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ACIT, CC-34,R.No. 104,First Floor,Aayakar Bhavan,Mumbai 400 020. Vs. M/s. Franklin Templeton Asset Management India)
August, 28th 2012
                             , 
              IN THE INCOME TAX APPELLATE TRIBUNAL
                   MUMBAI BENCHES " F" MUMBAI

                           [^ . , 
             BEFORE SHRI D. MANMOHAN, VICE PRESIDENT

                                      /AND
                                ^ ],  
                SHRI RAJENDRA, ACCOUNTANT MEMBER

                    . /             ITA No. 4404/Mum/2011
                      [ [ /Assessment Year 2008-09

            ACIT, CC-34,                     M/s. Franklin Templeton
            R.No. 104,                       Asset Management (India)
            First Floor,                     Pvt. Ltd.,
            Aayakar Bhavan,           Vs.    Level 4,
            Mumbai ­ 400 020.                Wockhardt Towers,
                                             Bandra Kurla Complex,
                                             Bandra (East)
                                             Mumbai-400 051.

                                             PAN: AAACT 1609 B
              ( /Appellant)                     ( / Respondent)

                 / Appellant          by            :   Subachan Ram
                 /Respondent by                    :   Farrokh V. Irani


              / Date of Hearing                     : 09-08-2012
           / Date of Pronouncement                  : 24-08-2012





                                 / O R D E R

PER RAJENDRA, A.M.

        The following are the Grounds of Appeal filed by the Appellant against the
order dtd. 24-03-2011 of the CIT(A) - 41, Mumbai:

                1."On the facts and in the circumstances of the case and in law, the
                Hon'ble Tribunal has erred in deleting the addition of Rs.82,46,78,000/-
                made by the A.O being the difference between the amount of investment
                advisory fees computed at the maximum rates specified in Regulations
                52(2) of the Securities and Exchange Board of India (Mutual Fund)
                Regulation 1996 (SEBI Regulation), and actually charged without
                                             2                                   ITA No. 4404/Mum/2011
                                                   M/s. Franklin Templeton Asset Management (I) Pvt. Ltd.,


                 appreciating the fact that by charging less amount of fees to the Mutual
                 Fund Scheme, the assessee is reducing its taxable income, whereas the
                 income of the MF is exempt and the fact that under SEBI regulations 52(2)
                 the assessee company was empowered to charge the maximum amount of
                 the fees. Hence, income by way of the management and the advisory fees
                 of amount equal to such maximum amount which the assessee could have
                 charge to the Mutual Fund had accrued to it. The principle of accrual
                 postulates that the assessee must have the right to receive the income and
                 in this case the assessee had such right even under the SEBI Act and also
                 there were contractual agreement to that effect."

                 2."On the facts and in the circumstances of the case, and in law, the
                 Hon'ble Tribunal has erred in law in deleting the addition relating to the
                 recurring and marketing expenses amounting to Rs.33,23,000/- without
                 appreciating the fact that this amount of expenditure the AMC was
                 empowered to charge under SEBI Regulation to the Mutual Fund, but it
                 has charged the same to its own accounts, thereby reducing its taxable
                 income, and hence not be allowable as deduction in view of the provisions
                 of Section 37(1) of the l.T. Act, 1961."

                 3."On the facts and in the circumstances of the case and in law, the
                 Hon'ble Tribunal has erred in law in deleting the disallowance of
                 Rs.1,81,39,000/- towards 2/3rd share of the recurring expenses in excess
                 of the limits specified in regulation 52(7) of the SEBI regulation which was
                 borne by the assessee without appreciating the fact that the amount of the
                 expenditure, which becomes the liability either of the sponsor or the
                 trustee of the Mutual Fund, is not deductible u/s.37(1) of the I.T. Act in the
                 hands of the assessee company."

                 The appellant prays that the order of Commissioner of Income-tax
                 (Appeal) on the above grounds be set aside and that the ITO/AC/DC be
                 restored. The appellant craves leave to r alter any grounds or add new
                 ground which may be necessary."


2. Assessee, a management company for the Franklin Templeton Asset management
(India) Pvt. Ltd., filed its return of income on 30th September 2008 declaring total
income at Rs. 1,25,63,16,380/-. The assessment was finalized u/s. 143(3) of the
Income Tax Act, (Act) by the Assessing Officer (AO) determining total income of
assessee at Rs. 2,10,71,43,900/-.

3. The First Ground of Appeal is related to the addition of Rs. 82,46,78,000/- being
the difference between the investment advisory fees that the assessee could have
charged to Franklin Templeton Asset management (India) Pvt. Ltd., at the maximum
rate specified by the SEBI and the fees actually charged. The AO made the addition
of this notional amount to the income of the assessee. As per the AO, the maximum
permissible amount of the management fees to be charged as per SEBI regulations
was 1.25% of the weekly average new assets. He held that the management fees
chargeable by the assessee to the mutual fund was Rs. 32,45,969/- lakhs where as
assessee had charged only Rs. 24,21,291/- lakhs to the mutual fund. Hence, the
addition of Rs. 82.46 lakhs was made to the toal income of the assessee.
                                          3                                   ITA No. 4404/Mum/2011
                                                M/s. Franklin Templeton Asset Management (I) Pvt. Ltd.,


4. Assessee preferred an appeal before the First Appellate Authority (FAA)
following the order of the ITAT for the Assessment years 2002-03 to 2004-05, FAA
deleted the addition made by the AO. Before us, the Authorised Representative (AR)
submitted that the said issue was decided in favour of the assessee by the Tribunal
from the Assessment Year 1999-2000 to 2007-08. Not only this, the Hon'ble
Jurisdictional High Court had also decided the same issue in favour of the assessee in
September 2012 and the appeal filed in this regard by the department before the
Hon'ble Supreme Court was also dismissed.


5. Considering the above factual position, we endorse the order of the FAA, Ground
No.1 is decided against the AO.





6. Ground No.2 is with regard to recurring and marketing expenses. The AO had
observed that the assessee had incurred various expenses on behalf of mutual fund
that saidexpenses were in the nature of recurring expenses as per the SEBI
regulations that the assessee company was entitled to get reimburse for all the said
expenses, that the assessee had not recovered many of such expenses. AO made an
addition amounting to Rs. 33.23 Lakhs under the head Recurring Expenses borne by
the assessee company. In the appellate proceedings, FAA held that the issue was
decided by his predecessors in favour of the assessee for the Assessment Years 2000-
01 to 2007-08, that the same issue was decided against the AO by the ITAT, Mumbai
for the Assessment Years 2000-01 to 2004-05. Following the orders of the Tribunal,
he deleted the addition made by the AO. Departmental Representative (DR) relied
upon the order of the AO.


7. AR submitted that issue under consideration has been decided in favour of the
assessee by the Tribunal as well as the jurisdictional High Court. It is found that the
Hon'ble Bombay High Court has decided the issue against the revenue while deciding
the appeal for the Assessment Year 2003-04. As the issue has already been decided in
favour of the assessee, so we decided the Ground No.2 also against the AO.



8. Ground No.3 is about dis-allowance of Rs. 1,81,39,000/- towards 2/3 shares of the
recurring expenses in excess of the limits prescribed by Regulation 52(7) of the SEBI
regulations. During the assessment proceedings, AO held that expenses incurred
under the head advertisement expenses, courier services expenses, printing expenses
and promotional expenses were not incurred wholly and exclusively for the business
of the assessee company, that recurring expenses borne by the assessee company were
the expenses of mutual fund. He made dis-allowance of Rs. 1.81 crores. While
deciding the appeal filed by the assessee company, FAA held that the issue was
decided against the AO by his predecessors for the Assessment Year 2000-01 to
2007-08 and the Tribunal had also decided the issue in favour of the assessee for the
Assessment Year 2000-01 to 2004-05.


9. Following the orders of the Tribunal, he deleted the addition made by the AO. DR
                                         4                                   ITA No. 4404/Mum/2011
                                               M/s. Franklin Templeton Asset Management (I) Pvt. Ltd.,


relied upon the order of the AO. AR submitted that issue was decided in favour of the
assessee by the orders of the ITAT, Mumbai as well as the order of the High Court of
Bombay. From the Paper Book filed by the assessee company, it is found that issue
has been decided against the AO by the Hon'ble jurisdictional High Court. Ground
No.3 is also decided against the AO.




   Appeal filed by the AO stands dismissed.




Order pronounced in the open court on 24-08-2012 .
        24-08-2012    




            Sd/-                                                      Sd/-
(. /D. MANMOHAN)                                          (],/RAJENDRA)
 /VICE PRESIDENT                              / ACCOUNTANT MEMBER



 Mumbai,
 Date: 24th August 2012

TNMM
                                  5                                 ITA No. 4404/Mum/2011
                                      M/s. Franklin Templeton Asset Management (I) Pvt. Ltd.,


    /Copy of          the Order forwarded to :

  1. Appellant
  2. Respondent
  3. The concerned CIT (A)
  4. The concerned CIT
  5. DR "F" Bench, ITAT, Mumbai
  6. Guard File
      //True Copy//


                                                       / BY ORDER,


                                      /  Dy./Asstt.                   Registrar
                                        ,                       /   ITAT, Mumbai
 
 
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