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KRA Holding & Trading Pvt. Ltd vs. DCIT (ITAT Pune)

DATE: (Date of pronouncement)
DATE: August 3, 2012 (Date of publication)

Click here to download the judgement (KRA_PMS_fees_deductibility.pdf)

Conflict on deductibility of Shares PMS fee has to be decided in favour of assessee

The assessee entered into an investment management (Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Rs. 2.11 crores as “performance fees/ maintenance fee”. This was treated as a cost of purchase of the shares. The AO disallowed the claim & the CIT (A) confirmed it on the basis that the as the PMS gains were assessable as “capital gains”, the expenditure was neither cost of investment or improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its own case (KRA Holding & Trading Pvt Ltd vs. DCIT) where it had been held (dissenting from Davendra Kothari 136 TTJ 188 (Mum)) that as there was a nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48. The department relied on Homi K. Bhabha vs. ITO which had (dissenting from KRA Holdings) held that PMS fees is not deductible against capital gains. HELD by the Tribunal:

The Mumbai Bench declined to follow the decision of the Pune Bench of the Tribunal. 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, as the Tribunal in the assessee’s own case has already taken a view in favour of the assessee, that has to be followed unless it is reversed by a higher court.

Note: Even on the Q whether PMS gains are capital gains or business profits, there is a conflict. While ARA Trading, KRA Holding & Radha Birju Patel have held PMS gains to be capital gains, a contrary view has been taken in Radials International (ITAT Delhi)

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