Conflict on deductibility of Shares PMS fee has to be decided in favour of assessee

KRA Holding & Trading Pvt. Ltd vs. DCIT (ITAT Pune)

The assessee entered into an investment management (Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Rs. 2.11 crores as “performance fees/ maintenance fee”. This was treated as a cost of purchase of the shares. The AO disallowed the claim & the CIT (A) confirmed it on the basis that the as the PMS gains were assessable as “capital gains”, the expenditure was neither cost of investment or improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its own case (KRA Holding & Trading Pvt Ltd vs. DCIT) where it had been held (dissenting from Davendra Kothari 136 TTJ 188 (Mum)) that as there was a nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48. The department relied on Homi K. Bhabha vs. ITO which had (dissenting from KRA Holdings) held that PMS fees is not deductible against capital gains. HELD by the Tribunal:

Tests laid down to distinguish shares gains as LTCG/STCG vs. business profits

CIT vs. Vaibhav J. Shah (HUF) (Gujarat High Court)

The assessee offered the gains from buying and selling shares as LTCG/ STCG. The AO held that the assessee was “dealing heavily in shares” with high frequency and magnitude and that the gains were assessable as business profits. This was reversed by the CIT (A) and Tribunal. On appeal by the department to the High Court, HELD dismissing the appeal:

In Rewashanker A. Kothari 283 ITR 338 (Guj) six objective tests have been laid down to distinguish between capital gains and business profits on sale of shares. From this, it is clear that where number of transactions of sale and purchase of shares takes place, the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares. However, where there is repetition and continuity, coupled with magnitude of the transaction, bearing reasonable proportion to the strength of holding, then an inference can be drawn that activity is in the nature of business. Learned counsel for the revenue from the records could not demonstrate that there were large number of transactions which had frequency, volume, continuity and regularity and fell within the tests laid down by the Division Bench of this Court. Consequently, the income earned by the assessee from trading in shares under the head long term capital gain / short term capital gain was correctly shown.

Fed Outcome Spurs The Greenback On To A New High

The US Dollar got off to a great start in early trading on Thursday going on to hit a 1-week high after the Fed opted not to offer any new stimulus packages.
This move leaves the European Central Bank (ECB) to bear the burden of stabilizing the Euro Zone economy.
The Dollar gained across the board but the Fed did not write off further bond-buying just yet, and this that might help spur on further economic recovery. Time will tell.

S&P maintains Germany's outlook at stable.

 S&P has affirmed Germany's AAA rating and stable outlook, citing the country's "strong economic fundamentals" and saying it expects the nation to "continue to withstand potential financial and economic shocks." S&P's confirmation comes after Moody's last month cut its outlook on Germany to negative

Fees for “routine technical repairs” not assessable as “fees for technical services”

ADIT vs. BHEL-GE-Gas Turbine Servicing (ITAT Hyderabad)

The assessee paid sums to foreign parties for repairing and refurbishment of equipment. The AO held that the payments constituted “fees for technical services” u/s 9(1)(vii) and that the assessee ought to have deducted TDS u/s 195 r.w.s. 201 though the assessee argued that as there was no intellectual aspect involved in the repairs and refurbishment activity, it was no assessable as “fees for technical services”. The CIT (A) allowed the claim. On appeal by the department to the Tribunal, HELD dismissing the appeal:

Ignorance of law caused by complicated provisions amounts to “bona fide belief”

CIT vs. Hans Christian Gass (Bombay High Court)

The assessee, a foreign national, was an employee of Sandvik AB, Sweden. He was deputed to India and appointed Managing Director of Sandvik Asia Ltd.  In addition to the salary from Sandvik Asia, he received an amount from Sandvik AB, Sweden, being the difference between the tax rates in India and Sweden. In the ROI, the assessee did not offer the amount received from Sandvik AB to tax even though it was taxable in India. On being asked by the AO, the assessee offered the same to tax and paid tax thereon for all years including the earlier and subsequent AYs. The AO levied penalty on the ground that the assessee was assisted by tax experts and so ignorance of the law was no excuse. However, the Tribunal deleted the penalty on the ground that (i) there were multiple amendments to the statutory provisions (s. 10(b)(vii)) and the concept of grossing-up embedded therein is of a technical nature and out of the scope of common knowledge of the tax payers, (ii) the possibility of mistake by even tax experts cannot be ruled out; (iii) the assessee relied on the tax experts and signed the ROI, (iv) the conduct of the assessee in paying up the taxes for all the years including those that were beyond reassessment showed his bona fides, (v) the claim of bona fide belief need not be substantiated with  documentary evidence but can also be substantiated by circumstantial evidence; (vi) penalty is not an automatic consequence of addition to income; (vii) concealment implies that the person is hiding, covering up or camouflaging an income; penalty is not leviable in case where assessee is able to provide a ‘bona fide’ explanation; penalty is not leviable in cases where assessee made errors ,under bona fide beliefs. On appeal by the department to the High Court, HELD dismissing the appeal:

Currency Markets Subdued Ahead Of Fed & ECB Meetings

The US Dollar dipped to a 2-month low against the Yen during the Asian session on Wednesday, after Chinese manufacturing results dashed any hopes that increased policy support has stemmed a slowdown in the world's second largest economy.
The Euro also eased against the US Dollar spreading more doubt that the US Federal Reserve and the European Central Bank (ECB) cannot do enough to rescue their troubled economies.