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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI AMARJIT SINGH
Per Amarjit Singh (AM): This appeal filed by the revenue is directed against the order passed by the ld. CIT(A) NFAC, dated 09.02.2023 for A.Y. 2015-16. The revenue has raised the following grounds before us:
“1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in allowing scheme expenses exceeding the limit specified in SEBI Regulation, whereas the expenses not being the liability of the assessee, was rightly disallowed under Income Tax provisions.
The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
The appellant craves leave to amend, or alter any grounds or add a new ground, which may be necessary.”
P a g e | 2 DCIT, Circle 14(1)(1) Vs. M/s Mirae Asset Global Investment Pvt. Ltd.
Fact in brief is that return of income declaring total income of Rs.nil was filed on 20.11.2015. The assessee is a domestic company engaged in the business of Asset Management and Investment Advisory Services. The assessing officer passed the order u/s 143(3) on 12.12.2017 by making the addition of Rs.874,87,711/- to the total income being disallowance of expenses in excess of limit prescribed by the SEBI.
Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) allowed the appeal of the assessee after following the decision of ITAT in the case of the assessee itself vide ITA No.230/Mum/2018 dated 19.02.2019 for assessment year 2012-13. 4. During the course of appellate proceedings before us at the outset the ld. Counsel contended that similar issue on identical facts in the case of the assessee itself has been adjudicated by the coordinate bench of ITAT in the case of ACIT 14(2)(2) Vs. M/s Mirae Asset Global Investment (I) Pvt. Ltd. vide ITA No. 230/Mum/2018. The ld. Counsel also placed reliance on the decision of Hon’ble High Court of Bombay in the case of CIT, Central-III Vs. Templeton Asset Management (I) Pvt. Ltd. (2011) 14 taxmann.com 144 (Bom) and Hon’ble High Court of Bombay in the case of CIT Vs. ING Investment Management (India) P. Ltd. Vs. CIT (2018) 99 taxmann.com 399 (Bom). On the other hand, the ld. D.R supported the order of lower authorities.
Heard both the sides and perused the material on record. The assessee company has incurred expenses in respect of fund offers launched during the year under consideration on behalf of the various companies. The total expenses that can be charged to mutual funds scheme are specified in regulation 52(b) of the SEBI Regulation. The assessing officer noticed that expenses of Rs.87,48,771/- incurred by P a g e | 3 DCIT, Circle 14(1)(1) Vs. M/s Mirae Asset Global Investment Pvt. Ltd. the assessee company was in excess of the ceiling of expenses prescribed by the SEBI. Therefore the claim of deduction of such expenses was disallowed by the AO and same was added to the total income. The assessee had incurred these expenses in pursuance of the investment management agreement and expenses were incurred for its business activity. The SEBI Regulation merely prescribe the ceiling of expenses that can be charged to mutual Fund Scheme and there is no such restriction on the expenses to the incurred by the AMC as a part and parcel of its profit activity. We consider that coordinate bench of the ITAT in the case of the assessee itself for assessment year 2012-13 after following the decision of Hon’ble Bombay High Court in the case of CIT Vs. Templeton Asset Management (I) (P.) Ltd. (2012) 340 ITR 279 (Bom) has adjudicated the similar issue on identical facts in favour of the assessee. The relevant operating part of the decision is reproduced as under:
“4. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: “6.4 I have considered the facts of the case and the appellant's submissions. The appellant is an AMC ( Asset Management Company) and had entered into an investment management agreement with the Trustee company of Mirae Asset Mutual Fund, namely, Mirae Asset Trustee Company Pvt. Ltd. As per the agreement, the fees and expenses of the AMC are to be subject to the limits prescribed from time to time under the SEBI Regulations and in accordance with the provisions thereof. As per regulation 52(2) and 52(4) of the SEBI (Mutual Fund) Regulations 1996, AMCs are allowed to charge fees & expenses to mutual fund scheme within limitation. The total expenses that can be charged to mutual fund scheme are specified in regulation 52(6). Regulation 52(7) provides that any expenditure in excess of the limits specified in regulation 52 (6) and (6A)] shall be borne by the asset management company or by the trustee or sponsors. Perusal of the investment management agreement shows that paragraph 41 under Article IX clearly mentions that expenses incurred exceeding the limit specified by the SEBI Regulations shall be borne by the AMC. The appellant company had accordingly debited such expenses to its P & L account and claimed it as allowable expenses u/s 37(1) of the Act. The Assessing Officer was of the view that such expenses pertained to the respective companies but could not be charged to them because of the ceiling of expenses prescribed by SEBI. That this liability of others could not be transferred to the appellant company and allowed as deduction under the provisions of the Act. The AO also observed that the appellant had failed to produce anything cogent on record to show that there was any corresponding revenue increase due to the launching of two new equity NFOs and hence disallowed the expense of Rs.85,43,750/- incurred in excess of SEBI ceiling.
P a g e | 4 DCIT, Circle 14(1)(1) Vs. M/s Mirae Asset Global Investment Pvt. Ltd.
5 The appellant company had incurred expenses in pursuance of the investment management agreement and the expenses were thus incurred for its business activity. The expenditure had a direct nexus with the appellant's own business of asset management. The SEBI regulations merely prescribes the ceiling of expenses that can be charged to Mutual Fund Schemes. There is no such restriction on the expenses to be incurred by the AMC. The expenses incurred were the appellant's own expenditure and it was a part and parcel of the profit-making activity of the appellant. The expenses that could not be charged to the Mutual Funds/companies because of the SEBI ceiling cannot, therefore, be considered as pertaining to these Mutual Funds/companies and not to the appellant. The non increase in revenue on account of launch of NFOs will also not affect the allowability of the expenses incurred for its business of asset management. Regulation 52(7) of SEBI Regulations provides that any expenditure in excess of the limits specified in regulation 52 (6) and (6A)] shall be borne by the asset management company or by the trustee or sponsors. The investment management agreement at paragraph 41 under Article IX also clearly mentions that expenses incurred exceeding the limit specified by the SEBI Regulations shall be borne by the AMC, In view of all these facts, the disallowance of expenses of Rs.85,43,750/- made by the AO is deleted. This ground of appeal is allowed.”
The Ld. D.R. reiterated his arguments as made before the Ld. CIT(A) by submitting that SEBI and IT Act are two different Acts governing the matters in their respective arena. The Ld. D.R. submitted that the SEBI Act governs the matter falling under the arena of SEBI Act whereas the provisions of Income Tax Act govern the assessment of income as per Income Tax Act. The Ld. D.R. submitted that the expenses which are liability of 10 mutual fund companies as has been stated by the AO in para 7.2 of the assessment order can not be treated as expenses incurred by the assessee in the ordinary course of business and can not be allowed under the provisions of section 37 as the assessee has apparently incurred the expenses on behalf of the said companies. The Ld. D.R. also made without prejudice submission that in case of the said expenses are treated as expenses belonging to the assessee even then the same are not allowable as these are of capital nature and not revenue in nature as these were incurred in connection with new NFOs. The Ld. D.R. finally prayed that the order of Ld. CIT(A) be set aside and AO be restored.
The Ld. A.R., on the other hand, heavily relied on the order of Ld. CIT(A) and submitted that the expenses incurred by the assessee to the tune of Rs.85,43,750/- are incurred in the ordinary course of business by the assessee as it is specifically mentioned in the investment management agreement in para 41 under Article 9 that expenses incurred exceeding the limit specified by SEBI Regulation shall be borne by AMC and therefore were accordingly debited to the P&L account and is allowable expenses under section 37(1) of the Act. The Ld. A.R. also submitted that the case of the assessee is squarely covered by the decision of Hon’ble Bombay P a g e | 5 DCIT, Circle 14(1)(1) Vs. M/s Mirae Asset Global Investment Pvt. Ltd.
which the companies on whose behalf the NFOs are launched can not be exceeded and therefore the expenses in excess of the said SEBI limit of Rs.85,43,750/- was claimed by the assessee as expenses incurred in the ordinary course of business under section 37(1) of the Act. We further find that the Ld. CIT(A) recorded a finding of facts that said expenses were incurred by the assessee under investment management agreement which provided that the excess expenses incurred over and above the limit specified by the SEBI Regulation shall be borne by the AMC i.e. assessee. In our view, these expenses are incurred by the assessee in the ordinary course of business as the assessee is in the business of providing asset management and investment revisionary services for launching the equity and NFOs on behalf of various clients the assessee . Moreover, it has been specifically agreed between the parties that any expenses incurred in excess of limit specified by the SEBI Regulation shall be borne by the AMC. The case of the assessee is also supported by the Hon’ble Bombay High Court in the case of CIT vs. Templeton Asset Management (India) P. Ltd. (supra) wherein the Hon’ble Bombay High Court has held that if the assessee is an asset management company (AMC), due to business exigency, claims and recovers from mutual funds lesser amount than amount of expenditure actually incurred during the course of business, then unless it is established that there were no business exigencies or claim was not genuine expenditure incurred can not be disallowed. In the case of the assessee also the assessee has not doubted the genuineness of the expenditure or business exigencies and came to the conclusion that said expenses are in excess of limit specified by the SEBI Regulation and belong to the mutual funds and not to the assessee. We, therefore, respectfully following the decision of the Hon’ble Bombay High Court (supra), are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.”
Following the decision of coordinate bench of ITAT as supra we don’t find any infirmity in the decision of ld. CIT(A), accordingly, the appeal of the revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 31.07.2023 (Amit Shukla) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 31.07.2023 Rohit: PS
P a g e | 6 DCIT, Circle 14(1)(1) Vs. M/s Mirae Asset Global Investment Pvt. Ltd.
आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. आयकर आयुक्त / CIT 3. 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file.
सत्यावपि प्रवि //// आदेशानुसार/ BY ORDER,
उि/सहायक िंजीकार (Dy./Asstt.