2018 (9) TMI 1250 - HC - Income Tax

Gain arising on account of securitization of lease receivables and credited to the Profit & Loss Account - whether a taxable receipt in the current assessment year? - assessee also contended that this notional income was in the nature of a capital receipt, and therefore, could not be subjected to tax - Held that - We fail to see how the questions of law reproduced by us above, give rise to any substantial question of law. The finding given by the A.O. as well as CIT(A) and the ITAT are purely based on the factual aspects of the matter. As noted by the authorities below, the appellant assessee itself treated the receipt of ₹ 1.69 Crores as an income in their profit and loss account. It was their contention before the authorities below that this receipt was a capital receipt and hence not taxable. This was answered by the authorities below, and in our view correctly so by relying upon the decision of the Supreme Court in the case of the Commissioner of Income Tax Vs. T.V. Sunderam Iyanger & Sons Ltd. 1996 (9) TMI 1 - SUPREME COURT . This being the case, we do not find that the questions of law as proposed by Mr. Sheth, the learned counsel appearing on behalf of the appellant, raise any substantial question of law that require any consideration by us. Applicability of matching concept - whether appellant was entitled in law to spread over this income of ₹ 1.69 crores over a period from years 2002 to 2004 - Held that - Whether the matching concept ought to have been applied in the present case is a mixed question of fact and law, the foundation of which has never been laid by the appellant assessee before the authorities below. If the factual foundation for this argument has not been laid before the authorities below, no substantial question of law can arise therefrom. We, therefore, reject this argument at the very outset on this ground alone.

Summary

Issues Involved:
1. Taxability of ?1.69 Crores credited to the profit and loss account on account of securitization of lease rentals receivable in subsequent years.
2. Whether the amount is chargeable to tax merely because it is credited to the profit and loss account.
3. Taxability of the amount in the assessment year 2002-03 when the whole amount has been offered and assessed to tax in subsequent years.

Issue-wise Detailed Analysis:

1. Taxability of ?1.69 Crores Credited to the Profit and Loss Account:
The appellant-assessee, a non-banking finance company, securitized rent receivables for the financial years 2002-03 and 2003-04, receiving ?9.33 Crores in the financial year 2001-02. The balance amount of ?1.69 Crores was recognized as profit on securitization of lease receivables in the profit and loss account. The Assessing Officer (A.O.) added this amount as income, treating it as a revenue receipt taxable in the assessment year 2002-03. The CIT(A) and ITAT upheld this view, rejecting the appellant's contention that it was a notional income and not real income. The authorities relied on the Supreme Court decision in CIT Vs T.V. Sunderam Iyengar & Sons Ltd., which categorized such gains as revenue receipts.

2. Whether the Amount is Chargeable to Tax Merely Because it is Credited to the Profit and Loss Account:
The appellant argued that the ?1.69 Crores was notional income and should not be taxed. However, the A.O., CIT(A), and ITAT found that the appellant itself had credited this amount as income in its profit and loss account, indicating it was a real gain arising from business transactions. The authorities concluded that the gain was taxable as it was earned in the normal course of business and was a revenue receipt.

3. Taxability of the Amount in the Assessment Year 2002-03:
The appellant contended that the entire amount of ?9.33 Crores was offered and assessed to tax in subsequent years, and hence, the ?1.69 Crores should not be taxed in the assessment year 2002-03. The authorities, however, found that the gain of ?1.69 Crores was recognized in the profit and loss account for the financial year 2001-02 and thus was taxable in the assessment year 2002-03. The appellant's argument of spreading the income over subsequent years based on the "Matching Concept" was rejected as it was not raised before the lower authorities and lacked a factual foundation.

Conclusion:
The High Court dismissed the appeals, stating that the findings of the A.O., CIT(A), and ITAT were based on factual aspects and did not raise any substantial question of law. The Court also noted that the "Matching Concept" argument was not applicable as it was not raised earlier and lacked a factual basis. The appeals were dismissed with no order as to costs.