Appellate Tribunal allows deduction of Portfolio Management Services fees for capital gains calculation

The Appellate Tribunal allowed the assessee's appeal for the assessment year 2007-08, directing the Assessing Officer to permit the deduction of Portfolio Management Services (PMS) fees when computing income from capital gains. This decision was based on the principle that when two views are possible on the same issue, the view favorable to the assessee should be followed, as established in previous cases. The Tribunal overturned the earlier disallowance by the Commissioner of Income Tax (Appeals) and instructed the Assessing Officer to allow the claimed deduction of PMS fees.

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Issues:
1. Deduction of Portfolio Management Services (PMS) fees while computing income from capital gains.

Analysis:
The appeal before the Appellate Tribunal ITAT Pune involved a dispute regarding the deduction of Portfolio Management Services (PMS) fees paid by the assessee while computing income from capital gains for the assessment year 2007-08. The assessee contended that the PMS fee, amounting to &8377; 2,23,05,158, should be allowed as a deductible expenditure as it was incurred exclusively in connection with the purchase and sale of securities managed under a portfolio management arrangement. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) disallowed the deduction, following a previous order against the assessee for the assessment year 2008-09. The CIT(A) upheld the disallowance based on the reasoning from the earlier order. However, during the hearing, it was revealed that the Tribunal had set aside the CIT(A)'s decision for the assessment year 2008-09, which was the basis for the current order.

In a similar case involving the assessee for the assessment year 2008-09, the Tribunal had allowed the deduction of part of the PMS fee paid by the assessee while computing capital gains. The Tribunal's decision was based on the principle that when two views are possible on the same issue, the view favorable to the assessee should be followed. The Tribunal referred to precedents and held that the Portfolio Management Fees should be considered an allowable expenditure. This decision was followed in the present case for the assessment year 2007-08, leading to the setting aside of the CIT(A)'s order and directing the Assessing Officer to allow the deduction claimed by the assessee.

Another relevant case cited by the Tribunal involved a similar issue where the Mumbai Bench had held that Portfolio Management Scheme fees were not deductible against capital gains. However, the Pune Bench took a different view, following the principle that the view favorable to the assessee should be adopted when two views are possible. The Tribunal in this case allowed the claim of Portfolio Management fees as an allowable expenditure, leading to the dismissal of the revenue's appeal and the allowance of the assessee's appeal.

In conclusion, based on the precedents and principles established in similar cases, the Appellate Tribunal allowed the appeal of the assessee for the assessment year 2007-08, directing the Assessing Officer to allow the deduction of Portfolio Management Services fees while computing income from capital gains.

Order pronounced in the open Court on 29th October, 2014.

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