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M/s. Integrated Finance Co. Ltd Versus The Joint Commissioner of Income tax

2015 (3) TMI 894 - MADRAS HIGH COURT

Accrual of interest income - Hire Purchase Finance charges - whether should be assessable to tax on sum of Digits basis as against Equated Monthly Instalments basis regularly followed by the Appellant? - Tribunal held that the appellant is not entitled to maintain its book on the Sum of Digits method and offer the income on Equated Monthly Instalment Basis? - Held that:- We are in agreement with the reasoning of the Tribunal in this regard that when once the Revenue had accepted the character of .....

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no true reflection of the income that has to be assessed under the Act.

This Court in Commissioner of Income Tax v. Ashok Leyland Finance Ltd [2012 (7) TMI 590 - Madras High Court] came to the conclusion that the EMI method followed by the assessee for the purpose of tax did not show any suppression of income. This decision of this Court has not been challenged by the Revenue. On the contrary, the same has been followed by this Court in respect of the very same assessee for the subseq .....

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rs.Vardhini Karthik Judgment (Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed by the assessee as against the order dated 14.07.2006 made in I.T.A.No.1927/2002 on the file of the Income Tax Appellate Tribunal Madras 'A' Bench for the assessment year 1997-98. 2. The assessment in this case relates to the assessment year 1997-98. In respect of assessment years 1995-96 and 1996-97, Tax Case (Appeals) Nos.1534 and 1535 of 2008 have been filed before this Court and the same were al .....

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of law in favour of the assessee: "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Hire Purchase Finance charges should be assessable to tax on sum of Digits basis as against Equated Monthly Instalments basis regularly followed by the Appellant? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest income accrued only in the Sum of Digits method and form part of the M .....

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ld be assessable to tax on Sum of Digits basis as against Equated Monthly Instalments basis regularly followed by the appellant? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest income accrued only in the Sum of Digits Method and form part of the Mercantile system of accounting? 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant is not entitled to maintain its B .....

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thod, whereas, the assessee maintained the books of accounts on Sum of Digits Method. While completing the assessment, the Assessing Officer was of the view that it was not permissible for the assessee to compute its income using one method in its day to day accounts and to use another method for computing income chargeable to tax. In so holding, the Assessing Officer disallowed the claim of the assessee and brought to tax the differential amount under the Sum of Digits Method. 5. Aggrieved by t .....

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issed the appeal filed by the assessee holding as follows: ''14. The hirers are paying interest on reducing capital balance basis. The assessee has not maintained books of accounts on EMI basis and therefore the same cannot be considered as income earned as per the books of accounts of the assessee. As discussed earlier in the case before us the Assessing Officer has given a clear cut finding that assessee has maintained books of accounts under Sum of Digits method. Therefore, the facts .....

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ruary 2006. Respectfully following the order of Special Bench, we hold that ld CIT(A) was justified in confirming the stand taken by the Assessing Officer.'' 7. Aggrieved by the said order of the Tribunal, the assessee is before this Court. 8. Learned counsel appearing for the assessee submitted that issue involved in this case is covered by a decision of this Court in the case of Commissioner of Income Tax v. Ashok Leyland Finance Ltd., (2012) 210 Taxman 95 (Mad), wherein, in an identic .....

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whereas only for the purpose of filing return, the assessee had followed EMI method, for which no explanation has been given by the assessee. She further submitted that the assessee could not adopt different methods of accounting one for the purpose of maintaining the books of accounts and the other for the purpose of filing return of income. Once the assessee is following one system of accounting, it is not permissible for the assessee to follow another system of accounting for the purpose of .....

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stions have been raised, which are as follows: "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 the finance charges for the income tax purposes only? 2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the assessee is justified in following Sum Of Digits Method to account the finance charges to arrive at balance sheet .....

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it was not a loan transaction, but a hire purchase agreement and also taking note of the consistent method adopted for the purpose of tax, namely, EMI method, accepted the assessee's plea, which is set out in paragraph Nos.8 and 9 of the order, which the Revenue did not challenge. The said portion reads as follows: "8. Before the Tribunal, the assessee took a definite plea that the nature of transaction entered into by the assessee was pure and simple, a hire purchase and leasing. The .....

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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 Reve .....

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Mad), on fact, finding has been arrived at paragraph No.17 which may be relevant for the purpose of deciding this case, which reads as follows: "17. A perusal of the order of the Tribunal clearly showed that the nature of the business transaction conducted by the assessee was one of a hire purchase giving vehicles on hire purchase and the assessee had not given any finance or loan for the purchase of vehicle. The terms of the agreement thus clearly point out that the hire purchaser shall no .....

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specified in the contract. Thus the method employed for arriving the monthly instalment 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. ...... Therefore, given the fact that the character of the transaction was pure and simple a hire purchase agreement and that the transaction had not in any manner undergone any change from the one which was the subject matter of consideration by the .....

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the treatment that is given under the hire purchase agreement. Secondly, when the Revenue had not disputed the fact that on all the earlier years, the Revenue had treated the income as per the hire purchase agreement on EMI basis, there are no materials available as on record to show that following such method had really resulted in suppression of income, in other words, there was no true reflection of the income that has to be assessed under the Act. 14. This Court came to the conclusion that t .....

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