M/S. Icds Limited vs The Deputy Commissioner Of ...
2021 Latest Caselaw 3096 Kant

                          1



 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 3RD DAY OF AUGUST 2021

                      PRESENT

        THE HON'BLE MR. JUSTICE ALOK ARADHE

                         AND

THE HON'BLE MR.JUSTICE HEMANT CHANDANGOUDAR

                I.T.A. NO.678 OF 2017
BETWEEN:

M/S. ICDS LIMITED
SYNDICATE HOUSE
MANIPAL - 576104
REP. BY ITS WHOLETIME DIRECTOR
SRI. T. MOHANDA PAI
AGED 84 YEARS
S/O DR. T.M.A. PAI
PAN:AAACI43554.
                                          ... APPELLANT

(BY MISS/SMT. JINITHA CHATTERJEE, ADV., FOR
          SRI. S. PARTHASARATHI, ADV.)

AND:

THE DEPUTY COMMISSIONER
OF INCOME-TAX, CIRCLE-1
UDUPI RANGE, CANARA TOWERS
MISSION HOSPITAL ROAD
UDUPI-576101.
                                        ... RESPONDENT

(BY SRI. K.V. ARAVIND, ADV.)
                          ---
                                2




      THIS I.T.A. IS FILED UNDER SECTION 260-A OF
I.T.ACT, 1961 ARISING OUT OF ORDER DATED 02.05.2017
PASSED IN ITA NO.1025 TO 1027/BANG/2016, FOR THE
ASSESSMENT YEAR 1998-99 TO 2000-01, PRAYING TO:
      I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED ABOVE.
      II. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE ITAT, DATED 02.05.2017 BEARING ITA NO.1025 TO
1027/BANG/2016 FOR THE ASSESSMENT YEAR 1998-99 TO
2000-01 & ETC.

    THIS I.T.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:

                         JUDGMENT

This appeal under Section 260-A of the Income Tax

Act, 1961 (hereinafter referred to as 'the Act', for short) has

been filed by the assessee. The subject matter of the appeal

pertains to the Assessment Years 1998-99 to 2000-01. The

appeal was admitted by a Bench of this Court on the

following substantial questions of law:

a) Whether the Tribunal was justified in holding that lease equalization charges provided is a provision for diminution of value of asset to rope in clause (g) of Explanation to Section 115JA of the Act to increase the book profit for the purpose of determination of tax under the said section?

b) Whether the Tribunal was justified in ignoring the direction of this Hon'ble High Court in the Appellant's own case to follow the ratio of the Supreme Court in the case of Apollo Tyres Ltd Vs. CIT (2002) 255 ITR 273 while setting aside the assessment originally made and proceeded to hold the provisions of clause (g) of Explanation to Section 115JA(2) of the Act would apply to increase the book profit for the purpose of determination of tax?

2. Facts leading to filing of this appeal briefly stated are

that assessee is a public limited company which is engaged in

the business of leasing and accepting deposits from the

public. The assessee filed its return of income for

Assessment Year 1998-99. The Assessing Officer, while

computing the book profit under Section 115JA of the Act,

did not allow lease equalization charges and by orders dated

11.02.2015 and 29.01.2015 passed orders of assessment for

Assessment Years 1998-99 to 2000-01, respectively. The

assessee thereupon filed an appeal against the orders of

assessment. The Commissioner of Income Tax (Appeals), by

orders dated 08.03.2016 for Assessment Years 1998-99 to

2000-01, has deleted the addition on account of lease

equalization charges and allowed the appeal. The revenue

filed appeal before the Income Tax Appellate Tribunal. The

Tribunal, by a common order dated 02.05.2017, has

confirmed the addition on account of lease equalization

charges. In the aforesaid factual background, this appeal

has been filed.

3. Learned counsel for the assessee submitted that the

assessee can be charged only on real income which can be

calculated after applying the prescribed accounting method

as per guidance note of the Institute of Chartered

Accountants of India (ICAI). It is further submitted that on

conjoint reading of Section 145 of the Act with Section 211 of

the Companies Act, 1956, it is evident that the assessee is

entitled to make such a bifurcation and there is no illegality

in the same. It is further submitted that lease equalization

charges have to be taxed to the extent of real income and

the method of calculating the income has to be followed by

applying guidance note of ICAI. It is also submitted that the

Tribunal has cited the first substantial question of law

mentioned in the order dated 02.05.2017 passed in ITA

Nos.1025-27/2016 and relying on the answer to substantial

question of law No.2. In support of aforesaid submission,

reliance has been placed on the decisions of High Court of

Delhi in 'COMMISSIONER OF INCOME-TAX Vs. M/s.MGF

INDIA LTD.' DATED 21.02.2018 PASSED IN ITA

NO.378/2004 and 'PRAKASH LEASING LTD. Vs.

DEPUTY COMMISSIONER OF INCOME-TAX' (2012) 208

TAXMANN 464.

4. On the other hand, learned counsel for the revenue

submitted that lease equalization charges is in the nature of

provision for diminution in the value of assets and the

aforesaid fact has been admitted by the assessee before this

Court and the Tribunal has therefore rightly answered the

issue whether the aforesaid amount can be added back to

book profit under Section 115JA of the Act. In support of

aforesaid submission, reliance has been placed on the

decisions of the Supreme Court in 'APOLLO TYRES LTD. Vs.

COMMISSIONER OF INCOME-TAX' (2002) 122 TAXMAN

562 (SC) AND 'COMMISSIONER OF INCOME-TAX Vs.

WEIZMANN HOMES LTD.' (2013) 33 TAXMANN.COM

171 (KAR).

5. We have considered the submissions made on both

sides and have perused the record. The issue involved in this

appeal is whether lease equalization charges debited to profit

and loss account has to be added to the book profit. The

relevant extract of Section 115JA of the Act reads as under:

"115JA. Deemed income relating to certain companies.--(1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit.

(2) Every assessee, being a company, shall, for the purposes of this section prepare its profit

and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956):

Provided that while preparing profit and loss account, the depreciation shall be calculated on the same method and rates which have been adopted for calculating the depreciation for the purpose of preparing the profit and loss account laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956):

Provided further that where a company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956) which is different from the previous year under the Act, the method and rates for calculation of depreciation shall correspond to the method and rates which have been adopted for calculating the depreciation for such financial year or part of such financial year falling within the relevant previous year.

Explanation.--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--

(a) the amount of income-tax paid or payable, and the provision therefor; or

(b) the amounts carried to any reserves by whatever name called; or

(c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities; or

(d) the amount by way of provision for losses of subsidiary companies; or

(e) the amount or amounts of dividends paid or proposed; or

(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies;

(g) the amount or amounts set aside as provisions for diminution in the value of any asset,

if any amount referred to in clauses (a) to (g) is debited to the profit and loss account, and as reduced by, xxxxxxx"

It is pertinent to note that clause (g) to explanation to

sub-section (2) of Section 115JA of the Act has been inserted

by Finance Act, 2009 w.e.f. 01.04.1998. The aforesaid

provision applies to companies. It provides that if total

income of the company as computed under the provisions of

the Act is less than 30% of the book profit, the total income

of such assessee is chargeable to tax for the relevant

previous year shall be deemed to be an amount equal to

30% of the such book profit. 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).

6. In the instant case, the assessee made a provision

of Rs.11,09,04,763/- 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., supra. Therefore, the 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.

For the aforementioned reasons, the substantial

questions of law are answered against the assessee and in

favour of the revenue.

In the result, the appeal fails and is hereby dismissed.

Sd/-

JUDGE

Sd/-

JUDGE

RV