SERVICE TAX ON ASSET MANAGEMENT SERVICES

[Dr. Sanjiv Agarwal]

Service tax has been imposed on Asset Management Services by the Finance Act, 2007 as a separate taxable service with effect from a 1st June, 2007 vide Notification No. 23/2007-ST dated 22.5.2007. The gross amount charged by or gross consideration received by any person being service provider from any other person in relation to asset management services shall be chargeable to service tax.

Till the new provision, section 65(12) which defined banking and other financial services meant and included asset management including portfolio management, all forms of fund management and certain other services provided by specific service providers.

An asset management service shall include the following: -

(a)   asset management

(b)   portfolio management

(c)   all forms of fund management

Asset Management means the function of managing assets on behalf of customer, usually for a fee; management of assets on behalf of a customer, usually for a fee; broadly, the efficient control and exploitation of a company's assets, most commonly used to describe the management of any fund by a fund manager.

Fund management means management of the investment fund of an institution such as an insurance company, pension scheme. It is sometimes known as investment management.

Taxable Service

Taxable service has been defined in Section 65(105)(zzzzc) as under -

"Any service provided or to be provided to any person, by any other person, except a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern referred to in sub-clause (zm), in relation to asset management including portfolio management and all forms of fund management."

CBEC had clarified vide TRU letter No. 334/1/2007-TRU dated 28.2.2007 as follows -

Asset Management including Portfolio Management and all Forms of Fund Management Service [section 65(105)(zzzzc)]:

Asset management including portfolio management and all forms of fund management, provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern is leviable to service tax under banking and other financial service [section 65(105)(zm)]. Similar services are also provided by individual service providers especially to high net worth individuals. This taxable service proposes to cover separately, similar services provided by person, other than those already covered under banking and other financial services.

Taxable services should satisfy the following basic conditions -

(a)   Service should be provided by a person to any other person.

(b)   Services should be in relation to specified categories i.e., asset management, portfolio management or fund management.

(c)   Service provider should be any person other than a banking company, financial institution, NBFC, body corporate or a commercial concern.

(d)   Services should be rendered for a consideration or fee or commission.

The taxable services shall include asset management services, executory services and advisory services. It shall also include cash management services, management of inventory and current assets, managing fund flow and fund requirements, related MIS reporting and analysis, asset management for funds, clients and banks etc.

It may be noted that investment management services provided under 'ULIP' scheme are not covered under asset management services as the same are covered under a separate taxable service.

In CC, CE  & ST v. Federal Bank Ltd. [2010 -TMI - 76094 - HIGH COURT OF KERALA], where bank was engaged in the collection of telephone bills for various telephone companies and remittance of same to them, it was held that such service were covered under cash management service w.e.f. 1 June 2007 only and not under any other head viz, business auxiliary services.

Person Liable

Any person providing taxable service to any other person in relation to asset management services other than banking company, financial institution, NBFC, body corporate or a commercial concern. Thus, individual, firms and HUFs shall be covered.