TaxTMI 
TaxTMI 
2016 (7) TMI 1210
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....rrectly invoked the provision of section 115JA, which finds support from the decision of Hon'ble High Court of Karnataka in the case of C.I.T. v/s. Weizmann Homes Ltd. reported in [2013] 33 taxmann.com 171 (Karnatak) and decision of I.T.A.T. Chennai Bench "A" in the case of Deputy Commissioner of Income tax vs. Citi Financial Retails Services India Ltd. In I.T.A. No.1102 & 1103 (MDS) of 2014 A.Y. 1999-2000 and 2000-01, reported in [2014] 52 taxmann.com 68 (Chennai-Trib.)?" (2) "Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that the gain on Exchange rate fluctuation Rs. 11,72,828/- does not form part of 'total turnover' for the purpose of section 80HHC of the Act without appreciating that forex fluctuation gain is not profit derived from export but forms part of total turnover for the purpose of Section 80HHC of the Act, since gain on exchange rate fluctuation is in the nature of other income includible in gross receipts?" 2. The assessment year is 2000-2001 and the relevant accounting period is the previous year 1999-2000. The assessee which is assessed in the status of a company filed its return of income on 30th November, 2....
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....ection (1A), as increased by: (b) the amounts carried to any reserve (other than the reserve specified in section 80HHD) (or sub-section (1)A to section 33AC), by whatever name called. He, accordingly, was of the view that the lease equalization fund which has been taken by the assessee to Schedule 5 of fixed assets in the name of lease terminal adjustment is nothing but a reserve and dismissed the said ground of appeal. The assessee carried the matter in further appeal before the Tribunal, which placed reliance upon the decision of the Delhi High Court in the case of GE Capital Transportation Finance Services Ltd. 113 ITD 22 (Del.), and the Madras High Court in TVS Finance & Services Limited, 318 ITR 435 (Mad.), and allowed the ground of appeal. 4. Mr. K.M. Parikh, learned senior standing counsel for the appellant invited the attention of the court to the facts as recorded by the Assessing Officer to point out that the Assessing Officer has specifically recorded that the assessee while making the computation of the total business income as per the normal provisions in Chapter IV had added together the lease equalization charge whereas the same was not added while calculat....
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....unt. It was submitted that, therefore, the said ground of appeal deserves consideration. 5. Opposing the appeal, Mr. S.N. Soparkar, learned senior advocate appearing with Mr. B.S. Soparkar, learned advocate for the respondent assessee on caveat, submitted that the basic premise namely, that the lease equalization charge is in the nature of a reserve is erroneous, inasmuch as, it is a settled legal position as held by different High Courts that lease equalization fund is not in the nature of a reserve and hence, the provisions of clause (b) of sub-section (2) of section 115JA of the Act would not be attracted in the present case. It was further submitted that the computation of book profit under Chapter IV, that is, the normal provisions and computation of book profit under the MAT provisions is different. It was submitted that an assessee, though he may be entitled to a claim, may not make a claim while computing the book profit under Chapter IV of the Act. It was submitted that in the present case, the assessee is being assessed under the MAT provisions and hence, the only question that arises for consideration is whether for the purposes of section 115JA of the Act, the lease ....
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.... by the High Court was whether the Income Tax Appellate Tribunal was right in holding that Rs. 3,99,62,960/- towards lease equalization charge made as per Institute of Chartered Accountants of India's guidance note is contingent in nature and, therefore, includible in computing the "book profit" under section 115JA of the Act. Before the court on behalf of the appellant, it was submitted that the lease equalization charge had been made on the basis of the Reserve Bank Guidelines and on the basis of the opinion of the Directors. The court found that this was in accordance with the Guidance Norms on Accounting for leases. Before the court, the Department conceded that the amount of lease equalization charge over the period of lease is equal to the difference between the quantum of principal recovered and the residual value, but hypothetically justified its treatment as a reserve on the ground that there will be some years when the quantum of provision would be more than necessary. The court held that when the lease equalization charge is debited as per the guidelines and when the Department also admitted the same, it could not appreciate the stand of the Department that it should be ....
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....ofit and loss account and it helps the income getting staggered or matched during the entire period of lease. Reliance was also placed upon the decision of the Karnataka High Court in the case of Prakash Leasing Ltd. v. Deputy Commissioner of Income-tax, Central Circle-III, (2012) 208 Taxmann 464 (Karnataka), wherein the court placed reliance upon the decision of the Delhi High court in the case of C.I.T. v. Virtual Soft Systems Limited (supra) and held that the lease equalization charge is the result of the adjustment which the assessee has to make whenever the amount put aside towards capital recovery is not equivalent to the depreciation claimed by the assessee. The assessee may claim depreciation based on the provisions of the Income Tax Act or the Companies Act. The capital recovery thus can be known after deduction of financing charges from the lease rentals. Thus, lease equalization charges is a method of recalibrating the depreciation claimed by the assessee in a given accounting period. As long as the method employed for accounting the income meets with the rudimentary principles of accountancy, one of which includes offering only revenue income for tax, it could not find ....
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....computing the book profit under section 115JA while it has added the same under the normal provisions of the Act, deserves to be stated to be rejected, inasmuch as, it is the case of the revenue at all stages that the lease equalization charge being in the nature of a reserve, the net profit is required to be increased while computing the book profit under section 115JA of the Act. The sole question that arises for consideration is as to whether the lease equalization charge is in the nature of a reserve as contemplated under clause (b) of section 115JA of the Act. In this regard, it may be germane to refer to the decision of the Delhi High Court in the case of C.I.T. v. Virtual Soft Systems Limited (supra), wherein the concept of lease equalization fund has been succinctly elucidated as under:- "14.3 Lease rental in monetary terms is a sum total of: the financing charge and the amount embedded in it in the form of the capital sum. What the assessee needs to do, while offering for tax income derived from lease is, to separate the financing charge from the amount recovered towards capital, that is, the capital recovery amount. The financing change is determined by applying the IR....
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....riod the said debit would work itself out." This court is in agreement with the view adopted by the Delhi High Court in the above referred decision namely, that the lease equalization charge is a method of recalibrating the depreciation claimed by the assessee in a given accounting period. The method employed by the assessee, therefore, over the full term of the lease period would result in the lease equalization amount being reduced to a naught, as the debits and credits in the profit and loss account would square off with each other. Under the circumstances, the same is neither in the form of a reserve nor a deduction. The above view finds support in the decision of the Madras High Court in the case of TVS Finance and Services Limited v. Joint Commissioner of Income Tax (supra) wherein the court has held that lease equalization charge is not in the nature of a reserve, inasmuch as, the amount of lease equalization charge over a period of lease is equal to the difference between the quantum of principal recovered and the residual value. 7. In the light of the law laid down in the above decisions that the lease equalization fund is not in the nature of a reserve, with which t....
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....cals P Ltd. (supra) would not be applicable to the facts of the present case, inasmuch as, in the said case, there was no issue of reduction of income from foreign exchange fluctuation from miscellaneous expenses. 10. On the other hand, Mr. S.N. Soparkar, learned counsel for the respondent submitted that the decision of this court in the case of C.I.T. v. Alps Chemicals P Ltd. (supra) would be squarely applicable to the facts of the present case wherein the court has held that once export is made, due to a variety of reasons, the remission of export sale consideration may not be made immediately. Under the accounting principles, therefore, the assessee on the basis of accrual, would record sale consideration at the prevailing exchange rate on the quoted price for the exported goods in the foreign currency rates. If during the same year of the export, remission is also made, the difference in the rate recorded in the accounts of the assessee and that eventually received by way of remission either positive or negative, would be duly adjusted. May be the accounting standards require that the same may be recorded in separate foreign exchange fluctuation account, nevertheless any dev....