1 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 03.11.2014 CORAM HONOURABLE MR. JUSTICE R.SUDHAKAR AND HONOURABLE MR. JUSTICE R.KARUPPIAH Tax Case (Appeal) Nos.1534 & 1535 of 2008 M/s Integrated Finance Co. Ltd., 112, Thyagaraja Road T.Nagar Appellant in both Chennai 600017 Tax Case (Appeals) -vs- Joint Commissioner of Income Tax Special Range VIII Respondent in both Chennai 600034 Tax Case (Appeals) Memorandum of Grounds of Tax Case Appeals under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Chennai 'A' Bench dated 14.7.2006 made in I.T.A.Nos.1922 & 1924/Mds/2002 for assessment years 1995-96 and 1996-97 respectively. For Appellant : Mr. R.Venkatanarayanan For Respondent : Mrs. Vardini Karthik JUDGMENT (Judgment of Court was delivered by R.SUDHAKAR, J.) These two tax case appeals at instance of assessee, challenging order of Income Tax Appellate Tribunal, Chennai 'A' Bench dated 14.7.2006 in respect of assessment years 1995-96 and 1996-97 respectively, have been admitted on following substantial questions of law:- ''(1) Whether on facts and in circumstances of case, Tribunal was right in holding that 2 Hire Purchase Finance charges should be assessable to tax on Sum of Digits basis as against Equated Monthly Installments basis regularly followed by appellant? (2) Whether on facts and in circumstances of case, Tribunal was right in law in holding that interest income accrued only in Sum of Digits method and form part of Mercantile system of accounting? (3) Whether on facts and in circumstances of case, Tribunal was right in holding that appellant is not entitled to maintain its book on Sum of Digits method and offer income on Equated Monthly Installment basis?'' 2. appellant-assessee is engaged in business of hire purchase and leasing. They have maintained books of accounts in respect of hire purchase finance charges on Sum of Digits (SOD) technique and has offered sum on Equated Monthly Instalment (EMI) technique while computing income for purpose of tax in respect of two assessment years in question. This was rejected by assessing officer, who added differential amount of hire purchase finance charges between Sum of Digits technique and Equated Monthly Instalment technique and determined tax liability thereon. Aggrieved by that, assessee went on appeal to Commissioner of Income Tax (Appeals). Commissioner of Income Tax (Appeals) also held against them. Thereafter, when appeal was brought before Tribunal, Tribunal also, upholding order of Commissioner of Income Tax (Appeals), held as 3 follows:- ''14. hirers are paying interest on reducing capital balance basis. assessee has not maintained books of accounts on EMI basis and therefore same cannot be considered as income earned as per books of accounts of assessee. As discussed earlier in case before us Assessing Officer has given clear cut finding that assessee has maintained books of accounts under Sum of Digits method. Therefore, facts of case are identical to facts of case in case of Nagarjuna Investments Trust Ltd. Income has accrued to assessee as per contracts entered into between parties. Therefore income will be assessable to tax on Sum of Digits basis. Since decision of Special Bench is binding on all divisional benches of ITAT all over country, we have to follow decision of Special Bench and not by Divisional Bench in case of Ashok Leyland Finance Ltd., dated 28th February 2006. Respectfully following order of Special Bench, we hold that ld CIT(A) was justified in confirming stand taken by Assessing Officer.'' Hence, appellant-assessee is before us with these appeals. 3. learned counsel for appellant-assessee primarily relied on decision of this Court in Commissioner of Income Tax v. Ashok Leyland Finance Ltd., (2012) 210 Taxman 95 (Mad) to contend that issue has been answered in favour of assessee. 4 4. On other hand, learned standing counsel for respondent- Revenue has relied upon Circular Text (1995) 215 ITR (Stat) 0070 with regard to methods of accounting and accounting standards for computing income vide Finance Act, 1995 to say that when income shall be computed only in accordance with either cash or mercantile system of accounting regularly employed by assessee with effect from assessment year 1997-98 and subsequent years, these two appeals pertaining to assessment years 1995-96 and 1996-97 may be allowed in favour of assessee, as prior to deletion of first proviso to sub-section (1) of Section 145 by amendment, assessee could adopt hybrid method for purpose of computation of income. 5. We have heard learned counsel for parties and also perused aforesaid circular text as well as decision of this Court in Ashok Leyland Finance Limited case. Admittedly, circular text reads as follows:- ''44.1. Section 145(1) of Income Tax Act prior to its amendment by Finance Act, 1995 provided for computation of income from business or profession or income from other sources in accordance with method of accounting regularly employed by assessee. Income is generally computed by following one of three methods of accouting, namely, (i) cash or receipt basis; (ii) accrual or mercantile basis, and (iii) mixed or hybrid method which has elements of both aforesaid methods. It was noticed that 5 many assessees are following hybrid method in manner that does not reflect correct income. Finance Act, 1995 has amended section 145 of Income Tax Act to provide that income chargeable under head ''Profits and gains of business or profession'' or ''Income from other sources'' shall be computed only in accordance with either cash or mercantile system of accounting, regularly employed by assessee. first proviso to sub- section (1) of section 145 has been deleted. 44.2. Finance Act, 1995 has also empowered Central Government to prescribe by notification in Official Gazette, accounting standards which assessee will have to follow in computing his income under head ''Profits and gains of business or profession'' or ''Income from other sources''. These accounting standards will be laid down in consultation with expert bodies like Institute of Chartered Accountants. 44.3. amendment will take effect from 1st April, 1997 and will, accordingly, apply in relation to assessment year 1997-98 and subsequent years.'' 6. On perusal of aforesaid circular, for purpose of deciding these two appeals in respect of assessment years 1995-96 and 1996-97 are concerned, we are of firm view that prior to this amendment, first proviso to sub-section (1) of section 145 gave option to assessee to determine income by adopting any one of methods. In such view of matter, we find 6 that appeals of assessee are justified insofar as following one system of accounting for purpose of books of accounts and another for purpose of determination of tax. We are not going into finer aspects of agreement to come to conclusion either way, as provision of law prior to amendment stood in favour of assessee. Accordingly, both tax case appeals are allowed and substantial questions of law are answered in favour of assessee and against Revenue in respect of assessment years 1995-96 and 1996-97 are concerned. No costs. Index : no (R.S.J.,) (R.K.,J.) Internet: yes 03.11.2014 ss To 1. Income Tax Appellate Tribunal Chennai 'A' Bench Chennai 2. Joint Commissioner of Income Tax Special Range VIII Chennai 600 034 7 R.SUDHAKAR, J. and R.KARUPPIAH,J. ss Tax Case (A) Nos.1534 & 1535 of 2008 03.11.2014 M/s. Integrated Finance Co. Ltd. v. Joint Commissioner of Income-tax, Special Range-VIII, Chennai