2019 (4) TMI 1583 - HC - Income Tax

Lease Equalisation Charges - deductibility as expenditure against the Lease Rental Income - HELD THAT - Issue as decided against the Revenue by the Supreme Court in the case of Commissioner of Income Tax v. Virtual Soft Systems Ltd., 2018 (4) TMI 1472 - SUPREME COURT , wherein held that Lease Equalisation Charges are deductible as expenditure against the Lease Rental Income in the hands of the Assessee. Question No.1 is answered in favour of the Assessee and against the Revenue. MAT - Provision for Non Performing Assets to be added back for computing Book Profits u/s 115JA - HELD THAT - Issue decided in M/S. INTEGRATED FINANCE CO. LTD. VERSUS THE DEPUTY COMMISSIONER OF INCOME-TAX 2019 (2) TMI 1439 - MADRAS HIGH COURT held the settled position in law as on date is that with effect from 01.04.1998 any amount set aside as provision for diminution in value of asset would be liable to be added back to the ''book profits'' in terms of s.115JA - Decided against assessee. Allowability of Provision for Non Performing Assets - HELD THAT - The said issue is covered by a decision of a Co-ordinate Bench of this Court in the case of T.N.Power Finance Infrastructure Development Corpn. Ltd. v. Joint Commissioner of Income Tax, 2005 (10) TMI 38 - MADRAS HIGH COURT held that Appellate Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals) in disallowing provision for non-performing assets which was debited to the profit and loss account. Accordingly, the question of law is answered in the affirmative, against the assessee and in favour of the revenue.

Summary

Issues:
1. Allowability of Lease Equalisation Charges
2. Treatment of Provision for Non Performing Assets in computing Book Profits
3. Allowability of Provision for Non Performing Assets based on RBI directions

Analysis:

Issue 1: Allowability of Lease Equalisation Charges
The Assessee challenged the disallowance of Lease Equalisation Charges by the Tribunal. The Court referred to a Supreme Court judgment in Commissioner of Income Tax v. Virtual Soft Systems Ltd., which held that Lease Equalisation Charges are deductible as expenditure against the Lease Rental Income. The Court ruled in favor of the Assessee, allowing the deduction of Lease Equalisation Charges.

Issue 2: Treatment of Provision for Non Performing Assets in computing Book Profits
The Revenue contended that the provision for Non Performing Assets should be added back while computing Book Profits under Section 115JA. The Court cited a judgment in M/s.Integrated Finance Co. Ltd. v. Deputy Commissioner of Income Tax, which clarified that provisions for diminution in the value of assets must be added back to book profits. Accordingly, the Court ruled in favor of the Revenue, requiring the provision for Non Performing Assets to be added back for computing Book Profits.

Issue 3: Allowability of Provision for Non Performing Assets based on RBI directions
The Assessee argued that the provision for Non Performing Assets, based on RBI directions, should be allowable. However, the Court referred to a decision in T.N.Power Finance Infrastructure Development Corpn. Ltd. v. Joint Commissioner of Income Tax, which emphasized that RBI directions cannot override the Income-tax Act provisions. The Court upheld the disallowance of the provision for Non Performing Assets, ruling in favor of the Revenue.

The Court concluded that the Appeal of the Assessee is disposed of accordingly, with no costs awarded. The judgment addressed all raised issues comprehensively, providing legal clarity on the treatment of Lease Equalisation Charges and provisions for Non Performing Assets in income tax assessments.