Income Tax Appellate Tribunal - Pune
Serum International Ltd, Pune vs Department Of Income Tax on 18 February, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER
AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER
ITA No.1576/PN/2012
(Assessment Year : 2007-08)
Serum Institute of India Ltd.
(Erstwhile Serum International Ltd.),
Sarosh Bhavan, 16-B/1,
Dr. Ambedkar Road,
Pune - 411 001.
PAN : AACCS3929D .... Appellant
Vs.
Addl. Commissioner of Income Tax,
Range-6, Pune. .... Respondent
ITA No.1617/PN/2012
(Assessment Year : 2007-08)
Asstt. Commissioner of Income Tax,
Circle-6, Pune. .... Appellant
Vs.
M/s Serum International Ltd.,
Sarosh Bhavan, 16-B/1,
Dr. Ambedkar Road,
Pune - 411 001.
PAN : AACCS3929D .... Respondent
Assessee by : Mr. H. P. Mahajani
Department by : Mr. Rajesh Damor
Date of hearing : 11-02-2015
Date of pronouncement : 18-02-2015
ORDER
PER G. S. PANNU, AM
The captioned are cross-appeals preferred by the assessee and the Revenue for assessment year 2007-08 were heard together and are being disposed-off by way of a consolidated order for the sake of convenience and brevity. The captioned cross-appeals are directed against the order of the Commissioner of Income Tax (Appeals)-III, Pune dated 29.11.2011 which, in 2 ITA No.1576/PN/2012 ITA No.1617/PN/2012 turn, has arisen from an order dated 01.12.2009 passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short "the Act").
2. First, we shall take-up the appeal of the assessee wherein the following Grounds of Appeal have been raised :-
"1. Confirming the disallowance of the 'Provision for Leave Encashment' amounting to Rs.5,36,234/- ascertained on the basis of actuarial valuation for the eligible employees of the Appellant Company.
2. Confirming the disallowance of the 'Expenses claimed on account of the Portfolio Management Services (PMS) fees amounting to Rs.6,65,593/-."
3. In so far as the first Ground of Appeal is concerned, it relates to claim of the assessee for deduction of a sum of Rs.5,36,234/- representing Provision for leave encashment, which has been ascertained on the basis of actuarial valuation, which was admittedly different than the one described in section 43B(f) of the Act.
4. The Ld. Representative for the assessee submitted that the aforesaid issue is liable to be decided against the assessee following the decision of the Pune Bench of the Tribunal in the assessee's own case for earlier assessment years. In this context, a reference has been made to the decision of the Tribunal dated 29.05.2009 in the case of the assessee vide ITA No.83 & 1326/PN/2006 for assessment years 2002-03 & 2003-04 respectively. It was also contended that in the case of Serum Institute of India Ltd. in ITA No.17/PN/2012 and others dated 10.04.2014 also the said issue has been decided against the assessee. As the aforesaid precedents continue to hold the field, we hereby affirm the action of the lower authorities in disallowing assessee's claim for deduction on account of Provision for leave encashment amounting to Rs.5,36,234/-. Thus, on this aspect assessee fails.
3 ITA No.1576/PN/2012 ITA No.1617/PN/20125. The next Ground of Appeal relates to a deduction of Rs.6,65,593/- on account of Portfolio Management Services (PMS) fee paid by the assessee with respect to the capital gains derived on sale of shares/securities.
6. On this aspect also, it was a common point between the parties that the said issue is covered in favour of the assessee by way of the decision of the Tribunal in ITA No.17/PN/2012 and others in the case of Serum Institute of India Ltd. dated 10.04.2014 (supra), wherein the relevant discussion is as under :-
"11. Grounds of appeal No.2 by the assessee reads as under :
"On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in refusing to treat 'PMS' fees paid of Rs.34,63,969/- as part of either of cost of acquisition/improvement or as 'Cost of transfer' for working Income from Capital Gain."
In any event, he ought to have accepted the alternate contention of the Appellant that there was, to that extent, transfer by overriding title of consideration/income arising on such sale".
11.1 Facts of the case, in brief, are that the Assessing Officer observed that the assessee has claimed deduction of Portfolio Management Scheme fees amounting to Rs.32,49,729/- out of the capital gains derived on sale of shares/securities. On being asked as to why such expenditure should not be disallowed while working out the resultant capital gains, the assessee submitted that the said expenditure having been incurred for managing the investment portfolio of the assessee by experts in the field was nothing but cost associated with buying of good scrips and selling the same at right time and therefore, it constituted cost of investment. However, the Assessing Officer did not find any merit in the contention of the assessee. He observed that as per sec.48, only such expenses are deductible from the sale consideration of an asset which are wholly and exclusively incurred in connection with the transfer of the asset. According to the Assessing Officer, portfolio management consultants are service intermediaries who carry out the research and analysis about the profitability of the scrips of various companies and keep track on the market conditions and the fees paid by the assessee to such professional managers could not be said to have been incurred wholly and exclusively for the purpose of transfer of the asset. Holding so, the PMS fees claimed by the assessee at Rs.34,63,969/- from the cost of investment was disallowed by him while computing the capital gains. 11.2 In appeal the Ld.CIT(A) upheld the action of the AO by holding that the expenditure on account of 'PMS' fees is neither cost of acquisition of the shares in question nor cost of improvement there of nor incurred wholly and exclusively in connection with the transfer of assets and therefore the AO is justified in rejecting the claim of deduction of the fees of Rs.34,63,969/- while computing the capital gain.
4 ITA No.1576/PN/2012 ITA No.1617/PN/201211.3 Aggrieved with such order of the CIT(A) the assessee is in appeal before us.
12. After hearing both the sides we find an identical issue had come up before the coordinate Bench of the Tribunal in the case of KRA Holding and Trading Investment Pvt. Ltd. Vs. DCIT. We find the Tribunal vide ITA No.703/PN/2012 order dated 19-09-2013 for A.Y. 2008-09 while deciding an identical issue has observed as under :
"9. In the appeal of the assessee, the solitary issue is with regard to the action of the CIT(A) in confirming the stand of the Assessing Officer that fees paid to ENAM Asset Management Company Pvt. Ltd. was not an allowable expenditure in computing appellant's income whether under the head 'business' or under the head 'capital gains'.
10. In this regard, the Assessing Officer noticed that assessee had incurred expenditure of Rs.2,79,31,009/- representing payments to ENAM Asset Management Company Pvt. Ltd. as portfolio management fees in terms of an Investment Management Agreement dated 01.01.2005. Following his decision for the earlier assessment years i.e. assessment year 2004-05 to 2007-08, the Assessing Officer disallowed the expense against which assessee went in appeal before the CIT(A). The CIT(A) noted that similar issue for assessment years 2004-05 to 2006-07 was adjudicated by the Tribunal in the assessee's own case in favour of the assessee and against the Revenue vide order dated 31st May, 2011 (supra). However, the CIT(A) noticed that subsequently Mumbai Bench of the Tribunal in the case of one Shri Homi K. Bhabha vs. ITO in ITA No. 3287/Mum/2009 decided a similar issue against the assessee and therefore he held the issue against the assessee. In view of the aforesaid, assessee is in further appeal before us.
11. At the time of hearing, the learned counsel for the assessee submitted that similar stand of the CIT(A) in the assessee's own case for assessment year 2007-08 came up before the Tribunal in ITA No. 356 & 240/PN/2011 dated 25.07.2012 and after considering the divergent view of the Mumbai Bench of the Tribunal in the case of Shri Homi K. Bhabha (supra) which has been relied upon by the CIT(A), the issue has been decided in favour of the assessee. It was, therefore, contended that the issue is accordingly liable to be decided in favour of the assessee.
12. The learned CIT(DR) appearing for the Revenue has not controverted the factual matrix brought out by the learned counsel so however she has relied upon the order of the CIT(A) in support of the case of the Revenue.
13. We have carefully considered the rival submissions and also the precedent in the assessee's own case by way of the order of the Tribunal dated 25.07.2012 (supra). In the said case, the Tribunal considered the allowability of expenditure incurred by way of payment of fees of ENAM Asset Management Company Pvt. Ltd. in terms of the investment agreement dated 01.01.2005, which is precisely the issue before us also. The Tribunal referred to its earlier decision in the assessee's own case for assessment year 2004-05 vide order dated 31st May, 2011 (supra) and noticed that the issue has been decided in favour of the assessee. Thereafter, the Tribunal noted that against the decision of the Tribunal dated 31st May, 2011 (supra), Revenue preferred an appeal before the Hon'ble Supreme Court only on the 5 ITA No.1576/PN/2012 ITA No.1617/PN/2012 issue treatment of income from the sale of shares as 'capital gain' or 'business income' and that the Revenue had not preferred any appeal against the order of the Tribunal allowing the claim of deduction of expenditure by way of Portfolio Management Fee representing payments to ENAM Asset Management Company Pvt. Ltd. while computing the income under the head 'Capital Gains'. After noticing the aforesaid the Tribunal concluded as under in para 11 of its order dated 25.07.2012 :-
"11. The decision of the Mumbai Bench of the Tribunal in the case of Homi K. Bhabha vs. ITO was brought to our notice by the learned DR wherein it was held that Portfolio Management Scheme fees is not deductible against capital gains. The decision of the Pune Bench of the Tribunal in the case of KRA Holding & Trading was not followed by the Mumbai Bench in the above cited decision. The Mumbai Bench following other decisions of the coordinate Benches of the Tribunal declined to follow the decision in the case of KRA Holding & Trading (supra). It is the settled proposition of law that when two view are possible on the same issue the view which is favourable to the assessee has to be followed. [CIT vs. Vegetable Products 88 ITR 192 (SC)]. Further, in the instant case the Tribunal in assessee's own case has already taken a view in favour of the assessee. Since the AO & CIT(A) have followed the order for earlier year in the case of the assessee and since the order of CIT(A) for earlier year has been reversed by the Tribunal, therefore, unless and until the decision of the Tribunal is reversed by a higher court, the same in our opinion should be followed. In this view of the matter, we respectfully following the order of the Tribunal in assessee's own case for A.Y. 2004-05 allow the claim of the Portfolio Management fees as an allowable expenditure. The ground raised by the assessee is accordingly allowed."
14. Following the aforesaid precedent, which has considered the similar objections of the CIT(A), in our considered opinion, the order of the CIT(A) in the present case is untenable and we accordingly set- aside the same and direct the Assessing Officer to delete the impugned addition."
12.1 Respectfully following the decision of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (Supra) we hold that the 'PMS' fees paid by the assessee is an allowable deduction from the capital gains. Ground appeal No.2 by the assessee is accordingly allowed."
7. Following the aforesaid precedent, the order of the CIT(A) on this aspect is set-aside and the Assessing Officer is directed to allow appropriate relief to the assessee in terms of the decision of the Tribunal in the case of Serum Institute of India Ltd. (supra).
8. In the result, the appeal of the assessee is partly allowed.
6 ITA No.1576/PN/2012 ITA No.1617/PN/20129. In the cross-appeal of the Revenue, the only dispute is with regard to the computation of deduction available to the assessee u/s 80-IA of the Act with respect to the profits and gains of the Windmill Undertaking. The only point of difference between the assessee and the Revenue is with regard to the adoption of the 'initial assessment year' for the purposes of section 80- IA(5) of the Act.
10. On this aspect, it was a common point between the parties that similar issue was considered by the Tribunal in the assessee's own case for assessment years 2004-05 to 2006-07 vide ITA Nos.290 to 292/PN/2010 dated 28.09.2011. The Tribunal after following the judgement of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT, 38 DTR 57 (Madras) upheld the plea of the assessee. The CIT(A) has also allowed the plea of the assessee following the decision of the Tribunal in the assessee's own case for assessment years 2004-05 to 2006-07 (supra).
11. Before us, it was also a common point between the parties that the aforesaid precedent continues to hold the field and therefore we hereby affirm the ultimate conclusion of the CIT(A) having regard to the decision of the Tribunal dated 28.09.2011 (supra). Thus, on this aspect, Revenue fails.
12. Resultantly, whereas the appeal of the assessee is partly allowed that of the Revenue is dismissed.
Order pronounced on 18 th February, 2015.
Sd/- Sd/-
(R.S. PADVEKAR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated: 18 th February, 2015.
Sujeet
7 ITA No.1576/PN/2012
ITA No.1617/PN/2012
Copy of the order is forwarded to: -
1) The Assessee;
2) The Department;
3) The CIT(A)-III, Pune;
4) The CIT-III, Pune;
5) The DR "A" Bench, I.T.A.T., Pune;
6) Guard File.
By Order
//True Copy//
Assistant Registrar
I.T.A.T., Pune