMERCE WOULD UNMISTAKABLY UNDERS TAND. INVESTMENTS IN SECURITIES ARE VALUED AT COST BY THE APPELLANT. 17 IN VIEW OF THE DIRECT NEXUS BETWEEN THE FEES AND TH E ROLE OF THE PM ESTABLISHED BY US IT IS NOT DIFFICULT TO APPRECIATE THAT SUCH FEES FO RM PART OF THE COST OF ACQUISITION OF THE PORTFOLIO THE SC IN THE CASE OF BHARAT EARTH MOVERS (245 ITR 428)(SC) IN THE CONTEXT OF ALLOWABILITY OF PROVISION FOR LEAVE ENCA SHMENT REFERRED TO THE FOLLOWING PASSAGE FROM ITS DECISION IN THE CASE OF CALCUTTA CO. LTD VS. CIT (1959) 37 ITR 1 (SC) WHEREIN IT WAS HELD THAT MEREL Y BECAUSE THERE IS SOME DIFFICULTY IN THE ESTIMATION OF THE LIABILITY WOULD NOT CONVERT THE ACCRUED LIABILITY INTO A CONDITIONAL ONE; IT WAS ALWAYS OPE N TO THE TAX AUTHORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE OF THE LIA BILITY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE MERELY BECAUSE SOME MATHEMATICAL EXERCISE IS INVOLVED IN LOADING SUCH FEES TO INDIVIDUAL TRANSACTIONS OF PURCHASE WOULD NOT MEAN THAT SUCH FEES DO NOT FORM PART OF COST OF ACQUISITION OR HAVE NEXUS THEREWITH ACCOUNTING STANDARD 13 (ACCOUNTING FOR INVESTMENTS) ISSUED BY ICAI PROVIDES THAT COST OF AN INVESTMENT INCLUDES ACQUISITION CHARGES SUCH AS BROKERAGE, FEES AND DUTIES . THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY IN RESPECT OF FEES PAID IS TO PROPORTIONATE LY LOAD THESE FEES ON THE SECURITIES HANDLED BY THE PORTFOLIO MANAGER DURING THE YEAR [I.E. OPENING PORTFOLIO PLUS INVESTMENTS MADE DURING THE YEAR]. AUTOMATICALLY THESE FEES ARE TAKEN INTO ACCOUNT FOR COMPUTING CAPITAL GAINS OR THE CARRYING COST OF UNSOLD INVESTMENTS. THE SUPREME COURT IN THE CASE OF UP STATE INDUSTRIA L DEVELOPMENT CORPORATION (225 ITR 703) WAS DEALING WITH THE CASE OF AN UNDERWRITER OF SHARES WHO HAD TO SUBSCRIBE TO SHARES IN THE EVENT OF UND ER SUBSCRIPTION BY THE PUBLIC. THE ISSUE BEFORE THE SC WAS WHETHER IN RESPECT OF SUCH DEVOLVED SHARES WHETHER THE UNDERWRITING COMMISSION RECEIVED FROM THE CLIENT, SHOULD BE TREATED AS AN ITEM OF INCOME OR AN ITEM THAT WOU LD GO TO REDUCE THE COST OF ACQUISITION OF SUCH DEVOLVED SHARES. THE SUPREME COURT, APPLYING THE WELL ACCEPTED PROPOSITION THAT FOR THE PURPOSES OF ASCER TAINING PROFITS AND GAINS ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING SHOULD BE APPLIED SO LONG AS THEY ARE NOT IN CONFLICT WITH ANY EXPRESS PROVISION OF THE ACT UPHELD THE CONTENTION OF THE ASSESSEE WHICH IT FOUND TO BE IN CONSONANCE WITH THE GENERAL PRINCIPLES OF ACCOUNTANCY GOVERNING UNDERWR ITING CONTRACTS IN THE PRESENT CASE SINCE THE DEPARTMENT IS NOT CON TENDING THAT THE ACCOUNTING PRACTICE FOLLOWED BY THE COMPANY IS CONT RARY TO GENERAL PRINCIPLES OF ACCOUNTANCY GOVERNING PM CONTRACTS THE ABOVE RAT IO WOULD SQUARELY APPLY. AS A MATTER OF FACT THE LOWER AUTHORITIES HAVE NO T DISPUTED THE CORRECTNESS OF THE METHOD OF ALLOCATION OF PMS FEES OR FOUND IT CONTRARY TO ACCOUNTING PRACTICE THE HONBLE PUNE TRIBUNAL IN CASE OF S.BALAN (308 I TR 151 (T PUNE) HELD THAT INTEREST PAID ON MONIES BORROWED FOR ACQUISITION OF SHARES WOULD FORM PART OF COST OF ACQUISITION. UNDOUBTEDLY LOADING INTEREST ON INDIVIDUAL TRANSACT ION OF PURCHASE WOULD NECESSARILY INVOLVE AN EXERCISE OF ALLOCATION WHICH DID NOT DETER THE PUNE TRIBUNAL FROM UPHOLDING THE CLAIM. THE HONBLE PUNE TRIBUNAL OBSERVED THAT INTEREST HAVING NEXUS WITH THE COST OF ACQUISITION HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTATION OF CAPITAL G AINS PRESCRIBED U/S 48 (II). THE HONBLE BENCH INTER ALIA REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MITHILESH KUMARI REPORTED IN 92 ITR 7 AND THE OBSERVATION OF THEIR LORDSHIPS THAT- 18 IT WILL NOT MAKE ANY DIFFERENCE WHETHER THE INTERES T WAS PAID ON THE DATE OF PURCHASE OR WHETHER IT IS PAID SUBSEQUENTLY TO EXCL UDE THE INTEREST AMOUNT FROM THE ACTUAL COST WOULD LEAD TO ANOMALOUS RESULT S IN THE CASE OF CHALLAPALLI SUGARS LTD (98 ITR 167) THE SC HELD THAT INTEREST PAID ON BORROWED MONEY FOR PURCHASING PLANT AND MAC HINERY BEFORE COMMENCEMENT OF PRODUCTION WOULD FORM THE PA RT OF ACTUAL COST FOR THE PURPOSE OF DEPRECIATION ALLOWANCE. IT HELD SO F OLLOWING THE ACCEPTED ACCOUNTANCY RULE FOR DETERMINING THE COST OF FIXED ASSETS. IN THIS CASE PREOPERATIVE INTEREST WOULD HAVE TO BE ALLOCATED TO THE COST OF INDIVIDUAL FIXED ASSETS ACQUIRED DURING CONSTRUCTIO N PERIOD OF A NEW COMPANY (THIS WAS BEFORE THE BLOCK OF ASSETS CONCEPT WAS IN TRODUCED) AND YET THE COURT HELD SO. BY THE SAME LOGIC EXPENSES INCURRED IN RELATION TO THE PORTFOLIO SHOULD BE ALLOWED TO BE CAPITALIZED IN TERMS OF AS 13 IT WILL BE APPRECIATED FROM THE SUBMISSIONS MADE AB OVE THAT THIS IS NOT SO IN THE PRESENT CASE WHERE A LIVE NEXUS HAS BEEN CLEARL Y ESTABLISHED AND ON THAT BASIS EVEN THE ACCOUNTS HAVE BEEN MAINTAINED; INVESTMENTS HAVE BEEN ACCOUNTED FOR INCLUSIVE OF PROPORTIONATE FEES AND SAID FEES ARE ALSO LOADED TO UNSOLD INVESTMENTS AS AT THE YEAR END IT IS RESPECTFULLY SUBMITTED THAT IN THE PRESENT CA SE ASSESSEE HAS DEMONSTRATED HOW THERE IS A NEXUS BETWEEN THE FEES AND THE ROLE OF THE PM DIRECTLY AFFECTING PURCHASES AND HENCE COST OF ACQUISITION . 32. FROM THE ABOVE, IT IS EVIDENT THAT THE UNLIKE I N THE TRANSACTIONS INVOLVING ACQUISITION AND SALE OF THE LAND BUILDINGS, THE LOA DING OF THE EXPENSES IE FEE PAID TO THE AMC IS DONE IN ACCORDANCE WITH THE AS-13 IE COST OF AN INVESTMENT INCLUDES ACQUISITION CHARGES SUCH AS BROKERAGE, FEE S AND DUTIES . FURTHER, ONCE THE LIABILITY TO INCUR IS CERTAIN THE QUANTIFI CATION DOES NOT BAR THE ASSESSEE FROM CLAIMING THE EXPENDITURE. THE CLAIM OF THE ASS ESSEE MUST BE ALLOWED ONCE THE BASIS OF QUANTIFICATION IS SCIENTIFIC AND REASO NABLE. THE METHOD OF ACCOUNTING FOLLOWED BY THE COMPANY CONSISTENTLY IN RESPECT OF FEES PAID IS TO PROPORTIONATELY LOAD THESE FEES ON THE SECURITIES HANDLED BY PORTFO LIO MANAGER DURING THE YEAR. FINDINGS OF THE TRIBUNAL 33. THUS, THE ISSUE FOR ADJUDICATION RELATES IF THE PAYMENT OF FEE PAID TO THE PORTFOLIO MANAGER IE ENAM FOR THE TWIN PURPOSES OF (I) PURCHASE OF INVESTMENTS/SECURITIES AND (II) SALE OF THE SAME IS AN ALLOWABLE DEDUCTION U/S 48 OF THE ACT OR NOT. THE SAME HAS TO BE DECIDED IN THE CONTEXT OF SETTLEMENT OF THE DISPUTES RELATING TO C ORRECT HEAD OF INCOME. IN OTHER WORDS, THE ISSUE RELATING TO HEAD OF INCOME FOR T AXING THE GAINS ON SALE OF THE SAID INVESTMENTS/SECURITIES HAS BEEN DECIDED BY THE TRIBUNAL IN THE FIRST ROUND OF THE APPEALS AND THE TRIBUNAL HELD THAT THE PORTFOLIO INVESTMENT IS NOT THE BUSINESS ACTIVITY BUT IT IS AN INVESTMENT ACTIV ITY & RELEVANT GAINS ARE TAXABLE UNDER THE HEAD CAPITAL GAINS AS ACCOUNTED BY THE ASSESSEE. IT IS SO HELD IN THE 19 OWN CASE OF THE ASSESSEE VIDE 499 & 500/P/2008 AND THE SAME AFFIRMED BY A DECISION OF THE TRIBUNAL-MUMBAI BENCH VIDE I.T.A NO. 5382 MUM/2009 DATED 30TH NOVEMBER, 2010 IN THE CASE OF RADHA BIRJU PATE L. THUS, IT IS THE SETTLED POSITION AT THE LEVEL OF THE TRIBUNAL THAT THE PORT FOLIO MANAGEMENT ACTIVITY IS AN INVESTMENT ACTIVITY AND NEITHER THE BUSINESS ACTIVITY NOR THE ACTIVITY AMOUNTING TO AN ADVENTURE IN THE NATURE OF TRADE . THEREFORE, THE SECURITIES IN QUESTION ARE HELD TO BE THE INVESTMENTS BY THE TRIBUNAL IN THE F IRST ROUND AND CONSEQUENTLY , WHEN SUCH SECURITIES ARE TRANSFERRED BY WAY OF SALE , THE RESULTANT GAINS HAVE TO BE DEALT WITH AS PER THE PROVISIONS OF SECTION 48 O F THE ACT. 34. THE PROVISIONS OF SECTION 48 OF THE ACT HAVE AL READY BEEN ANALYSED IN THE PRECEDING PARAGRAPHS IN THE LIGHT OF THE EXPLAINING BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SHANTILAL KANTILAL (SUPRA). IT IS A SETTLED ISSUE NOW AT THE LEVEL OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SHA NTILAL KANTILAL (SUPRA) THAT THE RIGHTFUL EXPENDITURE INCURRED IN CONNECTION WITH TH E TRANSFER OF THE CAPITAL ASSET/SECURITIES SHOULD BE ALLOWED NOTWITHSTANDING THE INADEQUACY OF THE EXPRESS PROVISIONS OF SECTION 48 OF THE ACT. IT IS ALSO BIN DING ON US TO INTERPRET THE SAID PROVISIONS OF SECTION 48 THAT THE SAME ARE READ DOW N BY THE HONBLE HIGH COURT IN THAT CASE AND THE SAME REMAINS UNDISTURBED TILL DATE. CONSEQUENTLY, THE EXPENDITURE WHICH IS DISTINCTLY AND DIRECTLY CONNEC TED TO THE TRANSFER, WHICH IS INTERPRETED TO BE OF WIDER MEANING AND CONNOTATION, ARE REQUIRED TO BE ALLOWED. WE ALSO INTERPRETED IN THE PRECEDING PARAGRAPHS THA T THE EXPRESSION WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER AS WI DER IN SCOPE AND IN OUR OPINION, IT IS NO SO NARROW TO NOT TO ACCOMMODATE THE PORTF OLIO FEE, WHICH IS PAID UNDISPUTEDLY AND OBVIOUSLY FOR ACQUISITION AND SALE OF THE SECURITIES/UNIT IF ANY. THEREFORE, WE ARE OF OPINION THAT THE IMPUGNED EXPE NDITURE IS (I) DIRECTLY CONNECTED TO THE ASSET AND ITS TRANSFER, (II) IT IS GENUINELY INCURRED AS ACCEPTED BY THE REVENUE; (III) IT IS A BONA FIDE PAYMENTS MADE AS PER THE NORMS OF THE ARMS LENGTH PRINCIPLE SINCE THE M/S ENAM AND THE ASSESSEE ARE UNRELATED; (IV) NECESSITY OF INCURRING OF EXPENDITURE IS IMMINENT A ND IT IS IN THE NORMAL COURSE OF THE INVESTMENT ACTIVITY; AND (V) READ DOWN PROVISI ONS OF SECTION 48 OF THE ACT IN VIEW OF THE SAID RATIO IN THE CASE OF SHANTILAL K ANTILAL (SUPRA) ACCOMMODATE THE CLAIM OF SUCH EXPENDITURE LEGALLY. 35. FURTHER, THE DECISION OF THE TRIBUNAL IN THE CASE O F DEVENDRA KOTHARI (SUPRA), WHICH WAS HEAVILY RELIED UPON BY THE LD DR FOR THE REVENUE UNFORTUNATELY DID NOT REFER TO THE SAID READ DOWN INTERPRETATION IN THE CITED JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF THE SHANTILAL KANTILAL (SUPRA). IN ANY CASE, WE FIND THE SAID ORDER OF THE TRIBUNAL IS DISTINGUISHABLE ON FACT IN GENERAL AND THE DISCHARGING OF THE ONUS OF THE ASSESSEE IN DEMONSTRATING THE DIRECT LINKAGE OF THE EXPENDITURE TO THE SHARES AS WELL AS THE CL AIM OF FEE 20 ON THE ENTIRE TURNOVER ON GLOBAL BASIS IE NOT RESTR ICTED TO INVESTMENTS ONLY. AS SUCH, IT IS A SETTLED ISSUE THAT THE EXPRESSION IN CONNECTION WITH SUCH TRANSFER ENJOYS MUCH WIDER MEANING AND THEREFORE, THE FEE PA ID TO THE PORTFOLIO MANAGER IN OUR OPINION HAS TO BE CONSTRUED TO HAVE BEEN EXP ENDED FOR THE PURPOSES OF ACQUISITION AND TRANSFER OF THE INVESTMENT OF THE S ECURITIES. CONSEQUENTLY, ADJUDICATION OF THE ISSUE OF ALLOWABILITY OF THE SA ID EXPENDITURE UNDER CLAUSES (I) OR (II) OF SECTION 48 OF THE ACT IS MERELY AN ACADE MIC EXERCISE. THEREFORE, CONSIDERING THE FACT THERE IS NO SUCH SPECIFIC ISSU E RAISED BEFORE US IN THE GROUNDS, WE REFRAIN FROM ENTERING INTO THAT ZONE IN THIS ORDER. IT IS ALSO RELEVANT TO MENTIONED THAT THE ON FACTS, THE EXPENDITURE IS FOR THE TWIN PURPOSE OF ACQUISITION AND SALE OF THE SECURITIES AND HENCE, IT CANNOT BE HELD THE WHOLE OF THE IMPUGNED EXPENDITURE IS SPENT FOR TRANSFER O F ASSET OR IT SHOULD BE LOADED TO THE COST OF THE SECURITIES. 36. NON-ALLOCABILITY OF THE EXPENDITURE : IT IS AN AGREED POSITION BETWEEN THE PARTIES THE PAYMENT OF THE PORTFOLIO MANAGEMENT FEE WAS PAID TO M/S ENAM AND OTHERS AND THE SAME IS IN ACCORDANCE WITH THE C ONTENTS OF THE BILATERAL AGREEMENT. THE SERVICES RENDERED BY M/S ENAM ARE AL SO UNDOUBTED. THE TWIN SERVICES RELATING TO THE SAID PORTFOLIO MANAGEMENT INCLUDE (I) ACQUISITION OF SECURITIES FOR THE ASSESSEE-CLIENT AND (II) SALE OF THE SAID SECURITIES FOR THE ASSESSEE-CLIENT. THE PAYMENT OF FEE IS UNDISPUTEDLY UNSPECIFIC TO THE INDIVIDUAL SHARES/SECURITIES. IN FACT, THE REVENUE TAKES AN AR GUMENT BEFORE US THAT TO BECOME THE PART OF THE COST OF THE ACQUISITION OF T HE ASSET, THE EXPENDITURE IE FEE PAID THE ENAM, HAS TO BE ASSET-SPECIFIC OR SHARE-SP ECIFIC PER THE PROVISIONS OF SECTION 48 OF THE ACT. IN OUR OPINION, THE SAME IS ABSURD GIVEN THE FACTS OF THE CASE WHERE THE PORTFOLIO INVESTMENT ATTRACTS THE PR OVISIONS OF SECTION 48 OF THE ACT AND THE ASSET INVOLVED IS NOT LAND OR BUILDING AND IN FACT THE ASSETS INVOLVED ARE THE SECURITIES/SHARES/MUTUAL FUNDS ETC. IN MATT ERS OF TRANSACTIONS INVOLVING SECURITIES/SHARES/MUTUAL FUNDS ETC, EXPENDITURE/FEE PAID TO PORTFOLIO MANAGER IS NEVER EACH SHARE SPECIFIC AND IN FACT THEY ARE PAID ON VOLUME BASED. THEREFORE, THE REVENUES ARGUMENT HAS TO BE REJECTED ON THE GR OUND OF IMPRACTICABILITY OR NON-EXISTENT IN THIS LINE OF INVESTMENT ACTIVITY AL ONE. CONSIDERING THE GENUINENESS AND ESSENTIALITY OF THE PAYMENT OF FEE TO THE PORTFOLIO MANAGER IE ENAM AND UNDISPUTEDLY FOR THE PREDOMINANTLY FOR THE SAID TWIN PURPOSES OF ACQUISITION AND SALE OF THE SECURITIES, THE CLAIM H AS TO BE ALLOWED. FURTHER, IT IS AN ADMITTED FACT THAT THE BIFURCATION OF EXPENDITUR E IS NOT POSSIBLE IN THE GIVEN FACTS OF THE CASE AND THE PAYMENT IS FOR COMPOSITE SERVICES , WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE TRAN SFER OF THE SECURITIES. THE EXPENDITURE IS UNDISPUTEDLY FOR THE TWIN PURPOS ES OF ACQUISITION OF THE SECURITIES AND THE SALES OF THE SAME. THE EXPENDITU RE IS ARRIVED AT ON PROFITS SHARING BASIS, WHICH IS NOW ALLOWABLE BASIS BY THE SEBI. THE EXPENDITURE IS 21 COMPOSITE ONE AS IT IS FOR THE BOTH THE PURPOSES. T HERE IS NO BIFURCATION EITHER BY THE ASSESSEE OR BY THE REVENUE. IN OUR OPINION, TH ERE IS NO REQUIREMENT OF BIFURCATION OF THE EXPENDITURE IE A SEGMENT TO FORM PART OF THE COST OF ACQUISITION AND OTHER SEGMENT RELATING TO TRANSFER OF SECURITIE S TO REDUCE THE PROFITS AS IT IS NOT THE CASE OF THE REVENUE THAT IT SHALL MAKE SOME DIFFERENCE FROM THE TAX POINT OF VIEW. THEREFORE, WE RESIST FROM ENTERING INTO TH AT CONTROVERSY. 37. NEXT, WE PROCEED TO EXPLAIN THE EXPRESSION SUC H TRANSFER USED IN SECTION 48 OF THE ACT. THE EXPRESSION TRANSFER IS DEFINED SECTION 2(47) OF THE ACT AND IT IS AN INCLUSIVE ONE. HOWEVER, THERE IS NO EXPLANATION AS TO FROM WHICH POINT THE CONCEPT OF TRANSFER BEGINS. DOES IT START FROM TH E POINT OF ACQUISITION OF THE ASSET/SHARE? THUS, IN OUR OPINION, THE EXPRESSION TRANSFER INVOLVES VARIOUS SUB- COMPONENTS AND THE FIRST SUB-COMPONENT MUST OF PURC HASE AND POSSESSION OF THE IMPUGNED SECURITIES. UNLESS THE ASSESSEE IS IN POSSESSION OF THE ASSET, HE CANNOT TRANSFER THE SAME. THEREFORE, THE EXPRESSION EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER READ WITH AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET MENTIONED IN SECTION 48 AND 48(I) OF THE ACT MUST NECESSARILY ENCOMPASSES THE TRANSFER INVOLVED IN TH E STAGE OF ACQUISITION OF THE SECURITIES TILL THE STAGE OF TRANSFER INVOLVED IN T HE STEP OF SALE OF THE IMPUGNED SECURITIES. SUCH AN INTERPRETATION OF SEC 48 OF THE ACT IS THE NECESSITY HERE TO AVOID THE LIKELY ABSURDITY. 38. IN THE PECULIAR CIRCUMSTANCES OF THE PRESENT CA SE, IN OUR CONSIDERED OPINION THE CLAIM OF THE MUST NOT BE REJECTED FOR W ANT OF THE EXPRESS PROVISIONS IN SECTION 48 OF THE ACT AND SUCH AN INTERPRETATION GOES WITH THE SPIRIT OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF M/S SHAKUNTHALA KANTILAL (SUPRA). FURTHER, AS PER THE PRINCIPLES OF ACCOUNTI NG IE AS-13, AS DISCUSSED ABOVE, THE EXPENDITURE OF THIS KIND IS ALLOWED TO B E LOADED TO THE COST OF ACQUISITION OF THE SECURITIES. THEREFORE, IN PRINCI PLE, THE CLAIM OF THE ASSESSEE IS ALLOWABLE UNDER THE PROVISIONS OF SECTION 48 OF THE ACT. HONBLE SUPREME COURT IN THE CASE OF UP STATE INDUSTRIAL DEVELOPMENT CORP ORATION (225 ITR 703) WAS DEALING WITH THE ISSUE OF LOADING OF AN UNDERWRITER COMMISSION TO THE COST OF SHARES, HELD THAT THE GENERAL PRINCIPLES OF ACCOUNT ING HAVE TO BE OBSERVED. REGARDING THE OBJECTIONS OF THE REVENUE REGARDING T HE QUANTIFICATION OF THE CLAIMS OF EXPENDITURE, IN OUR OPINION, THE JUDGMENT S OF THE SUPREME COURT IN THE CASES OF BHARAT EARTH MOVERS LTD (SUPRA) AND THE CU LCUTTA CO LTD (SUPRA) HELPS THE ASSESSEE AND THEREFORE, THE CLAIM OF THE ASSESS EE IS ALLOWABLE. ACCORDINGLY, RELEVANT GROUND RELATING TO THE SECOND ISSUE OF THE RECALLED APPEALS HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. 39. IN THE RESULT, THE APPEALS VIDE ITAS 499 & 500/ P/2008 ARE ALLOWED . 22 OTHER APPEALS 1. 1320/PN/08 2005-06 2. 434/PN/09 2006-07 (BY KRA HOLDING & TRADING P LTD) & 3. 1321/PN/08 2002-03 4. 1322/PN/08 2005-06 5. 806/PN/09 2006-07 (BY ARA TRADING & INVESTMENTS P LTD) 40. WE HAVE TABULATED THE ISSUES RAISED IN THE GROU NDS RAISED BY THE TWO ASSESSEES NAMELY KRA HOLDING & TRADING P LTD AND AR A TRADING & INVESTMENTS P LTD IN THE APPEALS MENTIONED ABOVE. AS SUMMED UP IN THE SAID TABLE, THERE ARE ONLY TWO ISSUES IN ALL THE GROUNDS OF THE SAID APPE ALS AND THEY ARE: (I) WHETHER THE PORTFOLIO ACTIVITY AMOUNTS TO THE BUSINESS ACTI VITY OR THE INVESTMENT ACTIVITY AND PROPER HEAD OF INCOME FOR TAXING THE EARNING OF THIS ACTIVITY; AND (II) ALLOWABILITY OF THE FEE PAID BY THE ASSESSEE TO TH E PORTFOLIO MANAGER IE M/S ENAM, THE AMC U/S 48 OF THE ACT. AS DETAILED ABOVE, THE 1 ST ISSUE HAS BEEN ADJUDICATED BY THE TRIBUNAL VIDE THE APPEAL ITAS 49 9 & 500/P/2008 IN FAVOUR OF THE ASSESSEES. THIS ISSUE IS COMMON IN ALL THE OTHE R APPEALS UNDER CONSIDERATION HERE. CONSIDERING THE COMMONALITY OF THE FACTS, PAR TIES AND THE ISSUE, WE OF THE OPINION THAT THE SAID ISSUE STANDS COVERED BY THE S AID DECISION OF THE TRIBUNAL AND THE SAME IS DECIDED IN FAVOUR OF THE ASSESSEES. ACCORDINGLY, RELEVANT GROUNDS ARE ALLOWED . 41. THE SECOND ISSUE RELATES TO THE ALLOWABILITY OF THE FEE PAID TO THE M/S ENAM, THE PORTFOLIO MANAGER. THIS ISSUE IS COMMONLY RAISED IN ALL THREE APPEALS OF KRA HOLDING & TRADING P LTD IE ITA 500/PN/08 FOR AY 2004-05, 1320/P/2008 FOR AY 2005-06 AND ITA 434/P/2009 FOR AY 2006-07 AN D THE SAME IS ADJUDICATED IN FAVOUR OF THE ASSESSEE AS DISCUSSED IN THE CONTE XT OF THE ADJUDICATION OF THE RECALLED MATTER IN THE CONTEXT OF ITA 500/PN/08 FOR AY 2004-05. CONSIDERING THE COMMONALITY OF THE FACTS, PARTIES AND THE ISSUE, WE OF THE OPINION THAT THE SAID ISSUE STANDS COVERED BY THE SAID DECISION OF THE TR IBUNAL AND HAS TO BE DECIDED IN FAVOUR OF THE ASSESSEES. ACCORDINGLY, RELEVANT G ROUNDS OF THE RELEVANT APPEALS ARE ALLOWED . SO FAR AS THE ARA TRADING & INVESTMENTS P LTD IS C ONCERNED, THE THIS IS SPECIFIC TO ITA 499/PN/08 FOR AY 2004-05 AND THE SA ME WAS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE AS PER THE PRECEDING PARAGRA PHS OF THIS ORDER. 42. IN THE RESULT, THE APPEALS VIDE ITA 500 /PN/08 FOR AY 2004-05, 1320 /P/ 2008 FOR AY 2005-06 AND ITA 434 /P/2009 FOR AY 2006-07 FILED BY M/S KRA HOLDING & TRADING P LTD ARE ALLOWED . 23 43. IN THE RESULT, THE APPEALS VIDE ITA 1321 /PN/08 FOR 2002-03, 499 /PN/08 FOR 2004-05, 1322 /PN/08 FOR 2005-06 AND 806 /PN/08 FOR 2006-07 FILED BY ARA HOLDING &TRADING P LTD ARE ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY 2011. SD/- SD/- (I C SUDHIR) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED THE 31 ST MAY, 2011 JMR* COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE. 2. DCIT, RANGE-11(1), PUNE. 3. CIT (A), PUNE. 4. CIT CONCERNED, 5. D.R. ITAT A BENCH, PUNE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE