2018 (7) TMI 1255 - HC - Income Tax

Accrual of income - Nature of Lease Finance by hire purchase lease whether the transaction is only a finance lease? - accounting standards - Held that - The impugned order is squarely covered by the judgment of this Court in Simpson and General Finance Co. Ltd., Vs. Deputy Commissioner of Income Tax 2014 (4) TMI 215 - MADRAS HIGH COURT as held there was no justifiable ground to accept the case of the assessee that based on AS19 only that the agreement in question was entered into by the assessee and it has to be treated as the finance agreement - the question has to be seen from the terms of the agreement entered into between the assessee, which was placed before the AO as well as before other Appellate Authorities - the contentions of the assessee s is rejected that the transaction is only a finance lease. - Decided against the assessee.

Issues:
1. Interpretation of Accounting Standard -19 for Finance Lease transactions.
2. Taxation of lease rental income in Finance Lease transactions.
3. Consideration of interest income versus entire lease rental for taxation.
4. Applicability of judgment in Simpson and General Finance Co. Ltd. case.
5. Finality of judgment in the High Court.

Analysis:

1. The appellant, engaged in bill discounting, hire purchase leasing, mutual funds, and insurance agency, filed its return for the assessment year 2011-2012. The assessing officer disallowed the principal portion of rental income, treating it as income from the leasing business. The appellant appealed the decision, questioning the treatment of the entire lease rental as income in Finance Lease transactions against Accounting Standard -19. The Income Tax Appellate Authority and Tribunal relied on the judgment in Simpson and General Finance Co. Ltd. case for previous assessment years, upholding the assessing officer's decision.

2. The Division Bench of the High Court dismissed the appellant's case for previous assessment years, emphasizing that the lease agreement did not reflect mere financing for equipment purchase but constituted a lease agreement. The court rejected the argument that the agreement should be considered a finance agreement based on the lessee's purchase of the equipment. The court found no grounds to accept the appellant's claim that the transaction was solely a finance lease based on the details of the agreement and the arrangement between the parties.

3. The court highlighted that the terms of the agreement, including monthly rent repayment and lease duration, indicated a lease agreement rather than a finance agreement. The court rejected the appellant's contention that the transaction should be treated as a finance lease solely based on Accounting Standard 19. The judgment in the present appeal aligned with the previous decision in the Simpson and General Finance Co. Ltd. case, indicating consistency in the interpretation of lease agreements for taxation purposes.

4. The appellant argued that Special Leave Petitions were filed in the Supreme Court against the High Court judgment, suggesting that the issue was not finalized. However, the High Court noted that the Supreme Court had not stayed the judgment in the Simpson and General Finance Co. Ltd. case. Therefore, the High Court maintained that the impugned order was covered by the previous judgment, leading to the dismissal of the appeal without costs.

5. The High Court concluded that the issue had attained finality based on the existing judgment and the lack of a stay from the Supreme Court. Despite the filing of Special Leave Petitions, the High Court upheld the consistency in its interpretation of Finance Lease transactions and the taxation of lease rental income, ultimately dismissing the appeal in line with the previous decision in the Simpson and General Finance Co. Ltd. case.

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