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TMI Blog2016 (5) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) ), for the assessment year 2008-09. 2. First we shall take up the assessee s appeal and the grounds of appeal raised by the assessee in the memo of appeal filed with the Tribunal read as under:- On the facts in the circumstances of the case and in law the learned Assessing Officer has erred in confirming the disallowance of an amount of ₹ 20,04,393/- being Management Expenses incurred for earning Short term capital gain. Your appellant pray that the same be deleted. 3. The Brief facts of the case are that the assessee is an individual and director in M/s Marine Container Services India Pvt. Ltd. It was observed by the A.O. that the assessee has disclosed short term capital gains of ₹ 1,99,003/-. The assessee has also claimed long term capital gains of ₹ 72,94,563/- as exempt income u/s 10(35) of the Income Tax Act, 1961(hereinafter called the Act ) besides dividend income of ₹ 1,99,54,691/- and interest of ₹ 96,050/- received from relief bonds. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, it was observed by the learned assessing officer (hereinafter called the AO ) from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es which give rise of short term capital gains, long term capital gains and dividend. The detailed chart of expenses attributable to short term capital gains and long term capital gains duly bifurcated were submitted before the authorities below . The CIT(A) considered that the total expenses were to the tune of ₹ 22,64,272/- and the ratio of sales to total of purchase and sale is 45% and the assessee has bifurcated PMS expenses on the basis of short term capital gains and long term capital gains and then in the ratio of sales which were 45% of purchases and the ratio was applied to sale of shares leading to earning of short term capital gain to arrive at PMS expenses attributable there-to , which PMS expenditure comes to ₹ 5,75,136/- relatable to short term capital gains and 45% thereof being sale to purchase ratio , in relation to short term capital gains on sale of shares , PMS expenses comes to ₹ 2,59,879/- which were was allowed by the CIT(A) and rest of PMS expenses were disallowed by the CIT(A) whereby the CIT(A) held that the management expenses incurred for sale of shares leading to earning of short term capital gain are deductible from the full value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N/2012 , KRA Holding Trading Private Limited in ITA No. 356/Pn/2011, Asha Parekh in ITA no 630/PN/2011 and Prakash H Parakh in ITA No. 554/Pn/2011 and contended that these PMS charges should be allowed as these are incurred in connection with buying and selling of shares on which capital gains have arisen and prayed that the same should be allowed. The assessee counsel also submitted where two views are possible then the view which is favourable to the assessee has to be followed relying on judgment of CIT v. Vegetable Products (1973)88 ITR 192(SC). The assessee also relied upon judgment s of Hon ble Bombay High Court in the case of CIT v. Shakuntala Kantilal (1991) 190 ITR 56(Bom.HC) and CIT v. Abrar Ali (2001)247 ITR 312(Bom HC.) and judgment of Hon ble Kerala High Court in the case of V A Vasumathi v. CIT (2001) 123 ITR 94(Ker.HC). The assessee counsel also relied upon amended clause 3 vide SEBI (Portfolio Managers) (Amendment) Rules, 2002 whereby clause 3(a) provides that the portfolio manager shall charge an agreed fee from the clients for rendering portfolio management services without guaranteeing or assuring, either directly or indirectly , any return and the fee so charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly and exclusively in connection with such transfer (ii) the cost of acquisition of the asset and the cost of any improvement thereto: ********** ********** Thus, as could be observed from provisions of Section 48 of the Act , for computing capital gains, it is required to deduct from full value of consideration, the expenditure incurred wholly and exclusively in connection with such transfer and also the cost of acquisition of the capital asset and cost of any improvement thereto. With the above background, we have to see whether the portfolio management charges of ₹ 22,64,272/- paid by the assessee can be allowed as deduction from the full value of consideration received or accruing to the assesse as a result of transfer of the capital asset being shares , provided the said PMS charges are either expenditure incurred wholly and exclusively in connection with the transfer of shares or PMS charges is a cost of acquisition or the cost of any improvement thereto of the capital asset being shares as per mandate of Section 48 of the Act. The assessee to support his contentions has relied on the Securities and Exchange Board of India (Portfolio Managers) (Amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the business of portfolio managers in India by promulgating Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 which were amended from time to time . Under clause 2(cb) of Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 , the portfolio manager is defined as under: (cb) portfolio manager means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be;] Under Clause 14 of the Securities and Exchange Board of India (Portfolio Managers) Regulation,1993 , it is stipulated as to contract which portfolio manager is required to enter with client and disclosures to be made as under:- [14. Contract with clients and disclosures. (1) (a) The portfolio manager shall, before taking up an assignment of management of funds or portfolio of securities on behalf of a client, enter into an agreement in writing with such client clearly defining the inter se relationship, and setting out their m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all act in a fiduciary capacity with regard to the client's funds. [(2A) The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a Scheduled Commercial Bank. Explanation. For the purposes of this sub-regulation, the expression Scheduled Commercial Bank means any bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934).] (3) The portfolio manager shall transact in securities within the limitation placed by the client himself with regard to dealing in securities under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934). (4) The portfolio manager shall not derive any direct or indirect benefit out of the client's funds or securities. [(4A) The portfolio manager shall not borrow funds or securities on behalf of the client.] [(5) The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided under these regulations.] (6) The portfolio manager shall ensure proper and timely handling of complaints from his clients and take appropriate action immediately . These Securities and Exchange Board o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and experienced persons are engaged in the activities of portfolio management . The roles and responsibilities of portfolio managers covers a vast spectrum of activities provided to clients for fee ranging from providing advises , or direct or undertake on behalf of client the management or administration of a portfolio of securities or funds of the client meaning thereby that the portfolio managers does not act merely as a stock-broker to buy and sell shares of the clients in execution of the instructions of the client s for a brokerage/commission , but portfolio manager renders a vast spectrum of activities which involves giving advises to clients and/or management and administration of securities or fund portfolio s of the client which is managed by experienced, specialized, skilled and qualified professionals who act as portfolio managers to render their expertise, skill and specialized knowledge to the investor s client for a fee with an objective to create wealth for the investor client s and maximizing gains for these investors client. The highly specialized and skill services are rendered by these qualified and experienced portfolio managers on continuous basis to clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by virtue of the provisions contained in section 4 according to which the Income-tax is charged for the relevant assessment year in accordance with and subject to the provisions of Income-tax Act in respect of the total income of the relevant previous year of every person. As per the scheme of the Act, income is broadly classified under five different heads and the income chargeable to tax under these heads has to be computed as per the relevant provisions applicable to respective heads of income section 45 to section 55A falling under Chapter IV-E deal with assessment of income under the head 'capital gains' and section 48 in particular prescribes the mode of computation of capital gains. As provided in section 48, expenditure incurred wholly and exclusively in connection with transfer and the cost of acquisition of the asset and cost of any improvement thereto are deductible from the full value of the consideration received or accruing to the assessee as a result of transfer of the capital assets. 13. In the present case, the deduction on account of fees paid for PMS has been claimed by the assessee as deduction in computing capital gains arising from sale of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther cases also, the brokerage expenses incurred by the assessee were in respect of particular sale of capital assets and the same therefore were held to be deductable while computing capital gain being expenditure incurred wholly and exclusively in connection with such transfer/sale. 15. At the time of hearing before us, the Ld, Counsel for the assessee has raised an alternative contention in support of the assessee's claim for deduction on account of fees paid for PMS in computing the capital gains relying on the theory of real income and the rule of diversion of income by an overriding title. He has contended that the fees for PMS being contractual liability directly relatable to the capital gains, there was a diversion of income from capital gain by an overriding title to the extent of the amount of such fees and the same therefore was not the income belonging to the assessee which was chargeable to tax under the head capital gains . In this regard, we may observe that even though the assessee was under an obligation to pay the fees for PMS, the mere existence of such obligation to pay the said amount was not enough for the application of the rule of diversion of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of fees paid for PMS based on real income theory, we agree with the ld. DR that the theory of real income cannot be applied to allow deduction to the assessee which is otherwise not permissible under the Income-tax Act. In the case of CIT v. Udayan Chinubhai [1996] 222 ITR 456 / 88 Taxman 114 (SC) it was held by the Hon'ble Supreme Court in the similar context that what is not permissible in law as deduction under any of the heads cannot be allowed as a deduction on the principle of real income theory. 19. For the reasons given above, we find no merit in the arguments raised by the Ld. Counsel for the assessee in support of the assessee's case on the issue under consideration and rejecting the same, we hold that the fees paid by the assessee for PMS was not deductible in computing the capital gains as rightly held by the Assessing Officer The impugned order of the Ld. CIT(A) confirming the disallowance made by the Assessing Officer on this issue is therefore upheld dismissing this appeal filed by the Assessee. 20. In the result, the assessee's appeal is dismissed The assesseee has placed reliance on decision s of Pune benches of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), are not allowable as deduction u/s 48 of the Act from the full value of consideration on sale of securities received or accruing to the assessee . Accordingly, we dismiss this appeal filed by the assessee. We order accordingly. 10. In the result, the appeal filed by the assessee in ITA N0. 7407/Mum/2011 for the assessment year 2008-09 is dismissed. ITA No. 7439/Mum/2011 the for assessment year 2008-09 (Revenue s appeal) 11. This appeal filed by the Revenue is disposed of because the tax effect in the appeal is less than ₹ 10 lacs as per the latest CBDT Circular No. 21/2015, F. No. 279/Misc.142/2007-ITJ (Pt) dated 10th December, 2015 issued by Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India. 12. The ld. D.R. submitted that tax effect involved in this appeal is less than ₹ 10 lacs and the CBDT Circular No. 21/2015 is applicable to this appeal and the appeal is not maintainable/not pressed in terms of CBDT circular no 21/2015 dated 10/12/2015. The ld. DR submitted that as per the latest CBDT Circular No. 21/2015, F. No. 279/Misc.142/2007-ITJ (Pt) dated 10th December, 2015 issued by Central Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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