Income on sale of shares to be taxed under the head Capital Gain and fee paid to the Asset Management Company is allowed

M/s KRA Holding & Trading P. Ltd.vs. DCIT (ITAT Pune)

&

ARA Trading & Investments Pvt Ltd vs. DCIT

Brief summary: there were 7 appeals, couple of issues are involved in all the grounds of the appeals involving both the assessee, (i) relating to whether the income earned on sale of shares is to be assessed under the head profits and gains of business or profession™ or under the head capital gains™ and (ii)allowability of the fee paid to the Asset Management Company.

Regarding the first issue, the parties mentioned that it was the subject matter of the appeal for adjudication before this Tribunal, Tribunal held that the securities in question being the investments, the sale proceeds of the same are assessable under the head˜capital gains™ and consequently, the Tribunal upheld the assessee™s decision of taxing the same under the head capital gains.

Decision for first issue: Appeal allowed in favour of assessee.

Second issue pertains to allowability of the fee paid to M/s ENAM, Portfolio Manager.The PMS fee, on profit sharing basis, was for the twin purposes of acquisition and sale of the securities. The fact that bifurcation between the two is not possible . The department™s argument that fee should be share-specific is absurd because fees for shares transactions is never share specific but is volume based.the AO dealt with this issue of payment of fee to ENAM AssetManagement P. Ltd ( ˜ENAM™) in his order and disallowed the claim by saying that the payment constitutes ˜profit sharing fee’. Assessee filed an appeal against the order of AO.

Decision for second issue: Appeal allowed in favour of assessee.