2022 (3) TMI 255 - HC - Income Tax

Entitled to deduction of lease equalization charge - bifurcation of lease rental as per the accounting standards / Guidance Note prescribed by the ICAI - amount equal to the diminution in the value of depreciable lease assets, over and above the depreciation allowed under the Income Tax Act, 1961 - HELD THAT - The first substantial question of law involved in this appeal has already been considered and decided in favour of the assessee by judgment 2019 (1) TMI 1961 - MADRAS HIGH COURT as held that the rule of interpretation says that when internal aid is not available then for the proper interpretation of the Statute, the court may take the help of external aid. If a term is not defined in a Statute then its meaning can be taken as is prevalent in ordinary or commercial parlance. Hence, we do not find any force in the contentions of the Revenue that the accounting standards prescribed by the Guidance Note cannot be used to bifurcate the lease rental to reach the real income for the purpose of tax under the IT Act. To sum up, we are of the view that the Respondent is entitled for bifurcation of lease rental as per the accounting standards prescribed by the ICAI. Moreover, there is no express bar in the IT Act regarding the application of such accounting standards - Decided against revenue.

Summary

Issues:
1. Deduction of lease equalization charge.
2. Allowability of professional charges as deduction.

Deduction of Lease Equalization Charge:
The tax case appeal challenged the Income Tax Appellate Tribunal's order regarding the deduction of lease equalization charge for the Assessment Year 1998-1999. The High Court admitted the appeal based on substantial questions of law related to this issue. The first substantial question of law was whether the assessee was entitled to deduction of lease equalization charge, which was considered by the Supreme Court in a previous judgment. The Supreme Court ruled that the Respondent could claim deduction for lease equalization charges by applying the method prescribed by the Institute of Chartered Accountants of India (ICAI). The Court emphasized that the Respondent's calculation of real income for tax purposes was valid and not in contravention of the Income Tax Act. Consequently, the High Court answered the first substantial question of law in favor of the assessee, as per the Supreme Court's decision.

Allowability of Professional Charges as Deduction:
The second substantial question of law in the appeal concerned the allowability of professional charges paid to M/s. PCR Investments as a deduction. The appellant contended that these charges, representing a non-compete fee, were not allowable as they were of a capital nature. The learned counsel for the respondent pointed out that a similar issue raised in a previous case was not admitted by the Co-ordinate Bench. Acknowledging this, the High Court determined that this issue also had to be answered against the appellant. Consequently, the Tax Case Appeal was dismissed without costs, as both substantial questions of law were decided against the appellant / Revenue.

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