1936 (3) TMI 1 - HC - Income Tax

Whether what assessee can alter however is his regular method i.e. he must abandon what up to that time has been his regular method and start new regular method and not merely new method for casual period

Summary

Issues:
1. Application to direct the Commissioner of Income-tax to state a case under S. 66(3) of the Income Tax Act regarding changing the method of accounting from mercantile to cash.
2. Interpretation of Section 13 of the Income-tax Act regarding the regular method of accounting and its change.

Analysis:
1. The judgment involves an application to direct the Commissioner of Income-tax to state a case under S. 66(3) of the Income Tax Act. The applicant, in partnership with his cousin, was involved in money-lending. Due to a dispute with his cousin, the debtors of the firm refused to pay interest, resulting in a discrepancy between accrued and received interest. The applicant sought to change the method of accounting from mercantile to cash. The Commissioner refused, citing that the regular method is mercantile. However, the court opined that an assessee is not precluded from changing the regular method of accounting, provided it is done at a specific moment and with proper evidence. The court highlighted the need for a power to change accounting methods and emphasized the importance of establishing a definite moment of change.

2. The judgment also delves into the interpretation of Section 13 of the Income-tax Act concerning the computation of income, profits, and gains in accordance with the regularly employed method of accounting by the assessee. The court noted that the question of whether the regular method of accounting has been changed is a factual inquiry. While the Commissioner must recognize a changed method, the determination of whether the change has occurred is a matter of fact. The court rejected the suggested question of law regarding the Commissioner's acceptance of the accounting method since it primarily involved factual considerations. Additionally, the judgment highlighted that an assessee can change the regularly employed method of accounting, subject to demonstrating good faith and non-fraudulent intentions to the Income tax authorities.

In conclusion, the judgment addresses the application to direct the Commissioner to state a case under the Income Tax Act and provides insights into the interpretation of Section 13 concerning the regular method of accounting and its permissibility to change. The court emphasized the need for proper evidence and a specific moment of change in accounting methods, while also highlighting the factual nature of determining such changes.