ACIT 2(3), MUMBAI v. STANDARD CHARTERED ASSET MANAGEMENT CO. P. LTD,

ITA 4330/MUM/2008 | 2004-2005
Pronouncement Date: 23-07-2010 | Result: Dismissed

Appeal Details

RSA Number 433019914 RSA 2008
Bench Mumbai
Appeal Number ITA 4330/MUM/2008
Duration Of Justice 2 year(s) 1 month(s) 3 day(s)
Appellant ACIT 2(3), MUMBAI
Respondent STANDARD CHARTERED ASSET MANAGEMENT CO. P. LTD,
Appeal Type Income Tax Appeal
Pronouncement Date 23-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted J
Tribunal Order Date 23-07-2010
Date Of Final Hearing 15-07-2010
Next Hearing Date 15-07-2010
Assessment Year 2004-2005
Appeal Filed On 20-06-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J : MUMBAI BEFORE SHRI D.K. AGARWAL (JM) AND SHRI PRAMOD KUM AR (AM) ITA NO.4330/MUM/2008 ASSESSMENT YEAR : 2004-05 THE ASSTT. COMMISSIONER OF INCOME TAX -2(3) ROOM NO.555 AAYAKAR BHAVAN MUMBAI. ..( APPELLANT ) VS. M/S. STANDARD CHARTERED ASSET MANAGEMENT CO. PVT. LTD. 90 M.G. ROAD FORT MUMBAI-1. ..( RESPONDENT ) P.A. NO. (AACCA 3262 H) APPELLANT BY : SHRI N.K. BALODIA RESPONDENT BY : SHRI FA RROKH V. IRANI O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 11.4.2008 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS APPROVED BY SEBI TO ACT AS ASSET MANAGEMENT COMPANY FOR THE ITA NO.4330/M/08 A.Y:04-05 2 SCHEMES OF STANDARD CHARTERED MUTUAL FUND. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.23 82 32 080/- WHICH WAS SUB SEQUENTLY REVISED DISCLOSING TOTAL INCOME AT RS.23 79 50 280/-. DU RING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE COMPANY HAS CLAIMED SCHEME LAUNCH EXPENSES RS.1 01 88 410/- IN RESPECT OF THE SCHEME LAUNCHED DURING THE YEAR. ON BEING ASKED IT WAS SUBMITTED BY THE ASSESSEE VIDE LETTE R DATED 10.11.2006 AS UNDER :- (I) THE ASSET MANAGEMENT COMPANY HAS ENTERED INTO AN AGREEMENT WITH THE STANDARD CHARTERED TRUSTEE COMPANY AS PER THE INVES TMENT MANAGER AGREEMENT. AS PER THE TERMS OF THE AGREEMENT AMC I S PAID INVESTMENT MANAGEMENT FEES FOR MANAGING THE VARIOUS SCHEMES FL OATED BY MUTUAL FUND. (II) THE EXPENSES INCURRED BY AMC ARE FOR ADVERTISE MENT COURIER MARKETING AND CONSULTANCY EXPENSES WHICH ARE REVENUE IN NATUR E AND ALLOWABLE U/S. 37 AS THESE ARE INCURRED IN THE NORMAL COURSE OF BUSIN ESS. BY INCURRING THESE EXPENSES NO CAPITAL ASSET HAS COME INTO EXISTENCE. (III) THAT SEBI GUIDELINES REQUIRE THAT FOR ISSUE E XPENSES TO BE CHARGED TO MF SCHEMES THE SAME HAS TO BE MENTIONED IN THE NEW OF FER DOCUMENT AND THE IMPACT OF SUCH CHARGING OF INITIAL ISSUE EXPENSES O N THE INVESTORS NEEDS TO BE EXPLAINED TO THE INVESTORS BY WAY OF AN ILLUSTRATIO N IN THE OFFER DOCUMENT. (IV) THE OFFER DOCUMENTS ALSO SPECIFICALLY MENTION THAT THE ISSUE EXPENSES WILL BE BORNE BY THE AMC. (V) THAT GIVEN THE INHERENT NATURE OF OPEN ENDED M UTUAL SCHEMES AND THE VERY COMPETITIVE ENVIRONMENT IN WHICH MUTUAL FUND I NDUSTRY OPERATES WHEREIN THE INVESTORS HAVE AN OPTION TO EXIT AND NE W INVESTORS KEEP PARTICIPATING IN THE SCHEMES ON A REGULAR BASIS IT IS CONSIDERED APPROPRIATE BY AMCS TO BEAR THE NEW FUND OFFER EXPENSES. IT MAY B E FURTHER NOTED THAT CHARGING OF ISSUE EXPENSES IMPACT THE PERFORMANCE O F THE FUND AND CONSEQUENTLY IMPACT THE RETURN ON INVESTMENT TO THE INVESTOR. AS PER THE OFFER DOCUMENT AMC BEARS THE SCHEME ISSUE EXPENSES TO FACILITATE BETTER RETURN IN THE SCHEMES THEREBY ATTRACTING MORE NUMBE R OF INVESTORS AND ITA NO.4330/M/08 A.Y:04-05 3 HENCE BENEFITING THE AMC WHICH IN TURN EARNS MORE M ANAGEMENT FEES FROM THE MUTUAL FUND. (VI) THE ASSESSEE COMPANY AS PER LETTER DTD. 21-12 -2006 ALSO ARGUED THAT THE 10 TH SCHEDULE OF SEBI REGULATION PROVIDE FOR THE ACCOUN TING OF THE EXPENSES IN THE BOOKS OF THE ACCOUNTS OF THE SCHEME . THIS PROVISIONS DO NOT DEAL WITH THE ACCOUNTING TO BE ADOPTED BY THE ASSET MANAGEMENT COMPANY AND ARE IRRELEVANT IN THE CONTEXT OF CONSIDERING TH E CLAIM FOR DEDUCTION IN THE CASE OF AMC. THE ASSESSEE COMPANY ALSO ARGUED THA T CLAUSE (B) (C) AND (D) OF THE 10 TH SCHEDULE WHICH PROVIDE FOR THE AMORTIZATION OF THE INITIAL ISSUE EXPENSES DEAL WITH THE LOAD SCHEMES AND DO NOT D EAL WITH NO DEAL SCHEME. THE SCHEME THAT ARE UNDER CONSIDERATION AR E NO LOAD SCHEMES. THE ASSESSEE FURTHER ARGUED THAT THE EXPENSES NOT RESUL TED IN ADVANTAGE OF ENDURING NATURE. THEREFORE CLAIMED THAT THE EXPEN SES MAY BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSEE WAS FURTHER ASKED TO SUBMIT THE BREAK UP OF THE EXPENSES INCURRED FOR THE OPEN ENDED AND CLOSED ENDED SCHEMES. AS PER BREAKUP OF THE EXPENSES SUBMITTED BY THE ASSESSEE COMPA NY THE EXPENSES OF RS.66 25 941/- WERE INCURRED ON THE OPEN E NDED SCHEME AND RS.35 66 467/- ON THE CLOSED ENDED SCHEME. ON TH E PERUSAL OF DETAILS SUBMITTED BY THE ASSESSEE IT WAS FURTHER NOTICED BY THE ASSESSING OFFICER THAT THE CLOSED ENDED SCHEME WERE FOR TH E PERIOD BETWEEN 95 DAYS TO 379 DAYS WHEREAS THE OPEN ENDED SC HEMES RUNS FOR SEVERAL YEARS. CONSIDERING THESE FACTS THE ASSESSING OFF ICER WAS OF THE VIEW THAT IT WILL NOT BE PROPER TO ALLOW THE EX PENDITURE INCURRED ON SUCH SCHEMES IN ONE YEAR. THE ASSESSING OFFICER WHILE RELY ING ON THE JUDGMENT IN MADRAS INDUSTRIAL CORPN. LTD. 225 ITR 80 2(SC) WAS OF THE VIEW THAT THE EXPENSES INCURRED ON THE OPEN ENDED SCHEMES AMOUNTING TO RS.66 25 941/- ARE AMORTIZED OVER FIVE YEARS AND ACCORDINGLY HE ALLOWED RS.13 25 188/- BEING 1/5 TH OF RS.66 25 941/- ITA NO.4330/M/08 A.Y:04-05 4 AND DISALLOWED BALANCE AMOUNT OF RS.53 00 753/- AND A DDED TO THE INCOME OF THE ASSESSEE. THE ASSESSING OFFICER AFTER MAKING SO ME OTHER DISALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS.24 43 75 359/- VIDE ORDER DATED 22.12.2006 PASSED U /S.143(3) OF THE INCOME TAX ACT 1961 (THE ACT). 3. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT THE SCHEME ISSUE EXPENSES INCURRED DID NOT RESULT IN ANY ASSET CREATION FOR THE APPELLANT THE EXPENDITURE ALSO HAS NOT RESULTED INTO CREATION OF ANY BENEFIT OF ENDURING NATURE FOR THE APPELLANT AND TH E APPELLANT HAS ALSO ESTABLISHED DIRECT NEXUS OF EXPENDITURE HAVING INCURRE D FOR THE PURPOSES OF APPELLANTS OWN BUSINESS OF ASSET MANAGEMENT AN D THE APPELLANT HAS BEEN ABLE TO DISTINGUISH THE RATIO OF D ECISIONS RELIED UPON BY THE ASSESSING OFFICER FOLLOWED THE RATIO OF DECISION OF MUMBAI BENCH OF ITAT IN ACIT 3(1) VS. DSP MERRILL LYNCH LTD. AND ACIT CC1 VS. BIRLA SUNLIFE (ASSET MANAGEMENT) LTD. DELETED THE DISALLOWANCE RS.53 00 753/- MADE BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING EFFECTIVE GROUND OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN ALLOWING RE LIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: ITA NO.4330/M/08 A.Y:04-05 5 1. THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO TREAT THE SCHEME ISSUE EXPENSES OF RS.66 25 941/- AS REVENUE EXPENDITURE ALLOWABLE FOR THE ASSESSMENT YEAR 2004-05 INSTEAD OF AMORTIZING SUCH EXPENDITURE OVER A PERIOD OF 5 YEARS WITHOUT APPRECIATING THE FACT THAT THE SCHEME WAS OPEN ENDED SCHEME ON NO LOAD BASIS. 5. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS MENTIONED IN THE ASSESSMENT ORDER THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HE THEREFORE SUBMITS THAT THE DISALLOWANCE MADE BY THE A SSESSING OFFICER BE RESTORED. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE WH ILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE ASSESSING OFFICER AND THE LD. CIT(A) RELIED ON THE DECISION IN ACIT VS. ASHIMA SYNTEX LTD. (2009) 117 ITD 1 (AHD.)(SB) AND ACIT VS. SRF LTD. (2008) 21 SOT 122 (DEL.) TO SUBMIT THAT IN BOTH CASES THE TRIBUNAL AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. VS. CIT (1997) 225 I TR 802 HAS HELD THAT THE CONCEPT OF DEFERRED REVENUE EXPENDITURE IS ESSE NTIALLY AN ACCOUNTING CONCEPT AND ALIEN TO THE ACT. THE RELEVANT PROVISIONS OF THE ACT RECOGNISE ONLY CAPITAL OR REVENUE EXPENDITURE. IT WAS ALSO HELD BY THE SPECIAL BENCH OF THE TRIBUNAL SUPRA THAT IN CASES W HERE THE NATURE ITA NO.4330/M/08 A.Y:04-05 6 OF THE REVENUE EXPENDITURE IS SUCH THAT THE SAME CAN BE CLEARLY AND UNAMBIGUOUSLY IDENTIFIED OVER SPECIFIED FUTURE TIME P ERIOD (E.G. DISCOUNT ON ISSUE OF DEBENTURES) AKIN TO PREPAID EXPENSES THE SAME WOULD BE ALLOWABLE OVER THE PERIOD TO WHICH THESE REL ATE TO PROPORTIONATELY APPLYING THE MATCHING PRINCIPLE. HE THEREFORE SUBMITS THAT FOLLOWING THE SAME VIEW THE ORDER PASSED BY THE L D. CIT(A) ON THIS ACCOUNT CALLS FOR NO INTERFERENCE. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIN D THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THERE IS NO DISPUTE THAT T HE EXPENSES INCURRED BY THE ASSESSEE ON ADVERTISEMENT COURIER MARK ETING AND CONSULTANCY IN RESPECT OF OPEN ENDED SCHEME AMOUNTING TO RS.66 25 941/- ARE REVENUE IN NATURE. HOWEVER THE A SSESSING OFFICER WAS OF THE VIEW THAT THE SAID EXPENSES ARE TO BE AMORTI ZED OVER FIVE YEARS AND HENCE HE ALLOWED ONLY 1/5 TH OF THE SAME AND DISALLOWED THE BALANCE AMOUNT OF RS.53 00 753/-. 8. IN ASHIMA SYNTEX LTD. SUPRA THE SPECIAL BENCH OF T HE TRIBUNAL AFTER CONSIDERING THE DECISION OF HON'BLE SUPREME COURT IN MADRAS ITA NO.4330/M/08 A.Y:04-05 7 INDUSTRIAL INVESTMENT CORPN. LTD. VS. CIT (1997) 225 I TR 802 HAS OBSERVED AT PARA-14 APPEARING AT PAGE- 16 OF 117 ITD AS UNDER : 14. TO CONCLUDE THE POSITION EMERGING FROM THE ABOVE DISCUSSION CAN BE SUMMED UP AS FOLLOWS :- - THE NATURE OF THE EXPENDITURE TREATED AS A DEFERR ED REVENUE EXPENDITURE IN THE BOOKS NEEDS TO BE PROPE RLY ANALYSED BEFORE TAKING A VIEW ON ITS ALLOWABILITY O R OTHERWISE UNDER THE PROVISIONS OF THE ACT; - WHERE SUCH EXPENDITURE RESULTS IN THE CREATION OF A NY CAPITAL ASSET (TANGIBLE OR INTANGIBLE) A CASE CAN BE MADE OUT TO TREAT THE SAME AS A CAPITAL EXPENDITURE WITH CORRESPONDING ALLOWABILITY OF DEPRECIATION IN ACCOR DANCE WITH LAW; - IN CASES WHERE THE NATURE OF THE REVENUE EXPENDITUR E IS SUCH THAT THE SAME CAN BE CLEARLY AND UNAMBIGUOUSLY IDENTIFIED OVER SPECIFIED FUTURE TIME PERIOD (E.G. DISCOUNT ON ISSUE OF DEBENTURES) AKIN TO PRE-PAID EXPENSES T HE SAME WOULD BE ALLOWABLE OVER THE PERIOD TO WHICH TH ESE RELATE PROPORTIONATELY APPLYING THE MATCHING PRINC IPLE. - IN OTHER CASES WHERE THE SAME DOES NOT RESULT IN TH E CREATION OF ANY CAPITAL ASSET OR WHERE THE SAME IS NOT ALLOCABLE OVER DEFINED FUTURE TIME PERIODS THERE CA N BE NO CASE FOR AMORTISING THE SAME UNDER THE ACT OVER THE EXPECTED PERIOD OVER WHICH THE BENEFIT IS LIKELY TO ARISE THEREFROM SINCE IN SUCH CASES THE EXPENDITURE IS ESSENTIALLY REVENUE IN NATURE BUT IS AMORTISED IN T HE BOOKS ONLY ON ACCOUNT OF SOME OTHER CONSIDERATIONS. 9. APPLYING THE ABOVE TEST TO THE FACTS OF THE PRESENT CASE WE FIND THAT THERE IS NOTHING TO SUGGEST THAT WITH THE SAID EX PENDITURE ANY ASSET TANGIBLE OR INTANGIBLE HAS BEEN CREATED. THERE IS NO EVIDENCE ON RECORD REGARDING ACCRUAL OF ANY SPECIFIC REVENUE OVER THE YEARS. THIS BEING SO AND KEEPING IN VIEW THAT THE ASSESSING OFFI CER HIMSELF ITA NO.4330/M/08 A.Y:04-05 8 ADMITTED THAT THE SAID EXPENSES ARE REVENUE IN NATURE WE ARE OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER I S NOT SUSTAINABLE IN LAW AND ACCORDINGLY WE ARE INCLINED TO UP HOLD THE FINDING OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.5 3.00 753/-. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 10. IN THE RESULT REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23.7.2010. SD/- SD/- (PRAMOD KUMAR) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI DATED: 23.7.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI. ITA NO.4330/M/08 A.Y:04-05 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 15.7.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 16.7.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 23.7.2010 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 26.7.2010 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER