Mateen Pyarali Dholkia Vs. DCIT (ITAT Mumbai)
In the instant case, the profit arising from the sale of shares was received by the assessee directly which constituted its income at the point when it reached or accrued to the assessee. The fee for PMS on the other hand was paid separately by the assessee to discharge his contractual liability. It was thus a case of an obligation to apply income which had accrued or arisen to the assessee and the same amounted to a mere application of income. Therefore, it was to be held that the payment of fees by the assessee for PMS did not amount to diversion of income by overriding title and the contentions raised by the assessee in this regard could not be accepted being devoid of any merit.
As regards the contention of the assessee in support of claim for deduction on account of fees paid for PMS based on real income theory, the revenue rightly submitted that the theory of real income could not be applied to allow deduction to the assessee which was otherwise not permissible under the Act. In the case of CIT v. Udayan Chinubhai [1996] 222 ITR 45 6/88 Taxman 114 (SC), it was held by the Supreme Court in the similar context that what is not permissible in law as deduction under any of the heads cannot be allowed as a deduction on the principle of real income theory.
