TMI Blog2006 (9) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... business of running them on hire." 3. The assessee is a company carrying on the business of Non-Banking Finance Company (NBFC), money-changers and investment activities. In the course of assessment proceedings the Assessing Officer noticed that the assessee had claimed depreciation on heavy vehicles like trucks etc. at 40%. The Assessing Officer has made a reference to the fact that depreciation on such heavy vehicles is available at 40% only if the same is used in the business of running them on hire. The Assessing Officer has further referred to the fact that the assessee has given these vehicles on lease to different persons for varying periods of time and the assessee itself not used these vehicles for running them on hire. The Assessing Officer therefore allowed depreciation only ordinary rate of depreciation i.e. 20% as per the prescribed rates of depreciation. The Assessing Officer has also made a reference to the decision of the Hon ble Calcutta High Court in the case of Soma Finance Leasing Co. Ltd. v. CIT [2000] 244 ITR 440 1 in support of his conclusions. 4. Before the Commissioner of Income-tax(A) it was submitted on behalf of the assessee that for cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets are to be used by the assessee for the purposes of his business or profession. Once it is accepted that the leasing out of the vehicles is one of the modes of doing business by the assessee and in fact the income derived from such leasing is treated as business income of the assessee, it would be clearly contradictory in terms to hold that the vehicles in question were not used wholly for the purpose of assessee s business which as noted above is one of the requisites stipulated in section 32. The Commissioner of Income-tax(A) accordingly directed the Assessing Officer to allow depreciation at the higher rate of 40%. Aggrieved by the Order of Commissioner of Income-tax(A) the Revenue has raised the aforesaid ground of appeal." At the time of hearing of this appeal it was brought to our notice by the ld. counsel for the assessee that the Tribunal in ITA 4320/Del./2002 for the assessment year 1995-96 in assessee s own case dealt with similar issue and following the decision of Hon ble Delhi High Court in the case of Bansal Credits Ltd. ( supra ) has upheld the order of the Commissioner of Income-tax(A) allowing higher rate of depreciation. Respectfully following the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AI on accounting for lease prescribes that a matching lease annual charge representing recovery of the net investment/fair value of the leased asset over the lease terms should be debited to the Profit and Loss a/c. It was further submitted that the book profits under section 115JA have to be determined in accordance with provisions of Parts II III of Schedule-VI to the Companies Act, 1956, and the guidelines issued by the ICAI are binding on the assessee while preparing its books of account in accordance with the Provisions of Companies Act, 1956. It was further submitted that the addition made by the Assessing Officer does not fall within any of the clauses in Explanation to section 115JA of the Act. Reliance was placed on the decision in the case of Hon ble Supreme Court Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273 1 wherein the Hon ble Supreme Court has held that while computing the book profits of the company under section 115JA the Assessing Officer has only a limited power to examine whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the provisions of the said Act and once Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd does not as such fall under any of these categories enumerated under clauses ( a ) to ( f ) of Explanation to section 115JA of the Act. The Commissioner of Income-tax (A) has also referred to the decision of Hon ble Supreme Court in the case of Apollo Tyres Ltd. ( supra ) and held that the Assessing Officer could not disturb the book profits which are determined in accordance with the provisions of Parts II III of Schedule VI to the Companies Act. The conclusion of the Assessing Officer in adding the lease equalization charges to the book profits was thus directed to be deleted by the Commissioner of Income-tax(A). The Revenue is aggrieved by this order of the Commissioner of Income-tax(A) and has raised the aforesaid ground of appeal. 9. Before us the ld. DR relied on the order of the Assessing Officer. The ld. counsel for the assessee relied on the order of the Commissioner of Income-tax (A). Further reliance was placed on the decision in the case of Jt. CIT v. Pact Securities Finance Ltd. [2003] 86 ITD 115 (Hyd.) wherein in the context of even regular assessments lease equalization charges have been held to be an admissible deduction. 10. We have considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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;" The purpose behind introduction of provisions of section 115JA was to tax, "zero tax companies". Section 115JA enacts deeming provisions of overriding nature. The purpose behind the introduction of section 115JA was to tax, "zero tax companies". A number of companies with huge profits were avoiding payment of tax by adjusting their profits against various allowances permissible under the Act. It was to circumvent this strategy that section 115JA was inserted in the Income-tax Act. Sub-section (1) of section 115JA takes care of the situation, wherein the case of an assessee, being a company, the total income as computed under the Act is less than 30% of its book profit, then the 30% of the book profit shall be liable to be taxed. In other words, simply if the total income of the company after all the deductions and allowances, is less than 30% of its book profit then the total income chargeable to tax is deemed to be 30% of such book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5JA(2). The nature of the lease equalizaton charges is recovery of the fair value of leased asset over the term of the lease. It is a deduction against lease rentals to bifurcate the annual lease into revenue component and capital component. They do not fall within the categories enumerated in clauses ( a ) to ( f ) of Explanation to section 115JA of the Act. 12. In case of Apollo Tyres Ltd. ( supra ) the Hon ble Supreme Court has explained the scope of the Assessing Officers powers under section 115J which provisions are akin to section 115JA of the Act as follows : "The Assessing Officer, while computing the book profits of a company under section 115 of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med certain amounts as bad debts the details of debt which became bad was furnished to the Assessing Officer in the course of assessments proceedings and the Assessing Officer noted that an amount of Rs. 2 lacs which was shown against one R. Revathi under the head of Account "against advances" was claimed to have become bad. The Assessing Officer held that the debt in question was not in the course of business of the assessee but against advances made to this person and therefore bad debt written off cannot be allowed. Before the Commissioner of Income-tax (A) the assessee had contended that under the provisions of section 36(2) deduction under section 36(1)( vii ) of the Act has to be allowed if the sum claimed as having become bad represents money lent in the ordinary course of business of banking or money lending carried on by the assessee. The Commissioner of Income-tax (A) however held that the principal business of the assessee was leasing and financing and not money lending as is understood in the normal sense of the term. The Commissioner of Income-tax (A) therefore upheld the finding of the Assessing Officer that the debt in question was not in the normal course of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer on an estimate basis held that 5% of the dividend income should be considered as expenditure incurred in earning the dividend income and he disallowed Rs. 1,13,812 under section 14A of the Act and added the same to the total income of the assessee. 20. On appeal by the assessee the Commissioner of Income-tax(A) confirmed the order of the Assessing Officer. Before the Commissioner of Income-tax (A) one of the contention of the assessee was that the dividend declared by the company had already suffered tax in the hands of the company. The Commissioner of Income-tax (A) however held that the incidence of tax in the hands of the recipient was alone relevant. Another contention of the assessee before the CIT(A) was that provisions of section 14A do not permit making a notional disallowance and the Assessing Officer has to specifically identify the expenses incurred in connection with earning the income. This argument was also rejected by the Commissioner of Income-tax (A). 21. Before us the ld. counsel for the assessee reiterated the same arguments as were put forth before the Commissioner of Income-tax(A). Reliance was placed on the decision of the Calcutta H ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
