2012 (7) TMI 243 - AT - Income Tax

Asset management company - addition made on account of Load charges received in respect of management of different schemes of Mutual Fund - assessee contended that load had been collected on behalf of the mutual fund and does not belong to the assessee - Held that - Assessee had only received load which had been accounted separately and adjusted for various expenses of the scheme to which it was entitled. Balance amount had been transferred to the Mutual fund, from time to time. As per regulation 52(2) of SEBI Regulations and agreement between the asset management company and mutual fund, the assessee as an asset management company is entitled to advisory fees at a specific rate and reimbursement of certain expenses as specified in regulation 52(4). The assessee is not entitled to any other benefit. Under these circumstances, making any addition on account of load is not justified - Decided in favor of assessee.

Summary

Issues:
Dispute over deletion of addition of Rs.1,43,74,590/- made by AO on account of load.

Analysis:
1. The AO raised a dispute regarding the addition of Rs.1,43,74,590/- made on account of load received during the year by the assessee, an asset management company. The AO considered the load as income belonging to the assessee based on the agreement clause and prospectus of the mutual fund. The AO concluded that the load was in lieu of management fees and should be assessed as income in the hands of the assessee. The AO also mentioned that the income from load had escaped taxation in earlier years, necessitating a re-opening of previous assessments.

2. The assessee contended before CIT(A) that the load amount collected was on behalf of the mutual fund and did not belong to the assessee. The CIT(A) was satisfied with the explanation provided by the assessee, noting that the load was to be spent on brokerage, training, and advertisement as per SEBI regulations. The CIT(A) highlighted that the load amount was meant for various schemes and belonged to the mutual fund, not the asset management company. The CIT(A) also pointed out that no additions were made in earlier years despite mentioning a need to reopen assessments.

3. The Tribunal considered the arguments presented by both parties. It noted that the load received was additional payment by investors during unit purchase/sale and that the assessee, as an asset management company, managed schemes on behalf of the mutual fund. The Tribunal found that the load collected was not income of the assessee but was accounted for separately and transferred to the mutual fund after adjusting eligible expenses. The Tribunal referenced SEBI regulations and the agreement between the asset management company and the mutual fund, which only entitled the assessee to advisory fees and reimbursement of specified expenses, not the load amount. The Tribunal upheld the CIT(A)'s decision to delete the addition, as no justification existed for taxing the load amount as income of the assessee.

4. In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to delete the addition of Rs.1,43,74,590/- made by the AO. The Tribunal found no infirmity in the CIT(A)'s decision based on the evidence presented regarding the nature of the load collected by the assessee on behalf of the mutual fund.