Prudential norms and income tax computation can operate in distinct fields, sustaining depreciation claim on leased assets.

For a regulated finance company, prudential norms govern income recognition, while taxable computation and deductions remain controlled by the Income-tax Act. Accounting treatment cannot override the statute, but where the regulatory directions and the Act operate in distinct fields, the settled legal principles on recognition and taxation apply. On that basis, the assessee's claim to depreciation on leased assets was sustained and the Tribunal's contrary view could not stand.

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Issues: Whether the assessee was entitled to depreciation on the leased assets in view of the genuineness of the lease transactions and the governing principles for income recognition and computation of taxable income.

Analysis: The appeal was decided by applying the earlier binding view that, for a non-banking finance company, prudential norms govern income recognition, while admissible deductions and taxable computation continue to be controlled by the Income-tax Act. The reasoning accepted that accounting treatment cannot override the Act, but where the statutory framework and the special regulatory directions operate in different fields, the taxable result must follow the legal principles already settled by the higher courts. On that basis, the Tribunal's contrary view on the assessee's claim could not be sustained.

Conclusion: The issue was answered in favour of the assessee.

Final Conclusion: The Tribunal's order was set aside and the substantial questions of law were resolved in favour of the assessee, resulting in allowance of the tax appeal.

Ratio Decidendi: Where income recognition for a regulated finance company is governed by prudential norms, the tax computation must still be made under the Income-tax Act, but such norms may determine the timing and character of recognition where they operate in a distinct field and are not displaced by the Act.

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