TMI Blog2012 (7) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... all the earlier years there are no materials available as on record to show that following such method had really resulted in suppression of income - in favour of assessee. - Tax Case (Appeal) Nos.169 and 170 of 2005, 2626 of 2006 and 1802 of 2008 - - - Dated:- 28-6-2012 - Mrs.JUSTICE CHITRA VENKATARAMAN, Mr.JUSTICE K.RAVICHANDRA BAABU, JJ. For Appellant : Mr.T.Ravikumar Standing Counsel for Income Tax For Respondent : Mr.S.Ganesh, S.C., Mr.M.Yogesh Kanna for M/s.S.R.Sundar C O M M O N J U D G M E N T CHITRA VENKATARAMAN, J. Learned Standing Counsel appearing for the appellant filed a memo dated 28.06.2012 stating that the respondent's name has been changed to M/s.Indus Ind Bank Ltd. Hence, he requests that the respondent's name may be changed to continue with the proceedings. Accordingly, the memo dated 28.06.2012 is recorded. 2. The above Tax Case (Appeals) are admitted by this Court on the following substantial questions of law: T.C.(A)Nos.169 and 170 of 2005: "1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in following the Equated Monthly Instalment method to account t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the Sum of Digits (in short, SOD) Method. In the course of the assessment proceedings, the assessee contended that having regard to the nature of agreement entered into between the assessee and its customer, that the assessee could not enforce collection of amount otherwise than what is due by equated monthly instalments, hence, the method followed by the assessee for the purpose of arriving at its true income could not be faulted with. The assessee further pointed out that on the only test of accrual of income as per Section 5 of the Income Tax Act thus satisfied in the reporting of the income by following EMI method, it was not open to the Assessing Officer to reject the return. Thus, once the correct income has been deduced from the books of accounts, the Assessing Officer is bound to go by the EMI method and not just by the book results. 5. The Assessing Authority viewed that even though the assessee was free to adopt any method of accounting, the scrutiny of the accounts revealed that the assessee had followed SOD method. Consequently, following the decision of the Income Tax Appellate Tribunal in the case of M/s.Amarpalli Mercantile Pvt. Ltd. V. ACIT reported in 45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of income tax, the assessee adopted EMI method for income recognition in respect of the finance charges and hire purchase agreement. The Tribunal considered the contention of the assessee in terms of the hire purchase agreement and ultimately came to the conclusion that the question, as to whether the income by way of finance charges under hire purchase agreement entered into by the assessee with its hirers had accrued under SOD method as per the books or under EMI method as per the agreement, has to be seen in the background of the nature of transaction conducted by the assessee. Thus referring to the various clauses in the agreement, ultimately, the Tribunal came to the conclusion that the assessee had not given any loan or money for purchase of vehicle in question. Thus the transaction was not a loan transaction, but only a hire purchase agreement. 9. It is an admitted fact that the Revenue did not challenge this finding of fact before this Court for the purpose of considering as to which method should be taken in a correct method for the purpose of arriving at the real income of the assessee. 10. Leaving this aside for a moment, if we go through the order of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the context of the circular of the Board No.127(12)-I.T.42 dated 13.5.1943 as well as subsequent Circulars, particularly Circular No.275/9/80 -IT(B) dated 25.1.1981 and Circular F.No.160/1/96 dated 13.1.1998, the Tribunal agreed with the assessee's case. Aggrieved by this, the Revenue has filed the above Tax Case (Appeals) before this Court. 12. Learned Standing Counsel appearing for the Revenue placing heavy reliance on the views of the Assessing Authority and pointed out that given the fact that the assessee, for the purpose of his regular business, had maintained SOD method and that only for purpose of filing the return, had followed EMI method. In the absence of any specific explanation, rightly, the Assessing Officer rejected the assessee's claim. Given the fact that the assessee had maintained the books of accounts on SOD basis, the grant of the relief based on EMI method is not sustainable. 13. In this connection, he placed reliance on the decision of the Kerala High Court reported in (2008) 220 CTR (Ker) 286 (Commissioner of Income Tax Vs. Kerala State Financial Enterprises Ltd. ors.) and the decision reported in (2009) 181 Taxmann 197 (Ker) (Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stalment is an EMI method and the right of the assessee to receive the hire purchase charges on various due dates are as per the schedule mentioned in the agreement. 18. In the light of the said finding of fact, one has to look at the reasoning of the Tribunal referring to the order of the Special Bench of the Hyderabad Tribunal and the assessee's own case in respect of the previous assessment year. Referring to the earlier orders of the Tribunal, which came on reference before this Court and which in turn was also rejected by this Court under judgment dated 12.3.1998, the Tribunal held that the consistency of returning the income for the purpose of income was only on EMI method. This was so, ever since the assessee started its business in this field. The Tribunal further pointed out that in loan transaction, only money is really involved, but in a hire purchase transaction, hiring of asset other than money is involved; the title to the property will pass on to the hirer, when all the instalments are paid and when the hire purchaser exercises his option to purchase. Therefore, given the fact that the character of the transaction was pure and simple a hire purchase agreement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Kerala High Court reported in (2008) 220 CTR (Ker) 286 (Commissioner of Income Tax Vs. Kerala State Financial Enterprises Ltd. ors.) is concerned, we do not find that the said decision would be of any assistance to the Revenue, since those agreements were for financing for purchase of vehicle. In the circumstances, we reject the reliance placed by the Revenue. 22. As far as Circular No.127 (12)-I.T.2 dated 13.5.1943 is concerned, even though the said circular is issued in the context of hire purchaser's rights, yet, the instructions given are with reference to cases relating to purchase of assets under the hire purchase agreement. The Revenue does not dispute the fact that on entering into the hire purchase agreement, the hire purchaser does not become the owner immediately and hirer vendor is the owner. It also does not dispute the fact that the hire purchaser becomes the owner of the asset only on payment of the whole amount due under the agreement. 23. Going by the above-said facts, we do not find that the reliance placed on by the assessee to the Circular dated 13.5.1943 could be called a misplaced one. Apart from the above-said circular, there is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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