2019 (1) TMI 1961 - HC - Income Tax

Entitlement to deduction of lease equalisation charge - whether the deduction on account of lease equalisation charges from lease rental income can be allowed under the Income Tax Act, 1961, on the basis of Guidance Note issued by the Institute of Chartered Accountants of India (ICAI)? - HELD THAT - As decided in VIRTUAL SOFT SYSTEMS LTD. 2018 (4) TMI 1472 - SUPREME COURT it is wrong to say that the Respondent claimed deduction by virtue of Guidance Note rather it only applied the method of bifurcation as prescribed by the expert team of ICAI. Further, a conjoint reading of Section 145 of the IT Act read with Section 211 (un-amended) of the Companies Actmake it clear that the Respondent is entitled to do such bifurcation and in our view there is no illegality in such bifurcation as it is according to the principles of law. Moreover, the rule of interpretation says that when internal aid is not available then for the proper interpretation of the Statute, the court may take the help of external aid. If a term is not defined in a Statute then its meaning can be taken as is prevalent in ordinary or commercial parlance. Hence, we do not find any force in the contentions of the Revenue that the accounting standards prescribed by the Guidance Note cannot be used to bifurcate the lease rental to reach the real income for the purpose of tax under the IT Act. We are of the view that the Respondent is entitled for bifurcation of lease rental as per the accounting standards prescribed by the ICAI. Moreover, there is no express bar in the IT Act regarding the application of such accounting standards. - Decided against revenue. Levy of interest u/s 234D - HELD THAT - The issue is settled by the judgment of the Supreme Court in the case of Commissioner of Income Tax -I V. Reliance Energy Ltd. 2013 (10) TMI 280 - SUPREME COURT wherein the Supreme Court holds that the provisions of section 234D would be attracted in the case of assessments made after the date of its insertion, being 01.06.2003. In the instant case, the orders of assessment for Assessment Years 1999-2000 and 2002-03 are 18.03.2005 and 31.03.2005, both being subsequent to 01.06.2003. Accordingly, the provisions of section 234D would stand attracted in both cases. Decided against the assessee.

Summary

Issues Involved:
1. Deduction of lease equalisation charge under the Income Tax Act.
2. Charging of interest under section 234D for assessment years prior to its insertion.
3. Charging of interest even for the period subsequent to the introduction of sec.234D.

Issue 1: Deduction of Lease Equalisation Charge:
The High Court considered whether the assessee is entitled to a deduction of lease equalisation charge, which is an amount equal to the diminution in the value of depreciable leased assets, over and above the depreciation allowed under the Income Tax Act. The Court referred to a Supreme Court judgment in a similar case and concluded that the Respondent is entitled to bifurcate lease rental as per the accounting standards prescribed by the Institute of Chartered Accountants of India (ICAI). The Court highlighted that there is no express bar in the IT Act regarding the application of such accounting standards. Therefore, the substantial question of law regarding the deduction of lease equalisation charges was answered in favor of the assessee and against the Revenue.

Issue 2: Charging of Interest under Section 234D:
The Court analyzed whether interest under section 234D can be charged for assessment years prior to the insertion of the section, even if the regular assessment was completed after its insertion. Referring to a Supreme Court judgment, the Court held that the provisions of section 234D would be attracted in cases of assessments made after the date of its insertion, which was 01.06.2003. Since the orders of assessment for the relevant assessment years were subsequent to this date, the provisions of section 234D were deemed applicable. Consequently, the Court answered the substantial questions of law related to the charging of interest under section 234D in favor of the Revenue and against the assessee.

Issue 3: Charging of Interest Post Introduction of Section 234D:
The Court further considered whether interest can be charged even for the period subsequent to the introduction of sec.234D, despite the refund being granted prior to its insertion. Based on the analysis of the Supreme Court judgment and the specific dates of assessment orders, the Court concluded that the provisions of section 234D would apply for the relevant assessment years. Therefore, the Court answered the third substantial question of law in favor of the Revenue and against the assessee.

In conclusion, the High Court disposed of the Tax Case (Appeals) by ruling in favor of the assessee regarding the deduction of lease equalisation charges and in favor of the Revenue regarding the charging of interest under section 234D for the specified assessment years.