2019 (2) TMI 649 - HC - Income Tax

Lease equalization charges - Held that - The said question has been decided against the Revenue by the Hon ble Supreme Court in the case of Commissioner of Income Tax vs. Virtual Soft Systems Ltd., (2018 (4) TMI 1472 - SUPREME COURT). Accordingly, the said question is decided against the Revenue and the appeals are dismissed as against the said question of law, i.e., in respect of lease equalization charges. Deduction of 1/10th of the share issue expenses - the provisions of amortization under Section 35D applied only to the primary issue of shares and in respect of subsequent share issues, the expenditure had to be disallowed as capital expenditure - Held that - Tribunal has allowed the same on the ground that such expenses were allowed in the assessment years 1990-91/1993-94 and 1/10th of the same was allowed 8/5 years out of 10 years till the assessment year 1996-97. In our considered view, the Tribunal should have remanded the matter to the Assessing Officer to cause verification and then decide the issue. Therefore, we are of the view that the first substantial question of law is to be remanded to the AO for fresh consideration.

Summary

Issues:
1. Deduction of share issue expenses under Section 35D
2. Disallowance of lease equalization charges under Section 115JA

Analysis:

Issue 1: Deduction of share issue expenses under Section 35D
The tax case appeals involved the question of allowing deduction of 1/10th of the share issue expenses and whether the Income Tax Appellate Tribunal was correct in doing so. The Tribunal had allowed the expenses based on past assessments, but the High Court found that the matter should have been remanded to the Assessing Officer for verification. Therefore, the first substantial question of law in one of the appeals was remanded for fresh consideration to the Assessing Officer.

Issue 2: Disallowance of lease equalization charges under Section 115JA
Regarding the disallowance of lease equalization charges under Section 115JA, the High Court noted that the issue had been decided against the Revenue by the Supreme Court in a previous case. As a result, the High Court upheld the decision against the Revenue on this issue and dismissed the appeals related to lease equalization charges. The judgment followed the precedent set by the Supreme Court and no costs were awarded in this regard.

In conclusion, the High Court partially allowed one appeal by remanding the first substantial question of law for fresh consideration and dismissed the appeals related to lease equalization charges based on the Supreme Court's decision. The judgment provided clarity on the treatment of share issue expenses and lease equalization charges under the Income-tax Act, 1961.