2015 (6) TMI 794 - AT - Income Tax

Tribunal rulings on leave encashment, PMS fees, and 80-IA deduction

Serum Institute of India Ltd. (Erstwhile Serum International Ltd.) Versus Addl. Commissioner of Income Tax, Asstt. Commissioner of Income Tax Versus M/s. Serum International Ltd.

The Tribunal partially allowed the assessee's appeal by upholding the disallowance of Provision for Leave Encashment and allowing the deduction of ... Disallowance of the 'Provision for Leave Encashment' - Held that:- Issue is liable to be decided against the assessee following the decision of the Pune Bench of the Tribunal in the assessee's own case for earlier assessment years 2002-03 & 2003-04 .As the aforesaid precedents continue to hold the field, we hereby affirm the action of the lower authorities in disallowing assessee's claim for deduction on account of Provision for leave encashment amounting to ₹ 5,36,234/- - Decided against assessee. Disallowance of the 'Expenses claimed on account of the Portfolio Management Services (PMS) fees' - Held that:- Respectfully following the decision of the Tribunal in the case of KRA Holding and Trading Pvt. Ltd. (2013 (9) TMI 1013 - ITAT PUNE) we hold that the 'PMS' fees paid by the assessee is an allowable deduction from the capital gains - Decided against revenue. Computation of deduction available to the assessee u/s 80-IA of the Act with respect to the profits and gains of the Windmill Undertaking - adoption of the 'initial assessment year' - Held that:- Similar issue was considered by the Tribunal in the assessee's own case for assessment years 2004-05 to 2006-07 after following the judgement of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT, [2010 (3) TMI 860 - Madras High Court] upheld the plea of the assessee. - Decided in favour of assessee. Issues involved:1. Disallowance of Provision for Leave Encashment2. Disallowance of Expenses claimed on account of Portfolio Management Services (PMS) fees3. Computation of deduction under section 80-IA of the Act for Windmill UndertakingIssue 1: Disallowance of Provision for Leave EncashmentThe appeal by the assessee contested the disallowance of Provision for Leave Encashment amounting to Rs. 5,36,234, based on actuarial valuation. The Tribunal referred to past decisions and upheld the disallowance, citing precedents from the assessee's earlier cases and Serum Institute of India Ltd. The Tribunal affirmed the lower authorities' action, leading to the assessee's failure on this aspect.Issue 2: Disallowance of Expenses claimed on account of Portfolio Management Services (PMS) feesRegarding the deduction of Rs. 6,65,593 for PMS fees paid on capital gains from the sale of shares/securities, the Tribunal considered a similar issue in Serum Institute of India Ltd.'s case. It discussed the treatment of PMS fees as part of the cost of acquisition/improvement or as cost of transfer for working income from capital gain. The Tribunal, following the precedent in KRA Holding and Trading Investment Pvt. Ltd. case, allowed the deduction of PMS fees as an allowable expenditure from capital gains. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to provide relief to the assessee based on the Serum Institute of India Ltd. case.Issue 3: Computation of deduction under section 80-IA of the Act for Windmill UndertakingThe cross-appeal by the Revenue focused on the computation of deduction under section 80-IA of the Act for the Windmill Undertaking. The dispute centered on the adoption of the 'initial assessment year' for section 80-IA(5) purposes. The Tribunal upheld the plea of the assessee, following past decisions and the judgment of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT. The Tribunal affirmed the CIT(A)'s decision based on the assessee's earlier case for assessment years 2004-05 to 2006-07. Consequently, the Revenue's appeal was dismissed.In conclusion, the Tribunal partially allowed the assessee's appeal while dismissing the Revenue's cross-appeal. The judgments were based on detailed analysis of each issue, past precedents, and legal interpretations, resulting in specific directions to the Assessing Officer for appropriate actions in line with the Tribunal's decisions.