2015 (10) TMI 996 - AT - Income Tax

Tribunal Upholds Inclusion of Lease Equalisation Charges in Book Profits

The Tribunal allowed the Revenue's appeals challenging the deletion of lease equalisation charges for computing book profits under section 115JA of the ... MAT computation - Additions towards lease equalisation charges for the purposes of computing book profits under section 115JA - Held that:- after retrospective amendment in the Act by way of the Finance (No. 2) Act, 2009, the assessee's stand is no more sustainable. It is to be seen that the hon'ble High Court in the assessee's case for the assessment year 1997-98 has taken cognizance of the abovestated amendment qua identical lease equalisation charges to observe that this amendment would apply from April 1, 1998. We reiterate that the assessment year involved before us is 1999-2000. Thus, we find that the case law of CIT v. Weizmann Homes Ltd. [2013 (5) TMI 123 - KARNATAKA HIGH COURT] post facto amendment squarely applies in this case. So, we accept the Revenue's grounds and hold that the assessee's lease equalisation charges have to be added to its book profits under section 115JA and leave it open for the Assessing Officer to make necessary computation as per law - Decided in favour of assessee. Issues:Appeals challenging deletion of lease equalisation charges for computing book profits under section 115JA of the Income-tax Act 1961.Analysis:The appeals before the Appellate Tribunal ITAT Chennai involved the deletion of lease equalisation charges for computing book profits under section 115JA of the Income-tax Act 1961. The issue revolved around whether the lease equalisation charges should be added back to the book profits. The Assessing Officer contended that these charges were an unascertained liability and needed to be included in the book profits. However, the assessee argued that the charges were computed as per relevant accounting standards and guidance notes, which should not be added to the book profits. The Commissioner of Income-tax (Appeals) accepted the assessee's contentions, citing a decision of the High Court of Madras, which held that the charges should not be treated as a reserve but rather as depreciation and lease equalisation charges. The Tribunal noted the retrospective amendment in the Act by the Finance (No. 2) Act, 2009, which specified that provisions for diminution in the value of assets should be included in book profits. Consequently, the Tribunal held that the lease equalisation charges had to be added to the book profits under section 115JA, in line with the post-amendment case law. The appeals by the Revenue were allowed, and the Tribunal directed the Assessing Officer to make necessary computations as per law.In summary, the Tribunal's decision centered on the treatment of lease equalisation charges for computing book profits under section 115JA of the Income-tax Act. The Tribunal considered the Assessing Officer's view that these charges constituted an unascertained liability, but ultimately agreed with the Revenue's argument that the retrospective amendment mandated including such provisions in book profits. The Tribunal relied on post-amendment case law to support its decision, emphasizing the need to align with the legislative changes. As a result, the appeals by the Revenue were allowed, and the Tribunal directed the inclusion of lease equalisation charges in the assessee's book profits under section 115JA.