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Issues: (i) Whether lease equalisation charges could be disallowed from the profit and loss account for computing book profits and whether they were allowable while computing profits under the accounting provisions of the Income-tax Act; (ii) whether bond issue expenses were capital or revenue in nature; (iii) whether depreciation was allowable on the office premises on the basis of possession and rights under section 53A of the Transfer of Property Act, 1882.
Issue (i): Whether lease equalisation charges could be disallowed from the profit and loss account for computing book profits and whether they were allowable while computing profits under the accounting provisions of the Income-tax Act.
Analysis: Lease equalisation charge was treated as an accounting adjustment arising from finance lease transactions, reflecting the difference between capital recovery and depreciation. The applicable accounting treatment, the matching principle, and the requirement of a true and fair view supported debiting or crediting the profit and loss account in accordance with recognised accounting standards. The Court followed the earlier binding view that, where the accounts were maintained in accordance with the relevant accounting framework and there was no manipulation or rejection of accounts under section 145, the charge could not be disallowed merely because the Revenue treated it as a deduction.
Conclusion: The issue was decided against the Revenue and in favour of the assessee.
Issue (ii): Whether bond issue expenses were capital or revenue in nature.
Analysis: Expenditure incurred to procure funds through bonds was incurred for the purpose of carrying on the business and not for creating a new capital asset or enlarging the capital structure in a capital sense. The expenditure was considered analogous to borrowing-related expenditure, which is ordinarily revenue in nature. The fact that the assessee was an existing business concern and the funds were raised to facilitate its financing activity supported revenue treatment.
Conclusion: The issue was decided against the Revenue and in favour of the assessee.
Issue (iii): Whether depreciation was allowable on the office premises on the basis of possession and rights under section 53A of the Transfer of Property Act, 1882.
Analysis: The Tribunal's finding that possession had in fact been handed over was treated as a finding of fact based on the possession letter and connected documents. Once possession and the necessary indicia of ownership in part performance were established, the assessee was entitled to claim depreciation. The Revenue failed to show that the finding was perverse or unsupported by the record.
Conclusion: The issue was decided against the Revenue and in favour of the assessee.
Final Conclusion: All substantive issues were resolved in favour of the assessee, and the Revenue's appeal failed.
Ratio Decidendi: Lease equalisation charges, when arising from recognised finance-lease accounting and reflecting a true and fair view without any rejection of accounts under section 145, cannot be disallowed merely because they are entered in the profit and loss account; revenue expenditure incurred to raise business finance is allowable as revenue; and depreciation follows where possession and rights in the property are established on facts, absent perversity.
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