TMI Blog2019 (3) TMI 1410X X X X Extracts X X X X X X X X Extracts X X X X ..... third year 8/55 and so forth which would clearly give higher financial charges for interest taxable in the first year. This SOD method even though adopted by the Assessee in its Book of Accounts on the basis of Guidelines issued by the Institute of Chartered Accountants of India was not adopted in the Returns of Income filed by it which consistently adopted EMI method for taxability of interest income all these years. Since, for the previous assessment years, this Court has already approved such bifurcation of income and has held that interest income (Finance charges) on consistently adopted basis of E.M.I. would be taxable in the hands of the Assessee, the mere change of Accounting method in its Book of Accounts on the basis of S.O.D. does not alter the position in the tax in the hands of the assessee. since in the case of the same Assessee, the Coordinate Bench of this Court [2012 (7) TMI 590 - MADRAS HIGH COURT] has upheld the taxability with regard to interest income on EMI method, which has been consistently followed, there is no reason to take a different view in the matter for the present Assessment years. - decided against revenue - Tax Case Appeal Nos. 1299 and 130 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts and circumstances of the case, the lease rentals received should be treated as payment of principal + interest on a financial transaction, when the lease was admittedly in relation to non existent assets? 3. The learned counsel for the Assessee Mr.R.Venkatraman submitted that the issues raised in the present Appeal filed by the Revenue are already covered by the decision of this Court dated 28.06.2012 in the case of very same Assessee in Commissioner of Income Tax Vs. Ashok Leyland Finance Ltd. [(2013) 213 Taxman 0204], in which the Co-ordinate Bench of this Court for Assessment Years 1991-1992, 1992-1993 and 1999-2000 has already held that the Assessee who was engaged in the business of giving vehicles on hire purchase basis while returning its income has adopted Equated Monthly Instalments (E.M.I) method as against the Sum of Digits (S.O.D.) method consistently and therefore the interest/finance charges received by the Assessee along with the Principal amount on the basis of E.M.I. method could only be taxed in the hands of the Assessee. 4. The Assessee changed its method of accounting from EMI method to Sum Of Digits (SOD) Method viz., showing the accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard that when once the Revenue had accepted the character of the transaction as hire purchase transaction, the income that flows from the transaction has to necessarily follow 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. 8. It was also observed in the aforesaid Judgment that the Tribunal relied upon the Central Board of Direct Taxes Circular dated 13.01.1998 and allowed the computing of Interest component on the basis of EMI Method. The relevant portion is extracted for ready reference: 11. It is a matter of relevance to point out that the assessee placed reliance on the circular of the Central Board of Direct Taxes, which, no doubt, was with reference to hire purchase cases. The Tribunal referred to the Central Board of Direct Taxes' circular dated 13.01. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34 2 15 19 34 20 14 34 3 22 12 34 20 14 34 4 26 8 34 20 14 34 5 30 4 34 20 14 34 100 70 170 100 70 170 Receipt of finance charges for the first and second years under the indexing system would thus be far higher than that reflected in the mercantile system of accounting. That is what has happened in the present case. The issue however is whether the income of the assessee under this head is to be assessed as per the entries in its own books of accounts or in accordance with the mercantile system of accountancy which it chose to adopt in its return of income. 10. The views of the Madras Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no indication of the assessee s hire purchase agreements reflecting bifurcation of the EMIs into principal and interest components. In the absence thereof, the common and accepted usage of the Indexing system of accounting in the hire purchase trade must be held to be valid as otherwise the rate of interest under the mercantile system in so far as the later EMIs are concerned would be far higher and contrary to the rate prescribed in the assessee s agreements. Further, as the assessee had itself employed this system of accounting in its books of account, applying the law laid down in SANJEEV WOOLEN MILLS (supra), the Department was bound to accept the same for the assessment proceedings. Viewed thus, we are of the opinion that the law laid down by the Special Bench of the Income Tax Appellate Tribunal at Hyderabad in NAGARJUNA INVESTMENT TRUST LIMITED (supra) was correct. In the event the hire purchase or leasing agreement did not give the apportionment or bifurcation of the EMIs between the principal and interest components, the interest income in relation to such agreements, recognized on the basis of SOD system of accounting by the assessee in its books of account, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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