TaxTMI 
TaxTMI 
2018 (4) TMI 1472
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....CIVIL APPEAL NO. 4370 OF 2018 (Arising out of Special Leave Petition (C) NO. 16153 OF 2014) CIVIL APPEAL NO. 4369 OF 2018 (Arising out of Special Leave Petition (C) NO. 13875 OF 2014) CIVIL APPEAL NO. 4371 OF 2018 (Arising out of Special Leave Petition (C) NO. 17581 OF 2015) CIVIL APPEAL NO. 4372 OF 2018 (Arising out of Special Leave Petition (C) NO. 22953 OF 2015) CIVIL APPEAL NO. 4373 OF 2018 (Arising out of Special Leave Petition (C) NO. 22954 OF 2015) CIVIL APPEAL NO. 4375 OF 2018 (Arising out of Special Leave Petition (C) NO. 24590 OF 2015) CIVIL APPEAL NO. 4374 OF 2018 (Arising out of Special Leave Petition (C) NO. 24576 OF 2015) CIVIL APPEAL NO. 4376 OF 2018 (Arising out of Special Leave Petition (C) NO. 25944 OF 2015)IN THE SUPREME COURT OF INDIA R. K. Agrawal And Abhay Manohar Sapre, JJ. JUDGMENT R.K.Agrawal, J. SLP (C) No. 25006 of 2012 1) Leave granted. 2) This batch of appeals has been filed against the impugned judgment and order dated 07.02.2012 passed by the High Court of Delhi at New Delhi in ITA Nos. 216, 398, 403, 404 and 680 of 2011 whereby the Division Bench of the High Court upheld the decision of the Income Tax Appellate Tribunal (in short 't....
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....tered Accountants of India (ICAI)? Rival submissions:- 6) At the outset, learned senior counsel for the Revenue contended that the lease equalization charge is an additional deduction debited to Profit and Loss Account (P&L) in addition to the depreciation claimed in books so as to make it equal to capital recovery. This is an artificial calculation which bifurcates lease rental to capital recovery and interest component. Learned senior counsel further contended that in fact the entire lease income constitutes income of the assessee. Also, there is no concept of deduction regarding the lease equalization charges under the IT Act. Hence, learned senior counsel contended that impugned decision of the High Court is perverse and is liable to be set aside. 7) On the other hand, learned senior counsel for the Respondent submitted that this issue is no longer res integra. Now, it is a settled principle that a Guidance Note issued by the ICAI carries great weight and by adopting a method of accounting prescribed in such a Guidance Note, in order to compute real income and offering the same for taxation, cannot be disregarded by the Assessing Officer unless such action falls within....
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....." (Emphasis supplied by us) 10) The purpose behind the amendment in Section 211 of the Companies Act, 1956 was to give clear sight that the accounting standards, as prescribed by the ICAI, shall prevail until the accounting standards are prescribed by the Central Government under this sub-section. The purpose behind the accounting standards was to arrive at a computation of real income after adjusting the permissible deprecation. It is not disputed that these accounting standards are made by the body of experts after extensive study and research. 11) At this stage, it would be pertinent to reproduce the relevant provisions of the Guidance Note on Accounting for Leases, revised in 1995, which is as under:- "Accounting for leases in the Books of a lessor Finance Leases 9. Assets leased under finance leases should be disclosed as "Assets given on lease", as a separate section under the head "Fixed Assets" in the balance sheet of the lessor. The classification of 'Assets given on lease' should correspond to that adopted in respect of other fixed assets. In addition to the particulars required by statute, e.g., Schedule VI to the Companies Act, 1956, pa....
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....ted in the Appendix to this Guidance Note. 12. The finance income for the period should be calculated by applying the interest rate implicit in the lease to the net investment in the lease during the relevant period. This method would ensure recognition of net income in respect of a finance lease at a constant periodic rate of return on the lessor's net investment outstanding in the lease. However, some lessor use a simpler method for calculating the finance income for each of the periods comprising the lease term by appropriating the total finance income from the lease in the ratio of minimum lease payments outstanding during each of the respective periods comprising the lease term. (The total finance income from the lease is the difference between the aggregate minimum lease payments receivable over the lease term and the fair value of the leased asset at the inception of the lease.) This method may be used where the finance income in respect of all individual periods as per this method approximate the finance income for the corresponding periods determined according to the former method. It is however clarified that where this method is used, overdue lease rentals, i.e.....
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....orm of revenue receipts only is captured for the purposes of income tax. Moreover, we do not find any express bar in the IT Act which bars the bifurcation of the lease rental. This bifurcation is analogous to the manner in which a bank would treat an EMI payment made by the debtor on a loan advanced by the bank. The repayment of principal would be a balance sheet item and not a revenue item. Only the interest earned would be a revenue receipt chargeable to income tax. Hence, we do not find any force in the contentions of the Revenue that whole revenue from lease shall be subjected to tax under the IT Act. 15) Without a doubt, in a catena of cases, this court has discussed the relevancy of the Guidance Note. While dealing with one of such matters, this Court, in Commissioner of Income Tax-VII, New Delhi vs. Punjab Stainless Steel Industries (2014) 15 SCC 129 held as under: "17. So as to be more accurate about the word "Turnover", one can either refer to dictionaries or to material which are published by bodies of Accountants. The Institute of Chartered Accountants of India (hereinafter referred to as the "ICAI") has published some material under the head "Guidance Note o....