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05-03-2019, Sundaram Finance, Section 260A, 194A, HIGH COURT OF MADRAS

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1 month 4 weeks ago #8808 by amit
Section - 260A, 194A
Order Date - 05-03-2019
Favouring - Assessee
Court - HIGH COURT OF MADRAS
Appellant - Sundaram Finance Limited.
Respondent - ACIT
Justice - VINEET KOTHARI & C.V.KARTHIKEYAN
Citation - 319Taxpundit353
Appeal No. - Tax Case Appeal No. 158 of 2009
Asstt. Year -

Order

PER : DR.VINEET KOTHARI, J

The present Appeal was admitted by the Co-ordinate Bench of this Court on 16.03.2009 with the following questions of law:-

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Internal Rate Return (IRR) method is the appropriate method of income recognition in hire purchase transaction as against the Equated Sum (ESM) method regularly followed by the Appellant?;

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest income on hire purchase transactions accrued only under the Internal Rate Return (IRR) method and form part of the mercantile system of accounting?;

(iii) 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 Book on the Internal Rate Return (IRR) method while offering the income on Equated Sum (ESM) method for tax purpose.”

2. Both the learned counsels fairly agreed that the said questions are covered by a decision of this Court in the case of Commissioner of Income Tax Vs. Ashok Leyland Finance Ltd. [(2013) 213 Taxman 0204], wherein it was has held as under:

"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 that the transaction had not in any manner undergone any change from the one which was the subject matter of consideration by the Tribunal for the earlier years, in respect of which, reference application filed by the Revenue was dismissed, the Tribunal came to the conclusion that the Assessing Officer had committed a serious error in ignoring the EMI method, to adopt SOD method.

19. We are in agreement with the reasoning of the Tribunal in this 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."

3. It was also observed in the aforesaid Judgement 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 13.01.1998, which specifically dealt with the hire purchase transactions' taxability with reference to interest element, to ultimately hold that Section 194 A of the Income Tax Act would not be attracted in case of payment of periodical instalment on the hire purchase agreement . Thus in the context of the circular of the Board No.127/(12)-I.T.42 dated 13.05.1943 as well as subsequent Circulars, particularly Circular No.275/9/80-IT (B) dated 25.01.1981 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."

4. The Andhra Pradesh High Court in Sri Chakra Financial Services Ltd. Vs. Commissioner of Income Tax [(2013) 350 ITR 398] , after discussing the Madras High Court's aforesaid view held

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