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TMI Blog1984 (6) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... acant chits and arrears are assessable in the year in which such dividends arise ? " In R. C. No. 149 of 1978, which relates to the income-tax assessment year 1973-74, the following question of law is referred for our opinion : Whether, on the facts and in the circumstances of the case, the accrued dividends on vacant chits are assessable in the year in which such dividends were allowed to the foreman ? " Although the questions of law in both the references are in a slightly different form, they represent the same controversy. Indeed, in R. C. No. 149 of 1978, it was agreed that the decision in R.C. No. 153 of 1978 would automatically cover. The assessee is a private limited company carrying on business in the conduct of chits among its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new subscriber, to take over the defaulting subscriber's place. The assessee has been following a system of accounting, whereby the dividend received by it is not accounted as income, as and when it is received, but is carried over, as already stated above, till either a new subscriber is found, or the period of the chit runs out. If a new subscriber is not enlisted, the entire dividend received by the assessee till the expiry of the period of chit is accounted as its income in the year in which the period of the chit expires. It is not in dispute that this system of accounting for the dividend has been consistently and regularly followed by the assessee for the past several years and the Department did not question the correctness of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not enable the ITO to determine the income correctly, inasmuch as the assessee has been postponing the income received by it till after the expiry of the period of the chit, without offering the same for assessment. According to the learned counsel, as and when the dividend was received, it constituted the income of the assessee, inasmuch as the assessee became a subscriber to the chit the moment it entered into the shoes of the defaulting subscriber. The dividend received by the assessee was in its capacity as a subscriber to the chit and, consequently, it was a revenue receipt in the hands of the assessee, liable to be taxed for each of the assessment years under consideration. According to the learned counsel, if subsequently the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vidends in respect of the defaulting subscribers' chits for the past several years. The assessee has, therefore, been following a consistent system of accounting and regularly employing the same system of accounting for computing its income from year to year. It is also not in dispute that this system of accounting was not found to be defective by the ITO in the past years. All that happened was that the ITO gave a fresh look to the matter and felt that the more appropriate system of accounting would be to declare the dividend as and when received as income, and endeavoured to substitute that method of accounting for the method of accounting regularly followed by the assessee. It must be said at the outset that the choice to account for inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect in this case. The ITO's view that there could be a better system of accounting is no reason to the application of the provisions of s. 145 of the I.T. Act, especially in view of the fact that this system of accounting is followed by the assessee uniformly and regularly for the past several years, and was accepted by the Department without quarrel. It is not open to the ITO to intervene and substitute a system of accounting different from the one which is followed by the assessee, on the ground that the system which commends to the ITO is better. Attention may be invited to the decisions in: (i) CIT & EPT v. Chari and Rant [1949] 17 ITR 1 (Mad) (ii) CIT v. Srimati Singari Bai [1945] 13 ITR 224 (All); (iii) CIT v. K. Doddabasappa [1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and as and when new subscribers are enlisted, the obligation to pay over the entire dividend received by the assessee in the interregnum to such new subscribers, materialises. Thus, there is an element of uncertainty, and this uncertainty will prevail till the last instalment of the chit is paid. It is obviously for these reasons that the assessee has been carrying over the dividend income till the expiry of the period of chit and has been accounting for the entire income in the year in which the chit runs out. We do not find any defect in this system of accounting which is regularly followed by the assessee. Thus, even on merits, we are unable to subscribe to the view that the ITO is entitled to tax the assessee on the dividend income rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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