2017 (7) TMI 740 - HC - Income Tax

Expenditure in excess of 6% of the liability of the Mutual Fund companies - whether this liability was that of the individual companies and not of the holding company ? - Held that - Any excess over the 6% initial issue expense shall be borne by the Asset Management Company. In the Assessment Order, the Assessing Officer accepted that the Assessee is Asset Management Company. There is no dispute in this regard. The Respondent Assessee is statutorily liable to bear the expenses over and above 6%. The same has been rightly considered by the Tribunal. As far as allowing the expenses relating to IT infrastructure is concerned, it would appear that in the subsequent assessment year 2009-10, the Assessing Officer has accepted the expenditure on account of IT infrastructure as separate expenses and has allowed the same. There is no reason to take different view for the present assessment year.

Summary

Issues:
Appeal pertains to assessment year 2006-07 - Whether expenses exceeding 6% of liability of Mutual Fund companies should be allowed - Whether IT infrastructure expenses should be allowed as a capital nature expense.

Analysis:
1. The Appellant argued that the Tribunal erred in allowing expenses exceeding 6% of the liability of the Mutual Fund Company, stating that the liability was not of the Respondent and, therefore, should not have been allowed. Additionally, the Appellant contended that IT infrastructure expenses, being capital in nature, should not have been permitted.

2. The Assessee's counsel referred to Regulation 52(5) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, stating that any expense not specified in certain sub-regulations should be borne by the Asset Management Company, which the Respondent is. The counsel also highlighted a previous decision where a similar issue was considered and argued that the IT infrastructure expenses were accepted in the first assessment year.

3. The Court examined Section 52(5) and its proviso, which clearly states that any excess over 6% initial issue expense should be borne by the Asset Management Company. The Assessing Officer had acknowledged the Assessee as the Asset Management Company, making it statutorily liable for expenses exceeding 6%. This statutory obligation was correctly considered by the Tribunal.

4. Regarding the IT infrastructure expenses, the Court noted that in a subsequent assessment year, the Assessing Officer had accepted and allowed such expenses as separate expenses. Therefore, there was no reason to deviate from this approach for the present assessment year.

5. Consequently, the Court found no substantial question of law in the Appeal and dismissed it, with no order as to costs. Subsequently, the Assessee's counsel withdrew the Notice of Motion, which was disposed of as withdrawn.