INCOME TAX ACT, 1961

Section 143(3)

Assessment - Computation of income - Re-allocation of PMS charges between income under the head capital gain and other sources overlooking basis of allocation by the assessee -

Assessee paid Portfolio Management Services (PMS charges) to Portfolio Managers for rendering services in relation to investments advise which resulted in assessee earning income in the form of interest, chargeable to tax under the head 'Income from other sources' and also dividend which was exempt besides income in the form of short-term capital gain (STCG). Income earned from STCG was chargeable to tax at 15% whereas income in the form of interest was chargeable to tax at 30%. AO doubted bifurcation of PMS charges at Rs. 8,14,961 towards income in the form of STCG and Rs. 33,52,541 towards interest income and therefore, allocated PMS Charges of Rs. 41,67,502 on the basis of income under the head 'capital gain' (Rs. 10,17,38,369] and interest income (Rs. 1,06,86,059] which was chargeable to tax under the head 'Income from other sources' which resulted in the PMS charges being apportioned at Rs. 6,63,040 against STCG and Rs. 37,71,050 against income under the head interest income which was chargeable to tax under the head 'Income from other sources'. Held: On account of PMS Charges were apportioned by assessee on the basis of the income earned on the basis of services provided by PMS provider. The reason why there was difference in apportionment by the assessee and by the revenue was because of inclusion of STCG earned by assessee on his own without services of PMS provider had also been included by revenue in income generated through services of PMS providers on account of assessee having filed documentary evidence in the form of statement of PMS providers which clearly showed income earned from the two PMS providers. Basis of allocation of PMS charges as done by assessee was correct and deserved to be accepted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

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