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2023 (4) TMI 195 - HC - Income TaxLease equalization charge claimed as a deduction from gross lease rentals received by the assessee in respect of finance lease of assets - accounting standards prescribed by the ICAI - additions to lease rental income recognised by assessee in compliance with the mandatory accounting standard AS 19 read with accounting standard No.1 notified U/s.145 (2) - HELD THAT:- As decided in own case [2022 (12) TMI 1285 - TELANGANA HIGH COURT] this issue is no longer res integra as the same has been answered by the Supreme Court in Commissioner of Income Tax-VI v. Virtual Soft Systems Limited [2018 (4) TMI 1472 - SUPREME COURT] as held that method of accounting followed as derived from ICAI Guidance Note is a valid method of capturing real income based on the substance of finance lease transaction. The rule of substance over form is a fundamental principle of accounting. The bifurcation of the lease rental is, by no stretch of imagination, an artificial calculation and, therefore, lease equalisation is an essential step in the accounting process to ensure that real income from the transaction in the form of revenue receipts only is captured for the purposes of income tax. No express bar in the IT Act which bars the bifurcation of the lease rental. This bifurcation is analogous to the manner in which a bank would treat an EMI payment made by the debtor on a loan advanced by the bank. No 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. 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. Thus bifurcation of lease rental as per the accounting standards prescribed by the ICAI to be allowed. Moreover, there is no express bar in the IT Act regarding the application of such accounting standards. Following the above questions framed is decided in favour of the assessee.
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