Retainership Fee Paid to the Advisor cannot be disallowed when the service was availed for Gaining both Taxable and Exempted Income: Kolkata ITAT [Read Order]


In a recent ruling, the division bench of the Kolkata ITAT ruled that the retainership fee paid to a person for rendering advisory services on investments cannot be disallowed by invoking section 14A of the Income Tax Act when the service was availed for gaining both taxable and exempted income.

The AO completed assessment against the assessee by disallowing Rs. 13,83,663/- as expenses towards exempt income u/s. 14A of the Act at 1% of Rs.13,83,66,272/- on account of dividend on shares/securities and tax exempt on LTCG and together with a sum of Rs.6,00,000/- which found paid under the head retainership fee for rendering advisory services on investments. The disallowance was based on judicial pronouncements including the decision of the Co-ordinate bench of the ITAT.

The assessee contended that while disallowing the retainership fee, the AO has not recorded any sufficient reason. It was further contended that the advisor was not only utilised for earning exempt income, but also utilized for other purposes as the assessee deals in trading of shares and securities and in investments.

Accepting the contentions of the assessee, the bench noted that the assessee rendered advise from the person for gaining both exempted and taxable income.

“The assessee appointed Mrs. M.Bangur as advisor to render her advice on the matters of investment in shares, securities and port folio management, which is placed at page no-8 of the paper book and which establishes that the she advised the assessee in respect of its investment applicable to taxable and non taxable income. We find that the assessee offered its income derived from short term and long term capital gains and taxed thereon @ 10% and again disallowing the retainership fee as paid to Mrs. M.Bangur, said advisor to the expenditure attributable in earning dividend income, in our view, this is not permissible.”

Read the full text of the order below.