RDA Holding & Trading Pvt. Ltd.,, Pune v. ACIT, Range-6,, Pune

ITA 352/PUN/2010 | 2005-2006
Pronouncement Date: 23-09-2011 | Result: Dismissed

Appeal Details

RSA Number 35224514 RSA 2010
Assessee PAN AAACR0831K
Bench Pune
Appeal Number ITA 352/PUN/2010
Duration Of Justice 1 year(s) 6 month(s) 16 day(s)
Appellant RDA Holding & Trading Pvt. Ltd.,, Pune
Respondent ACIT, Range-6,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 23-09-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 23-09-2011
Date Of Final Hearing 21-09-2011
Next Hearing Date 21-09-2011
Assessment Year 2005-2006
Appeal Filed On 08-03-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI D.KARUNAKAR RAO ACCOUNTANT MEMBER I.T.A. NOS.352 & 353/PN/2010 ASSESSMENT YEARS:2005-06 AND 2006-07 RDA HOLDING & TRADING PVT LTD. ... APPELLANT 12 BOAT CLUB ROAD RIVERSIDE ESTATE PUNE-41 001 PA NO.AAACR 0831 K VS. ADDL. CIT RANGE-6 ... RESPONDENT PUNE I.T.A. NOS.461 & 462/PN/2010 ASSESSMENT YEARS:2005-06 AND 2006-07 ADDL. CIT RANGE-6 ... APPELLANT PUNE VS RDA HOLDING & TRADING PVT LTD. ... RESPONDENT 12 BOAT CLUB ROAD RIVERSIDE ESTATE PUNE-41 001 PA NO.AAACR 0831 K ASSESSEE BY: SHRI R.D.ONKAR REVENUE BY: SHRI HARSHWAR SHARMA DATE OF HEARING: 21- 9-2011 DATE OF PRONOUNCEMENT: 23 -9-2011 ORDER PER BENCH: THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENU E ARE DIRECTED AGAINST A COMMON ORDER OF THE CIT(A) D ATED 24.12.2009 IN THE MATTER OF ASSESSMENT UNDER SECTI ON 147 2 R.W.S. 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. 2. THE ONLY GROUND TAKEN BY THE ASSESSEE IN ITS APP EALS AND GROUND NOS.1 TO 6 TAKEN BY THE REVENUE IN BOTH THE APPEALS RELATES TO DEDUCTION OF FEES PAID TO PORTFO LIO MANAGER(PMS FEES) FROM THE CAPITAL GAINS ON PURCHAS E AND SALE OF SECURITIES. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS AS INVESTMENT COMPANY. IT HAS APPOINTED E NAM AMV P.LTD. TOWARDS PORTFOLIO MANAGEMENT SERVICES ( PMS) AND HAS CLAIMED DEDUCTION OF PMS FEES PAID RS.75 51 669 IN A.Y. 2005-06 AND RS.1 40 12 837 FOR A.Y. 2006-07 FROM THE CAPITAL GAINS EARNED ON TRANSACTION IN SECURITI ES. IN THE ASSESSMENT ORDERS THE ASSESSING OFFICER DISALL OWED THE DEDUCTION OF PMS FEES CLAIMED BY THE ASSESSEE FOR B OTH THE ASSESSMENT YEARS. IN APPEAL THE CIT(A) RESTRICTED THE DISALLOWANCE AT 50% OF THE TOTAL PMS FEES AS DEDUCT ION ALLOWABLE FROM THE CAPITAL GAINS. AGGRIEVED THE A SSESSEE IS IN APPEAL FOR BOTH THE ASSESSMENT YEARS. 4. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ISSUE IS COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CA SE OF SISTER CONCERNS VIZ; KRA HOLDING & TRADING PVT LTD. AND ARA TRADING & INVESTMENTS P. LTD. IN ITA NO.499 AND 500/PM/2008 FOR THE ASSESSMENT YEAR 2004-05 WHEREI N ON IDENTICAL SET OF FACTS THE TRIBUNAL HAS ALLOWED THE ENTIRE AMOUNT OF PMS FEES AFTER A DETAILED ANALYSI S INTER A LIA OBSERVING AS UNDER: 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 AVOWABLE D EDUCTION U/S 48 OF THE ACT OR NOT. THE SAME HAS TO BE DECIDED IN THE CONTEXT OF SETTLEMENT OF THE D ISPUTES RELATING TO CORRECT HEAD OF INCOME. IN OTHER WORDS THE ISSU E RELATING TO 'HEAD OF INCOME' FOR TAXING THE GAINS ON SALE OF TH E SAID 3 INVESTMENTS/SECURITIES HAS BEEN DECIDED BY THE TRIBUNAL IN THE FIRST ROUND OF THE APPEALS AND THE TRIBUNAL HELD TH AT THE PORTFOLIO INVESTMENT IS NOT OWN CASE OF THE ASSESSEE VIDE 499 & 500/P/2008 AND THE SAME AFFIRMED BY A DECISION OF THE TRIB UNAL- MUMBAI BENCH VIDE !T.A. NO 5382 MUM/2009 DATED 30TH NOV EMBER 2010 IN THE CASE OF RADHA BIRJU PATEL. THUS IT IS THE SET TLED POSITION AT THE LEVEL OF THE TRIBUNAL THAT THE PORTFOLIO MANAGEMEN T 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 FIRST 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 OF THE ACT. 34. THE PROVISIONS OF SECTION 48 OF THE ACT HAVE ALREADY BEEN ANALYSED IN THE PRECEDING PARAGRAPHS IN THE LIGHT OF TH E EXPLAINING BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF SHANTILAL KAN TILAL (SUPRA). IT IS A SETTLED ISSUE NOW AT THE LEVEL OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF SHANTILAL KANTILAL (SUPRA) THAT THE RIGHT FUL EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFER OF TH E CAPITAL ASSET/SECURITIES SHOULD BE ALLOWED NOTWITHSTANDING THE INAD EQUACY OF THE EXPRESS PROVISIONS OF SECTION 48 OF THE ACT. IT IS ALSO BINDING ON US TO INTERPRET THE SAID PROVISIONS OF SECTION 48 THAT TH E SAME ARE READ DOWN BY THE HON'BLE HIGH COURT IN THAT CASE AND T HE SAME REMAINS UNDISTURBED TILL DATE. CONSEQUENTLY THE EXPENDITUR E WHICH IS DISTINCTLY AND DIRECTLY CONNECTED TO THE TRANSFER WH ICH IS INTERPRETED TO BE OF WIDER MEANING AND CONNOTATION ARE R EQUIRED TO BE ALLOWED. WE ALSO INTERPRETED IN THE PRECEDING PARAGRAPH S THAT THE EXPRESSION 'WHOLLY AND :.' EXCLUSIVELY IN CONNECTION WITH SUCH TRANSFER' AS WIDER IN SCOPE AND IN OUR OPINION IT IS NO SO NARROW TO NOT TO ACCOMMODATE THE 'PORTFOLIO FEE' WHICH IS PAID UNDISPUTEDLY AND OBVIOUSLY FOR ACQUISITION AND SALE OF THE SECURITIES/UNIT IF ANY T HEREFORE WE ARE OF OPINION THAT THE IMPUGNED EXPENDITURE IS (I) DIRECTLY CONNECTED TO THE ASS ET AND ITS TRANSFER (II) IT IS GENUINELY INCURRED AS ACCEPTED BY THE R EVENUE; (III) IT IS A BONA FIDE PAYMENTS MADE AS PER THE NORMS OF THE ARM'S LENGTH PRINCIPLE' SINCE THE M/S ENAM AND THE ASSESSEE ARE UNR ELATED; (IV) NECESSITY OF INCURRING OF EXPENDITURE IS IMMINENT AND IT IS IN THE NORMAL COURSE OF THE INVESTMENT ACTIVITY; AND (V) READ DOW N PROVISIONS OF SECTION 48 OF THE ACT IN VIEW OF THE SAID RATIO IN THE CASE OF SHANTILAL KANTILAL (SUPRA) ACCOMMODATE THE CLAIM OF SUCH EXPENDITURE LEGALLY. 35. FURTHER THE DECISION OF THE TRIBUNAL IN THE CASE OF DEV ENDRA 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 H IGH COURT IN THE CASE OF THE SHANTILAL KANTILAL (SUPRA). IN ANY CASE WE FIND THE 4 SAID ORDER OF THE TRIBUNAL IS DISTINGUISHABLE ON FACT IN GENER AL AND THE DISCHARGING OF THE ONUS OF THE ASSESSEE IN DEMONSTRATING THE DIRECT LINKAGE OF THE EXPENDITURE TO THE SHARES AS WELL AS THE CLAIM OF FEE 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 PAID TO THE PORTFOLIO MANAGER IN OUR OPIN ION HAS TO BE CONSTRUED TO HAVE BEEN EXPENDED FOR THE PURPOSES OF ACQUISITION AND TRANSFER OF THE INVESTMENT OF THE SECURITIES. CONSEQUE NTLY ADJUDICATION OF THE ISSUE OF ALLOWABILITY OF THE SAID EXPENDITUR E UNDER CLAUSES (I) OR (II) OF SECTION 48 OF THE ACT IS MERELY AN ACAD EMIC EXERCISE. THEREFORE CONSIDERING THE FACT THERE IS NO SUCH SPECIFIC ISSUE RAISED BEFORE US IN THE GROUNDS WE REFRAIN FROM ENT ERING 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 OF 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 MANAGEM ENT FEE WAS PAID TO M/S ENAM AND OTHERS AND THE SAME IS IN ACCORDA NCE WITH THE CONTENTS OF THE BILATERAL AGREEMENT. THE SERVICES RENDERE D BY M/S ENAM ARE ALSO UNDOUBTED. THE TWIN SERVICES RELATING TO TH E SAID PORTFOLIO MANAGEMENT INCLUDE (I) ACQUISITION OF SECURITIES FOR THE ASSESSEE-CLIENT AND (II) SALE OF THE SAID SECURITIES FOR THE A SSESSEE- CLIENT. THE PAYMENT OF FEE IS UNDISPUTEDLY UNSPECIFIC TO THE INDIVIDUAL SHAREES/SECURITIES. IN FACT THE REVENUE TAKES AN ARGUME NT BEFORE US THAT TO BECOME THE PART OF THE COST OF THE ACQUISITION OF THE ASSET THE EXPENDITURE IE FEE PAID 'THE ENAM HAS TO BE ASSET-SPECIFIC OR SHARE- SPECIFIC PER THE PROVISIONS OF SECTION 48 OF THE ACT. IN OUR OPINION TH E SAME IS ABSURD GIVEN THE FACTS OF THE CASE WHERE THE P ORTFOLIO INVESTMENT ATTRACTS THE PROVISIONS OF SECTION 48 OF THE A CT AND THE ASSET INVOLVED IS NOT LAND OR BUILDING AND IN FACT THE ASSET S INVOLVED ARE THE SECURITIES/SHARES/MUTUAL FUNDS ETC. IN MATTERS O F TRANSACTIONS INVOLVING SECURITIES/SHARES/MUTUAL FUNDS ETC EXPENDITURE/FEE PAID TO PORTFOLIO MANAGER IS NEVER EACH SH ARE SPECIFIC AND IN FACT THEY ARE PAID ON VOLUME BASED. THEREFORE THE REVENUE'S ARGUMENT HAS TO BE REJECTED ON THE GROUND OF IMPRACTIC ABILITY OR NON- EXISTENT IN THIS LINE OF INVESTMENT ACTIVITY ALONE. 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 HAS TO BE ALLOWED. FURTHER IT IS AN ADMITTED FACT THAT T HE BIFURCATION OF EXPENDITURE IS NOT POSSIBLE IN THE GIVEN FACTS OF THE CA SE AND THE PAYMENT IS FOR COMPOSITE SERVICES WHOLLY AND EXCLUSIVELY IN CONNECTION WITH TRANSFER OF THE TRANSFER OF THE SECURITIES . THE EXPENDITURE IS UNDISPUTEDLY FOR THE TWIN PURPOSES OF AC QUISITION OF 5 THE SECURITIES AND THE SALES OF THE SAME. THE EXPENDITURE IS ARRIVED AT ON PROFITS SHARING BASIS WHICH IS NOW ALLOWABLE BASIS BY THE SEBI. THE EXPENDITURE IS COMPOSITE ONE AS IT IS FOR THE BOTH TH E PURPOSES. THERE IS NO BIFURCATION EITHER BY THE ASSESSEE OR BY THE REVENUE. IN OUR OPINION THERE IS NO REQUIREMENT OF BIFURCATION OF THE EX PENDITURE IE A SEGMENT TO FORM PART OF THE COST OF ACQUISITION AND O THER SEGMENT RELATING TO TRANSFER OF SECURITIES 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 THAT CONTROVE RSY 37. NEXT WE PROCEED TO EXPLAIN THE EXPRESSION 'SUCH TRA NSFER' 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. D OES IT START FROM THE POINT OF ACQUISITION OF THE ASSET/SHARE 7 THUS IN OUR OPINION THE EXPRESSION 'TRANSFER' INVOLVES VARIOUS SUB- COMPONEN TS AND THE FIRST SUB-COMPONENT MUST OF PURCHASE AND POSSESSION OF T HE IMPUGNED SECURITIES. UNLESS THE ASSESSEE IS IN POSSESSION O F THE ASSET HE CANNOT TRANSFER THE SAME. THEREFORE THE EXPR ESSION 'EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTIO N 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 NECESSA RILY ENCOMPASSES THE TRANSFER INVOLVED IN THE STAGE OF ACQUISIT ION OF THE SECURITIES TILL THE STAGE OF TRANSFER INVOLVED IN THE STEP O F SALE OF THE IMPUGNED SECURITIES. SUCH AN INTERPRETATION OF SEC 48 OF TH E ACT IS THE NECESSITY HERE TO AVOID THE LIKELY ABSURDITY. 38. IN THE PECULIAR CIRCUMSTANCES OF THE PRESENT CASE IN OUR CONSIDERED OPINION THE CLAIM OF THE MUST NOT BE REJECTED FOR WANT OF THE EXPRESS PROVISIONS . IN SECTION 48 OF THE ACT AND SU CH AN INTERPRETATION GOES WITH THE SPIRIT OF THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MIS SHAKUNTHALA KANTILAL SUPRA). FURTHER AS PER THE PRINCIPLES OF ACCOUNTING IE AS-13 AS DISCUSSED ABO VE THE EXPENDITURE OF THIS KIND IS ALLOWED TO BE LOADED TO THE COS T OF ACQUISITION. OF THE SECURITIES. THEREFORE IN PRINCIPLE THE CLAIM OF THE ASSESSEE IS ALLOWABLE UNDER THE PROVISIONS OF SECTION 48 OF THE ACT. HON'BLE SUPREME COURT IN THE CASE OF UP STATE INDUSTRIA L DEVELOPMENT CORPORATION (225 ITR 703) WAS DEALING WITH THE ISSUE OF LOAD ING OF AN UNDERWRITER COMMISSION TO THE COST OF -SHARES HELD THAT THE GENERAL PRINCIPLES OF ACCOUNTING HAVE TO BE OBSERVED. REGARDING TH E OBJECTIONS OF THE REVENUE REGARDING THE QUANTIFICATION OF THE CLAIMS OF EXPENDITURE IN OUR OPINION THE JUDGMENTS OF THE SUPREME COURT IN THE CASES OF BHARAT EARTH MOVERS LTD (SUPRA) AND THE C ALCUTTA CO LTD (SUPRA) HELPS THE ASSESSEE AND THEREFORE THE CLAIM OF THE ASSESSEE IS ALLOWABLE. ACCORDINGLY RELEVANT GROUND RELATING TO THE SECO ND ISSUE OF 6 THE RECALLED APPEALS HAS TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. 5. WE FIND THAT THE ISSUE IN THIS APPEAL IS SQUAREL Y COVERED BY A COORDINATE BENCHS DECISION IN THE CASE OF THE SISTER CONCERN VIZ KRA HOLDING & TRADING P.LTD AND ARA TRA DING & INVESTMENTS P. LTD. (SUPRA) WHEREIN THE TRIBUNAL HA S INTER ALIA OBSERVED AS FOLLOWS: 6. SINCE THE FACTS ARE IDENTICAL TO THE PRESENT CAS E WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THA N THE VIEW SO TAKEN BY THE COORDINATE BENCH AND WE ARE IN CON SIDERED AGREEMENT WITH THE SAME AND ACCORDINGLY WE UPHOLD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO ALLO W THE DEDUCTION OF PMS FEES CLAIMED BY THE ASSESSEE IN BO TH THE ASSESSMENT YEARS. CONSEQUENTLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. IN THE RESULT APPEALS OF THE REVENUE ARE DISMIS SED AND APPEAL OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER 2011. SD/- SD/- (D.KARUNAKAR RAO) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 23 RD SEPTEMBER 2011 PARIDA COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) PUNE 4. THE CIT PUNE 5. THE D.R ITAT PUNE BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL 7