2017 (5) TMI 1767 - AT - Income Tax

Appellate Tribunal permits lease charges inclusion in book profits for tax calculation under Income-tax Act

Deputy Commissioner of Income-tax, Circle-1, Udupi Versus M/s. ICDS Ltd.

The Appellate Tribunal allowed the revenue's appeals, overturning the CIT(A)'s orders. It was held that lease equalization charges could be added back to ... Computation of book profits for the purpose of computing tax liability u/s 115JA - as per Appellate Authorities provision for non-performing assets and lease equalization fund cannot be added back to the book profits as per explanation to section 115JA(2) - HELD THAT:- Having regard to the plain provisions of the Act, the said amount can be added back to book profits for the purpose of determining 115JA of the Act, as it is specifically authorised by clause (g) to Explanation to sub-section (2) of section 115J. This is permissible as per law laid down by the Hon’ble Supreme Court in the case of Apollo tyres [2002 (5) TMI 5 - SUPREME COURT] and the decision of Weizmann Homes Ltd. [2013 (5) TMI 123 - KARNATAKA HIGH COURT] The decision of the Hon’ble Delhi High Court in the case of Indian railway Finance Corporation Ltd.[2014 (6) TMI 224 - DELHI HIGH COURT] is not applicable to the facts of the present case as in that decision, it is not admitted that provision for lease equalisation charges is nothing but diminution in the value of assets. Therefore, the CIT(A) ought not to have allowed the claim of the assessee without examining the order of the Hon’ble High Court of Karnataka in detail. Therefore, the orders of the CIT(A) are reversed. Appeals filed by the revenue are allowed. Issues:- Appeal filed by revenue against different orders for assessment years 1998-99 to 2000-01.- Whether lease equalization charges can be added back to book profits for computing tax liability under section 115JA of the Income-tax Act, 1961.Analysis:Issue 1: Appeal filed by revenueThe appeals were filed by the revenue against various orders for the assessment years 1998-99 to 2000-01. The respondent-assessee, a company engaged in non-banking business, initially declared a total income for the assessment year 1998-99. Subsequently, the assessment was completed under section 143(3) of the Income-tax Act, 1961, determining the total loss and assessing book profits under section 115JA of the Act. The matter went through different levels of appeal, including the Tribunal and the High Court, resulting in the setting aside of the assessment for de novo consideration by the Assessing Officer.Issue 2: Lease equalization charges and tax liabilityThe core issue revolved around whether lease equalization charges, acknowledged as a provision for diminution in the value of assets by the assessee, could be added back to book profits for calculating tax liability under section 115JA of the Act. The High Court's decision emphasized the retrospective effect of the Finance Act, 2009, which included provisions for diminution in the value of assets to be added back to book profits. The Court highlighted that the nature of the provision was not open for reconsideration, as it was specifically authorized by the Act. The judgment referenced relevant precedents, including the Supreme Court's ruling in Apollo Tyres Ltd. vs. CIT and the Karnataka High Court's decision in CIT vs. Weizmann Homes Ltd., to support the conclusion that lease equalization charges could be added back as per law.In conclusion, the Appellate Tribunal allowed the appeals filed by the revenue, reversing the orders of the CIT(A) and emphasizing the applicability of the provisions under section 115JA of the Income-tax Act, 1961. The judgment underscored the legal framework and precedents supporting the addition of lease equalization charges to book profits for determining tax liability.