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2021 (8) TMI 442 - HC - Income TaxBook profits for the purpose of determining deemed income u/s 115JA - inclusion/exclusion of provision on account of lease equalization charges - HELD THAT - The explanation to sub-section (2) provides that for the purposes of this section book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by the amounts mentioned in clauses (a) to (g). In the instant case, the assessee made a provision on account of lease equalization charges. The aforesaid provision was made for meeting the liabilities other than the ascertained liabilities as provided in clause (g) of explanation to sub-section (2) of Section 115JA of the Act. This amount which was earmarked as a provision of diminution in the value of the asset for the purposes of arriving at book profit under Section 115JA of the Act, ought to have been included in view of retrospective operation of clause (g) to sub-section (2) to Section 115JA of the Act. Similar view has been taken by another Division Bench of this Court in COMMISSIONER OF INCOME-TAX Vs. WEIZMANN HOMES LTD . 2013 (5) TMI 123 - KARNATAKA HIGH COURT Tribunal has rightly held that the aforesaid amount has to be added back to book profits for the purpose of determining deemed income under Section 115JA of the Act as it is specifically authorized by clause (g) to sub-section (2) to Section 115JA of the Act. - Decided in favour of revenue.
Issues:
1. Interpretation of lease equalization charges under Section 115JA of the Income Tax Act, 1961. 2. Applicability of provisions for diminution in the value of assets to increase book profit for tax determination. Analysis: 1. The appeal addressed the issue of whether lease equalization charges should be added to book profit under Section 115JA of the Income Tax Act. The appellant, a public limited company engaged in leasing and accepting deposits, contested the Assessing Officer's disallowance of lease equalization charges while computing book profit for Assessment Years 1998-99 to 2000-01. The Commissioner of Income Tax (Appeals) ruled in favor of the appellant, but the Income Tax Appellate Tribunal confirmed the addition of lease equalization charges. 2. The appellant argued that the charges should only be taxed based on real income, following accounting methods prescribed by the Institute of Chartered Accountants of India (ICAI). They contended that the Tribunal's decision contradicted the guidance note of ICAI and cited relevant case laws to support their stance, including decisions by the High Court of Delhi and other precedents. 3. Conversely, the revenue contended that lease equalization charges represented a provision for diminution in asset value, which the appellant had acknowledged. They supported their argument by referencing Supreme Court decisions and a Karnataka High Court case. The Court examined the provisions of Section 115JA of the Act, emphasizing the importance of book profit calculation for companies and the insertion of clause (g) to the explanation of the section by the Finance Act, 2009. 4. The Court noted that the appellant had provisioned a significant amount for lease equalization charges, categorized as a provision for diminution in asset value under clause (g) of the explanation to Section 115JA(2) of the Act. Considering the retrospective application of the clause, the Court upheld the Tribunal's decision to include the charges in the book profit calculation. The Court referenced a previous Division Bench judgment to support this interpretation. 5. Consequently, the Court ruled against the appellant on the substantial questions of law, affirming the Tribunal's decision to add back the lease equalization charges to determine the deemed income under Section 115JA of the Act. As a result, the appeal was dismissed in favor of the revenue. This detailed analysis of the judgment provides a comprehensive overview of the legal issues, arguments presented by both parties, relevant legal provisions, and the Court's reasoning leading to the final decision.
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