Income: Notional income: A.Y. 2003-04: Assessee in business of Asset Management of Mutual Funds: Charged investment advisory fees less than prescribed ceiling: Differential amount cannot be added as income.

The assessee, a private limited company was engaged in the business of asset management of mutual funds. In the A.Y. 2003-04, the Assessing Officer found that the assessee had charged investment advisory fees less than the ceiling prescribed under Regulation 52 of the Securities and Exchange Board of India (Mutual Fund) Regulations, 1996. He added the differential amount to the income of the assessee. The Tribunal held that the SEBI Regulation 52 provides for the maximum limit towards the fees that could be charged by an Asset Management Company from the Mutual Funds and that if, due to business exigencies, the assessee collects lesser amount of fees than the ceiling prescribed, it is not open to the Assessing Officer to make addition on the notional basis.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“(i) It is not the case of the Revenue that the assessee has recovered investment advisory fees more than what is said to have been claimed by the assessee. Therefore, the fact that the SEBI Regulation provides for a maximum limit on the investment advisory fees that could be claimed, it cannot be said that the Asset Management Companies are liable to be assessed at the maximum limit prescribed under the SEBI Regulations, irrespective of the amount actually recovered.

(ii) In these circumstances, the decision of the ITAT in deleting the additions made by the Assessing Officer on notional basis cannot be faulted.”