By Sri K v. Aravind, Advocate

IN THE HIGH COURT OF KARNATAKA AT BENGALURU Dated this the 13[th]day of January 20195 PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANT) THE HON’BLE MR. JUSTICE B. VEERAPPA ITA No.217 of 2009 BBRTWEHR 1.)The Commissioner ot Income TaxC. R. BuildingC. R. Building Queens Road| Bangalore iaThe Assistant Commissioner of Income Tax, Circle — 11(3) C. R. Building Queens Road| Bangalore.. Appellant (By Sri K. V. Aravind, Advocate) AND: M/s. ICICI Venture Funds Management Co. Ltd., p ‘Prestige Obelish’10[th]FIoor|No.3, Kasturba RoadBangalore — 560 OO1 ...Respondent (By* Sri Chythanya K.K., Advocate. This ITA filed U/s. 260A of I.T. Act, 1961 arising out of|order dated 12-12-2008 passed in ITA No.378/Bang/2008|for the Assessment year 1999-2000, praying to (i) formulate|the substantial questions of law stated therein; (11) allow the)appeal and set aside the order passed by the ITAT, Bangalorein ITA No.378/Bang/2008 dated 12-12-2008 confirming the|order of the Appellate Commissioner and confirm the order|passed by the Assistant Commissioner of Income Tax, Circle-11(3), Bangalore. | ThisITA|comingOT]for.hearingthis|N. KUMAR J.,delivered the following: day, JU DBiGMENT The Revenue has preferred this appeal against the)order passed by the Tribunal up holding the order passed bythe First Appellate Authority, where it was held that the‘lease equalization charges’ could not be regarded as an * corrected vide chamber order dated 30/03/2015| amount transferred to reserve as investment in Explanation(b) to Section 115JA(Q2). iaThe assessee Company is in the business ofasset management. They filed return of income declaring theincome of Rs.2,15,24,933/- under the provisions of Section1L1ISJA and Rs.1,94,02,036/- under the Regular provisions othe Act. Since tax payable as per the provisions of Section1l15JA was higher than the tax payable as per regularprovisions, the same was adopted. The return was|processed under Section 143(1) of the Income Tax Act, 1961resulting in refund Rs.1,11,60,1560/-. subsequently, anOrder under Section 154 of the IT Act was passed by addingback provision for doubtful debt, provision tor advances andprovision for interest, totaling Rs.10,60,370/-, arriving atatotal Book Profit at Rs.7,28,10,148/- and determining arefund of Rs.1,13,160,279/-. 3.Proceedings were initiated under Section 147 ofthe Act by issuing notice under Section 148 of the Act. In the said proceedings, it was pointed out that assessee hadcredited an amount of Rs.57,70,000/- as ‘lease rental’ afterreducinga©#amountOT|Rs.99,96,947 /-as‘LeaseEqualization Account’. According to the Assessing Authority,the lease equalization is in the nature of reserve, he addedback the said amount while computing Book Profits andaccordingly tramed the assessment order. Aggrieved by thesame, the assessee preferred an appeal to the Commissionerof Income Tax (Appeals). 4The Commissioner after carefully considering|the entire material on record as well as the submissions,held that the provisions made for lease equalization chargescould not be regarded as amount transferred to reserve asenvisaged in Explanation (b) to Section 115JA(2). Therefore,the order of the Assessing Authority was set aside and hewas directed to delete the addition made. Aggrieved by thesaid order, the Revenue preferred an appeal to the Tribunal. 4The Commissioner after carefully considering|the entire material on record as well as the submissions,held that the provisions made for lease equalization chargescould not be regarded as amount transferred to reserve asenvisaged in Explanation (b) to Section 115JA(2). Therefore,the order of the Assessing Authority was set aside and hewas directed to delete the addition made. Aggrieved by thesaid order, the Revenue preferred an appeal to the Tribunal. 5The Tribunal held that the adjustment made by|the Assessing Authority by adding the amount of leaseequalization charges to compute the Book Profits undersection 115JA was not permissible since the said amountwas not covered within any of the clauses to Explanationbelow Section 115JA(2) including clause (b), and that thejudgmentrendered1nNtheCaSCOT|G.E.CAPITAL|TRANSDPORTATION FINANCIAL SERVICES LTD Vs. ACIT,reported in|17 SOT 173,is squarely applicable and)therefore it dismissed the appeal. In fact, the said judgmentot the Tribunal in G.FE. CAPITAL TRANSPORTATIOcase 1s)upheldby|the.Delhi.HighCourt1N the CaseOT|COMMISSIONER OF INCOME-TAX, LARGE TAXPAYERS|UNIT Vs. INDIAN RAILWAY FINANCE CORPORATION LTD|reported in|(2014) 226 TAXMAN 184, 6.This appeal was admitted to consider the|following substantial questions of law: “Whether the Appellate Authorities werecorrect in reversing the finding of the|ASSeSSINgOfficerthataSUT|ofRs. 55,56, 947/as|‘leaseequalizationaccount’ is in the nature of a reserve and the|same had to be added back when computing|the Book Profits as per Explanation u/sLISJA(2) of the Act. ?” TT.The learned Counsel appearing tor the Revenuesubmitted that the aforesaid amount of Rs.559.56.947/-, the‘lease equalization account’ is in the nature of reserve andtherefore it has to be added back when computing the bookprofits as per Explanation under Section 119JA(2) of the Act.Therefore he submits that a case for interference is madeOUT. | 3S.Per contra, the learned Counsel appearing for|the assessee supported the impugned order. QOThe Assessing Authoirty has added a sum ofRs.55,96,937/- to the Book Profits of the assessee on theeround that the transfer of lease equalization account was inthe nature of reserve and hence needed to be adjusted to theBook Profits as per the requirement of Explanation toSection 115JA of the Act. | 10.|The ‘lease equalization charges’ is not one of theamounts which is covered under any of the clauses toExplanation to Section 115JA(2). It cannot be treated as areserve. As the name suggest, this ‘lease equalizationcharges’ is nothing but the difference between the statutorydepreciation on rentals and the recovery of cost of capital.Therefore, merely because the said amount entered in theP&L account, in effect, makes no difference. At any rate, it|cannot be treated as a reserve. Therefore, both the AppellateAuthorities were justified in directing deletion of the saidamount. | ? �&&�����)(�+�A�����A���������:�������(�@�����������(�A� �����3�������������������������)������������3��������&�'()*+��,--(,.�*��/*�'*��(/� E�05>� ����������� �����������