IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : CHENNAI [BEFORE Dr. O.K.NARAYANAN, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER] I.T.A. No. 1774/Mds/2012 Assessment year : 2008-09 Sundaram Asset Management Co. Ltd., Sundaram Towers, II Floor, No. 46, Whites Road, CHENNAI – 600 014 Vs Deputy Commissioner of Income Tax, Large Taxpayer Unit, CHENNAI. [PAN: AAICS 4257 J] (Appellant) (Respondent) Appellant by : Shri R. Parthasarathy, Advocate & Shri Sumeet Khurana, FCA Respondent by : Shri T.N. Betgiri, JCIT Date of Hearing : 29-05-2013 Date of Pronouncement : 19-07-2013 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER The appeal has been filed by the assessee against the order of the Commissioner of Income Tax(Appeals)-XII, Chennai dated 03-07-2012 relevant to the Assessment Year (AY) 2008-09. http://www.itatonline.org
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IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : CHENNAI
[BEFORE Dr. O.K.NARAYANAN, VICE PRESIDENT AND
SHRI VIKAS AWASTHY, JUDICIAL MEMBER]
I.T.A. No. 1774/Mds/2012 Assessment year : 2008-09
Sundaram Asset Management Co. Ltd., Sundaram Towers, II Floor, No. 46, Whites Road, CHENNAI – 600 014
Vs
Deputy Commissioner of Income Tax, Large Taxpayer Unit, CHENNAI.
[PAN: AAICS 4257 J] (Appellant)
(Respondent)
Appellant by : Shri R. Parthasarathy, Advocate & Shri Sumeet Khurana, FCA
Respondent by
:
Shri T.N. Betgiri, JCIT
Date of Hearing : 29-05-2013 Date of Pronouncement : 19-07-2013
O R D E R
PER VIKAS AWASTHY, JUDICIAL MEMBER
The appeal has been filed by the assessee against the
order of the Commissioner of Income Tax(Appeals)-XII, Chennai
dated 03-07-2012 relevant to the Assessment Year (AY) 2008-09.
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2. The assessee is engaged in the business of asset
management. For the AY. 2008-09, the assessee filed its return
of income on 26-09-2008 declaring its total income as Rs.
20,86,48,690/- under normal provisions and Rs. 26,12,06,395/-
u/s. 115JB (MAT provisions) of the Income Tax Act, 1961 (herein
after referred to as ‘the Act’). The case of the assessee was
selected for scrutiny and notice u/s. 143(2) was issued to the
assessee on 12-08-2009. The Assessing Officer vide
assessment order dated 24-11-2010 made additions/dis-
allowances in the income returned by the assessee on following
counts:
i. Dis-allowance u/s. 14(a)(i) r.w.rule 8D Rs. 6,28,950/-.
ii. Dis-allowance u/s. 40(a)(i) Rs. 33,48,666/- on account
of non-deduction of tax at source u/s. 195 on the
payments made to M/s. Fund Quest a non-resident
firm.
iii. Dis-allowance u/s. 40(a)(ib) Rs. 85,929/- in respect of
Securities Transaction Tax.
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iv. Capitalization of expenses on extension and
renovation of building – the assessee had claimed an
amount of Rs. 2,06,61,216/- on account of interior
decoration, extension and renovation of the office
premises as Revenue Expenditure. The Assessing
Officer held the expenditure to be capital in nature
and made addition of Rs. 1,85,95,094/- after allowing
depreciation.
v. Dis-allowance of excess depreciation on UPS. The
assessee had claimed depreciation on UPS @ 60%,
as applicable to computer hardware. The Assessing
Officer allowed depreciation as applicable to Plant &
Machinery i.e., 15%. The Assessing Officer made
addition of Rs. 18,68,338/- after dis-allowing the
excess depreciation.
vi. Investment Management Fee Rs. 15,82,291/- .
vii. Dis-allowance u/s. 40(a)(ia) Rs. 16,41,14,706/- on
payments made to the mutual fund distributors.
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Apart from the above additions, the Assessing Officer re-
computed book profit under MAT provisions u/s. 115JB and made
addition of Rs. 6,28,950/- u/s. 14A and Rs. 61,50,220/- on
account of Long Term Capital Gains. Aggrieved against the
assessment order, the assessee preferred an appeal before the
CIT(Appeals)-Chennai. The CIT(Appeals) vide impugned order
dt. 03-07-2012 dismissed and appeal of the assessee.
3. Now, the assessee has come in second appeal before the
Tribunal impugning the order of the CIT(Appeals)-XII, Chennai.
The grounds stated in the Appeal are as under:
1. The order of the learned Commissioner of Income-tax(Appeals)
[‘CIT (Appeals)’], to the extent prejudicial to the Appellant, is
contrary to law, facts, and circumstances of the case.
2. The learned CIT (A) has erred in confirming the disallowance
made by the Assessing Officer (‘AO’) of Rs. 6,28,950/- by invoking
the provisions of section 14A of the Income-tax Act (‘the Act’)
ignoring the fact that the Appellant had not incurred any
expenditure for earning dividend income.
3. The learned CIT (A) has erred in confirming the disallowance
made by the AO towards payment of Rs. 33,48,666/- made to Fund
quest by invoking the provisions of section 40(a)(i) of the Act and
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stating that the payment is in the nature of royalty failing within the
ambit of provisions of section 9 of the act.
4. The learned CIT (A) has erred in upholding the order of the AO in
treating the payment of Rs. 1,85,95,094/- towards renovation of
existing lease building as a capital expenditure ignoring the fact that
the expenditure has neither resulted in any structural change to the
building nor in the creation of new capital asset.
4.1 The learned CIT (A) has erred in not following the principles laid
down in the decision of the Hon’ble Chennai ITAT in the Appellant’s
own case for the Assessment Year (‘AY’) – 2006-07.
5. The learned CIT (A) erred in confirming the order of AO in not
treating UPS as part of computers and adding back Rs. 18,68,338/-
on account of excess depreciation claim.
5.1 The learned CIT (A) erred in rejecting the alternative claim of
Appellant in treating the UPS as energy saving device and claiming
depreciation at the rate of 80 percent on the same.
6. The learned CIT (A) has erred in confirming the order of AO, in
adding back an amount of Rs. 15,82,291/- as income of the
Appellant based on Form 16A ignoring financial statements filed.
7. The learned CIT (A), has erred in upholding the order of the AO,
in disallowing the commission and brokerage payments made
amounting to Rs. 16,41,14,706/- to various distributors of Mutual
Fund schemes by invoking provisions of section 40(a)(ia) of the Act
and erred in concluding that the sum liable to Tax Deducted at
Source (‘TDS’) under section 194J of the Act.
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7.1 The learned CIT (A) erred in stating that distributors are
involved in preparing prospectus, marketing and advertisement
when no such services were actually received by the appellant.
7.2 The learned CIT (A) erred in stating that payment to distributors
is not in the nature of commission or brokerage without
appreciating the fact that payments made are based purely on the
quantum of units sold, irrespective of level of efforts of the
distributors.
7.3 The learned CIT (A) ought to have appreciated the fact that the
services rendered by the distributors do not fall within the scope of
definitions of professional or technical services.
7.4 The learned CIT (A) ought to have appreciated that the
commission and brokerage paid fall within the ambit of provisions of
section 194H that specifically excludes payments towards
purchase/sale of securities.
7.5 The learned CIT (A) ought to have appreciated the fact that the
action of the learned AO is in contravention to the circular No. 720
dated 30-08-1995, where the Board has clarified that the payment
for any sum shall be liable to deduction of tax under only one
section.
7.6 The learned CIT (A) ought to have appreciated the fact that the
learned AO erred in relying on the information displayed in the
website of a third party who is in the business of Register and
Transfer Agent.
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8. The learned CIT (A) has erred in confirming the action of AO, in
computing the minimum alternate tax under section 115JB, by
adding a sum of Rs. 6,28,950/- under section 14A of the Act.
9. The learned CIT (A) has erred in remanding back the issue to the
AO to examine the computation of book profit without adjudicating
on the issue himself.
10. On the facts and circumstances of the case, the learned CIT (A)
was not justified and erred in not deleting interest levied under
section 234B and 234D of the Act as the same is bad in law.
4. Shri R. Parthasarathy, Advocate with Shri Sumeet Khurana,
Chartered Accountant appearing on behalf of the assessee
submitted that during the relevant assessment year, the assessee
had not incurred any expenses in earning dividend income. The
assessee being asset management company has thorough
knowledge and understanding of Mutual Funds by virtue of its
business operations. The assessee had not taken any funds
bearing interest, therefore, the assessee has not incurred any
interest cost. The ld. Counsel for the assessee further submitted
that provisions of Rule 8D will not apply to short term investments,
as the capital gain arising there from is taxable. The ld. Counsel
contended that the authorities below have not given any specific
finding while rejecting the contentions of the assessee. The AR in
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support of his contentions on the issue, relied on the following
decisions:
1. Maxopp Investment Ltd., Vs. CIT reported as 347 ITR
272 (Del)
2. CIT Vs. Hero Cycles Ltd., reported as 323 ITR 518 (P&H)
3. Avshesh Mercantile Pvt. Ltd., Vs. DCIT in ITA No.
5779/Mum/2006 decided on 13-06-2012.
5. The ld. Counsel on ground No. 3 of the appeal submitted
that an amount of Rs. 33,48,666/- was paid to M/s. Fund Quest
for the services rendered abroad. M/s. Fund Quest does not have
PE in India and the services rendered by them were advisory in
nature. The Assessing Officer has erred in come into the
conclusion that the payment is in the nature of ‘Royalty’. The
assessee had not obtained any certificate u/s. 197 of the Act as
assessee had no doubt that the payment is for services and not in
the nature of ‘Royalty’. Since, the said amount is not taxable in
India, the provisions of Section 195 are not applicable.
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6. On the fourth ground of appeal relating to repair of lease-
hold premises, the ld. Counsel for the assessee submitted that at
Page 42 of the Paper Book, the details of the expenditure have
been given. The expenditure relates to demolition, painting work,