2015 (8) TMI 1215 - HC - Income Tax

Higher rate of depreciation @ 40% - assessee was engaged in the business of letting out assets on hire - Held that - Decided against revenue and in favour of the respondent-assessee as decided in assessee own case 2011 (6) TMI 737 - BOMBAY HIGH COURT - Decided against revenue. Lease equalization credited to P&L Account over and above the lease rental - Tribunal held it cannot be considered as income and thereby upholding reducing of assessee s total income by lease equalization - Held that - Assessing Officer has completely misunderstood the claim of the respondent-assessee in respect of the lease equalization fund. It is not disputed even by the Assessing Officer that the lease rent which has been received by the respondent/assessee has been offered to tax. Even if one accepts the submission on behalf of the revenue that these guidelines have not been notified by the Central Government for under Section 145(2) of the Act and thus cannot be accepted yet what follows is that the amount credited as a lease equalization fund to Profit and Loss Account has to be ignored as it is not real income. It is an amount which is completely notional and brought into the books only for complying with accounting standards and has no relevance to determine the amount of net income chargeable to tax. In that view of the matter, the respondent-assessee was completely justified in reducing the amount of ₹ 2.06 crores credited to the Profit and Loss Account as lease equalization fund for the purposes of determining the income chargeable to tax. - Decided against revenue. Expenditure incurred on stamp duty paid for acquisition of leasehold land for 30 years - ITAT allowed as revenue expenditure - Held that - Tribunal by the impugned order to state that the period of lease for which the property has been taken, cannot be regarded as a decisive test to determine the nature of the expenditure. In any case, it is not disputed before us that the stamp duty amount has been paid on the lease deed for the purposes of carrying on assessee s business. Once the aforesaid position is accepted then the amount of stamp duty paid for has to be allowed as revenue nature. - Decided against revenue.

Summary

Issues:
1. Question A: Whether the Tribunal was correct in allowing higher rate of depreciation for assets let out on hire.
2. Question B: Whether the Tribunal was right in reducing the total income by lease equalization amount credited to P&L Account.
3. Question C: Whether the stamp duty paid for leasehold land should be treated as revenue or capital expenditure.

Question A:
The issue in question A was already decided against the appellant-revenue in a previous case involving the same respondent-assessee. The Tribunal upheld the decision, stating that it did not give rise to any substantial question of law and hence was not entertained.

Question B:
In this case, the respondent-assessee reduced the lease equalization amount from its income, following guidelines from the Institute of Chartered Accountants of India. The Assessing Officer disagreed with this method, but the CIT(A) and the Tribunal supported the respondent's approach. They clarified that the lease equalization fund was a book adjustment entry and not real income. The Tribunal emphasized consistency in not allowing the deduction in previous years. The revenue's grievance was that the accounting guidelines were not notified by the Central Government under the Act. However, the Court found that the amount credited was not real income and was justified in being excluded from taxable income.

Question C:
Regarding the stamp duty paid for leasehold land, the Assessing Officer initially suggested spreading the expense over the lease period. The CIT(A) disagreed with this, considering it a capital expenditure. The Tribunal, citing previous court decisions, allowed the stamp duty as revenue expenditure for the year. The revenue contended that the entire amount should be treated as differed revenue expenditure due to the 30-year lease period. However, the Court rejected this argument, stating that the revenue had accepted the CIT(A)'s finding and that there was no concept of differed revenue expenditure unless specified in the Act. The Court dismissed the appeal, upholding the treatment of stamp duty as revenue expenditure.

In conclusion, the High Court of Bombay dismissed the appeal, upholding the decisions of the Tribunal regarding higher depreciation rates, lease equalization amount treatment, and stamp duty as revenue expenditure. The Court found no substantial questions of law in the issues raised by the appellant-revenue and ruled in favor of the respondent-assessee based on established legal principles and previous court decisions.