The two member bench of the Income Tax Appellate Tribunal ( ITAT ), Mumbai, ruled that management fees for sale of securities is allowable expenditure under Section 48 of the Income Tax Act, 1961
The management fee paid to BNP Paribas was inextricably linked to earning of short term capital gain. The payment of management fee is not disputed by the Revenue. The Assessing Officer disallowed payment of the said fee only for the reason that management fee is not an allowable deduction under Section 48 of the Income Tax Act.
The assessee had reduced management fee from short term capital gain and has offered net short term capital gain to tax. The Assessing Officer and the CIT(A) without appreciating the facts disallowed the payment of management fee.
During the period relevant to the assessment year under appeal the assessee has earned short term capital gain of Rs.10, 04,322/-. The assessee paid management fee to BNP Paribas Rs.1,71,028/-. The assessee in its books has not separately debited management fees but has reduced the same from short term capital gains.
The Assessing Officer and the CIT (A) has out rightly disallowed assessee’s claim of management fees on the ground that it is not an allowable expenditure under Section 48 of the Income Tax Act as it is not wholly and exclusively incurred in connection with transfer of assets.
As per Section 48 of the Income Tax Act gives the mode of computation of income chargeable under the head ‘Capital Gains’. The section allows deduction in respect of expenditure incurred wholly and exclusively in connection with transfer of capital asset and the cost of acquisition and cost of improvement, if any. The contention of the assessee is that the management fee paid by the assessee to BNP Paribas is linked to earning of short term capital gain arising from transfer of securities.
The bench found that a similar issue had come up before the Co-ordinate Bench in the case of KRA Holdings & Trading Investments Pvt. Ltd. (supra). The Revenue rejected assessee’s claim of deduction of Portfolio Management Fee for similar reasons as has been expressed in the instant impugned order. Similar view has been taken by the Tribunal in the case of Nadir a Modi (supra). In the aforesaid case payment of management fee was allowed to the assessee by placing reliance on the decision in the case of KRA Holdings & Trading Investments Pvt. Ltd. (supra).
The two member bench of Amarjit Singh (Accountant member) and Vikas Aswathy (Judicial member) observed that there are contrary decisions of the Tribunal on allowability of Management Fee under Section 48 of the Income Tax Act. It is a well settled proposition that when two views are possible, the view in favor of assessee, thus the appeal of the assessee was allowed.
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