LexCOMMISSIONER OF INCOME TAX, CHENNAI versus M/S BILAHARI INVESTMENT (P) LTD.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2008] 3 S.C.R. 477
" -
COMMISSIONER OF INCOME TAX, CHENNAI
A
\/.
M/S BILAHARI INVESTMENT (P) LTD.
(Civil Appeal No. 1625 of 2008)
FEBRUARY 27, 2008
B
...
J:
(S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.)
Income Tax Act, 1961:
Chit Fund Scheme -
Income - Assessment of -
Accounting of chit discount - Completed Contract Method of c
accounting or Deferred Revenue Expenditure Method - Claim
for chit discount - Held: Income accrued under the chit fund -
scheme could be identified by following several methods of
accounting including Completed Contract Method or Deferred
Revenue Expenditure Method - Completed Contract Method D
":
leads to objective assessment of income - No finding recorded
by the Courts below to the effect that the Completed Contract
Method distorts the profits/income - Even calculation of
income from the Deferred Revenue Expenditure Method
brings the same result - In past, . Revenue had accepted the E
Completed Contract Method of accounting for the purpose of
allowability of chit discount -Hence, no interference with the
judgment of High Court allowing Completed Contract Method
,-k
of accounting for calculating income called for.
•
Income Tax Act, 1961; S. 211(2):
F
Accounting Standards (AS) - Substitution of Deferred
Revenue Expenditure Method in place of Completed Contract
Method of accounting in terms of AS 22 - Held: Not allowed
since Revenue did not invoke AS 22 in the instant appeals.
G
Words and Phrases:
;i.
'Completed Contract Method' and 'Deferred Revenue
Expenditure Method of accounting - Distinction between in
477
H
478
SUPREME COURT REPORTS
[2008] 3 S.C.R.
A the context of calculation of income from chit fund scheme.
Assessee companies, subscribing to chit fund
scheme as their business activities, were maintaining their
accounts on mercantile basis by computing profit/loss at
the end of the chit period following the Completed
B Contract Method of accounting. The said method of
accounting was earlier accepted by the Revenue for
several years. Assessing Authority held that the
Completed Contract Method was not an accurate method
to identify "income" under the provisions of the Income
C Tax Act, and in the context of the "chit discount", the
Deferred
Revenue
Expenditure
calculated
on
proportionate basis was the correct method and
accordingly rejected the Completed Contract Method of
accounting as adopted by the assessees. The view of the
D Assessing Authority has been affirmed by the Tribunal and
the High Court. However, in the matter of chit discount,
overruling the order of the Tribunal, the High Court has
held that the completed contract method of accounting
adopted by the assessees was valid and that the Revenue
E had erred in spreading the discount over the remaining
period of the chit on proportionate basis. Hence the
present appeal.
Assessees contended that, profits/loss accrued to
the assessees only when the dividends exceeded the
F discount paid and that difference could be known only
on the termination of the chit when the total figure of
dividend received and discount paid would be available.
That, it would be possible for the assessees to make
profits only when the sum total of the dividend received
G exceeded the sum total of discounts suffered; that the
Revenue has all along been accepting the Completed
Contract Method and, therefore, there was no justification
in law or In facts for deviating from the accepted practice;
and that a chit transaction has been treated by the various
H courts as one single scheme running for the full period
.
+
.. -
COMMNR. OF INCOME TAX, CHENNAI v. MIS BILAHARI
479
INVESTMENT (P) LTD .
•
and, therefore, according to the assessees, the Completed A
•
Contract Method adopted by it over the years was not
required to be substituted by any other method of
accounting.
Dismissing the appeals, the Court
B
HELD: 1.1 Recognition/identification of income
" {
under the Income Tax Act is attainable by several methods
of accounting and the same result could be attained by
any one of the accounting methods. The Completed
Contract Method is one such method. Similarly, c
percentage of completion method is another such
method. (Para - 15) (487-D]
1.2 Under completed contract method, the revenue
is not recognised until the contract is complete and costs
are accumulated during the course of the contract. The D
~
profit and loss is established in the last accounting perExcerpt shown. Read the full judgment & AI analysis in Lexace.