2013 (10) TMI 1362 - HC - Income Tax

Miscellaneous income derived from penal interest and pre-closure charges can also be treated as eligible profit for the purpose of deduction under section 36(1)(vii) of the Act when receiving income from providing long term finance being the eligible business. - See Weizmann Homes Ltd. case 2013 (5) TMI 123 - KARNATAKA HIGH COURT Appellate Authorities were correct in holding that when computing the Book Profit u/s.115JB of the Act the assessee need not add back lease equalization reserve (reserve for doubtful income) and provisions for contingencies (unascertained liability) - See Weizmann Homes Ltd. case 2013 (5) TMI 123 - KARNATAKA HIGH COURT

Summary

Issues:
1. Interpretation of miscellaneous income for deduction under section 36(1)(vii) of the Income Tax Act.
2. Treatment of lease equalization reserve and provisions for contingencies when computing Book Profit under section 115JB of the Income Tax Act.

Issue 1: Interpretation of miscellaneous income for deduction under section 36(1)(vii) of the Income Tax Act:

The appeal challenged the order of the Income Tax Appellate Tribunal, Bangalore Bench, regarding the treatment of miscellaneous income derived from penal interest and pre-closure charges for deduction under section 36(1)(vii) of the Act. The substantial question of law was whether such income could be considered eligible profit for deduction under this section. The counsel for the revenue relied on a previous judgment by the Division Bench in a different case, arguing that the questions raised in the appeal were addressed in that judgment. Consequently, the first question was answered in favor of the assessee and against the revenue based on the earlier judgment.

Issue 2: Treatment of lease equalization reserve and provisions for contingencies when computing Book Profit under section 115JB of the Income Tax Act:

The second substantial question of law involved the treatment of lease equalization reserve and provisions for contingencies when calculating Book Profit under section 115JB of the Act. The counsel for the respondent-assessee did not contest the submissions made by the revenue's counsel and agreed to dispose of the appeal in accordance with the judgment dated 4th March 2013. As a result, the second question was answered in favor of the revenue and against the assessee, aligning with the judgment mentioned earlier. The appeal was consequently disposed of without costs.

This judgment by the Karnataka High Court clarified the interpretation of miscellaneous income for deduction under section 36(1)(vii) of the Income Tax Act and addressed the treatment of certain reserves and provisions when computing Book Profit under section 115JB. The decision was based on a previous judgment by the same court, providing guidance on these issues and resolving the questions raised in the appeal.