CPT V24P7-Art1 (Content).pmd - Taxmann

enhanced rates shown as receipts in accounts
but not realised due to litigation and subsequent
takeover of undertaking by Government was
involved: In CIT v. Bokaro Steel Ltd. [1999] 102
Taxman 94 (SC) entry was initially made as
interest but was reversed the very next year
because original agreement ceased to be operative
ab initio. In FGP Ltd. v. CIT [2009] 177 Taxman
147 (Bom.) amount was due to the assessee in
terms of royalty agreement but dispute arose
between the parties and arbitration proceedings
were initiated. It was held that no real income
accrued to the assessee. In the present case,
the amount referable to capital recovery was
not of the character of the income but a capital
receipt. For real income theory, the disputed
amount must carry the character of income.
The concept of real income had been enlarged
in the present case by the Hon'ble High Court
so as to include therein all those amounts
whose character as capital receipt was also in
dispute. Since lease rentals initially carry
character of income and a portion thereof is
characterized as capital recovery by Accounting
Standards and Guidance Notes relating to finance
lease, it has been considered proper by the
Hon'ble Court to distinguish and separate it
by applying real income theory and, therefore,
to hold that this part of lease rentals is not
real income and, hence, not chargeable to tax.
CONCLUSION
Wherever the Central Government has notified
Accounting Standards, they would be followed
by any class of assessees or in respect of any
class of income; the correctness of completeness
of the accounts of the assessee would be examined
by the A.O. as to whether such notified
Accounting Standards are followed by the
assessee or not? Wherever and in respect of
any class of income or in respect of any other
assessees the Central Government has not notified
such Accounting Standards, then Accounting
Standards issued by the ICAI will have to be
followed in respect of such class of income or
by such class of assessees which are covered
by such Accounting Standards issued by the
ICAI and not covered by notified Accounting
Standards.
Accordingly, wherever the assessee follows
the Accounting Standards relating to finance
lease issued by the ICAI, and no defect is
found by the A.O. in the correctness or
completeness of the account, his books of account
cannot be rejected and profit and loss as
determined on the basis of such Accounting
Standards will have to be accepted as per subsection
(1) of section 145.
• DT - Sec. 4 - EC - Prakash Leasing Ltd. v. Dy. CIT [2012] 23 taxmann.com 3 (Kar.).
12345678901234567890123
12345678901234567890123
August 1 to 15, 2012 u TAXMANN’S CORPORATE PROFESSIONALS TODAY u Vol. 24 u 61
•••
681