At, High Court of Judicature at Madras
By, THE HONOURABLE MR. JUSTICE C. NAGAPPAN & THE HONOURABLE MR. JUSTICE R. JAYASIMHA BABU
J. Naresh Kumar, Philip George, Advocates.
R. JAYASIMHA BABU, J.
The assessee which is a corporation set up by the State to promote industrial development and investments, adopted the hybrid system of accounting before the close of the accounting year 1980-81, with regard to the interest and rent receivable as it found that large amounts under these two heads had remained unrecovered for a long period of time, and it was considered desirable to adopt the cash system of accounting with respect to those two heads. Such a hybrid system was followed in the following assessment year as well. The Assessing Officer and the appellate authority having held that the assessee could not have changed the system of accounting to a hybrid system, the assessee took up the matter in further appeal to the Tribunal. The Tribunal having agreed with the view of the assessee, this reference (1. The questions were as follows :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the assessee was entitled to change over the method of accounting from mercantile to cash system only in respect of interest and rent receivable ?
(2) Whether the Tribunal was correct in holding that the unilateral change of method of accounting from mercantile to cash system in respect of interest and rent receivable without such change in respect of interest and rent payable should be allowed and the assessment be modified accordingly ?"
) before us has been brought by the Revenue.
Counsel for the Revenue fairly invited our attention to the decision of the Supreme Court in the case of UCO Bank v. CIT, wherein the Supreme Court was concerned with the case of hybrid accounting. In that case the assessee had while following the mercantile system of accounting considered the income by way of interest pertaining to doubtful loans as not real income in the year in which it accrued, but only when it was realised. Such a mixed system of accounting was held by the court to be in accordance with the accounting practice.Having regard to that decision of the apex court, it cannot be said that it was impermissible for the assessee here to have followed a mixed or a hybrid system of accounting and that while following the mercantile system, it was permissible for it to adopt a cash system of accounting so far as interest and rent were concerned.
The assessee cannot be held to be disentitled to change the method of accounting even when it is genuine solely on the ground that such a mixed system of accounting would result in loss to the Revenue for that year.
The question referred to us as to whether the Tribunal was right in holding that the assessee was entitled to change the method of accounting from mercan
Please Login To View The Full Judgment!
tile to cash system in respect of interest and rent receivable only, even when adopting the cash system for the interest and rent payable in continuing with the mercantile system with regard to other matters for the assessment years 1981-82 and 1982-83, is answered in favour of the assessee and against the Revenue.