COMMISSIONER OF INCOME-TAX VS HINDUSTAN COMPUTERS LTD, 2000 PTD-ALLAHABAD-HIGH-COURT-INDIA 1014 (1997)

Income-tax--

----Reference---Question of law---Income---Till assessment year 1984-85 annual maintenance charges (AMC) recorded on accrual basis---In assessment year 1985-86 entire receipt on account of AMC transferred to profit and loss account---Tribunal finding that except for AMC assessee followed mercantile system of accounting---Tribunal finding that mere fact that entire receipt was transferred to profit and loss account did not have effect of changing system of accounting from mercantile to cash system---No question framed by Department questioning finding of Tribunal that assessee had not switched over to cash system---Findings of Tribunal findings of fact---No question of law arose for reference---Indian Income Tax Act, 1961, S. 256(2).

Till the accounting year relevant to the assessment year 1984-85, the assessee-company used to record the receipt. of annual maintenance charges (AMC) on accrual basis showing the income from maintenance contract of the amount which had actually accrued and providing for the un-expired period of maintenance contract at the end of the year. However, in the books of account, relevant to the assessment year 1985-86 the assessee-company transferred to the profit and loss account the entire AMC received during the year. However, in the return filed, it claimed deduction of Rs.72.05 lakhs as the amount pertaining to the un-expired period of the AMC received. The Revenue contended that the assessee was not entitled to the deduction for the reason that the assessee changed the system of accounting for that of the mercantile system to the cash system. The Tribunal held that the mercantile system was followed prior to the assessment year 1985-86 and also in the subsequent year, i.e., 1986-87, that even in respect of the assessment year 1985-86, except for the item in dispute, the assessee followed the mercantile system of accounting, that the sum of Rs.72.05 lakhs was taxed in next assessment year, i.e., 1986-87, that merely because the entire receipt on account of the AMC was transferred to the profit and loss account, it did not have the effect of changing the system of accounting, that no real profit had arisen on the un-expired period of AMC and, therefore, confirmed the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs.72.05 lakhs. On an application filed by the Revenue under section 256(2) of the Income Tax Act, 1961, for directing the Tribunal to refer a question of law:

Held, that no question had been framed by the Department questioning the finding of the Tribunal that the assessee had not switched over to the cash system of accounting from the mercantile system. The findings of the Tribunal were holdings of fact and no question of law arose' for reference.

Kamani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

Shekhar Srivastava for Appellant.

Sudhir Chandra, S. Chopra and Tapas Mishra for Respondent.

JUDGMENT

Heard Sri Shekhar Srivastava, Advocate, standing counsel for the Revenue', and Sri Sudhir Chandra, Senior Advocate, assisted by Sri S. Chopra and Sri Tapas Mishra, Advocates, for the assessee.

This is an application under section 256(2) of the Income Tax Act, 1961, for reference of following question to this Court:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in confirming the order of the Commissioner of Income-tax (Appeals), who deleted the addition of Rs.72.05 lakhs holding that no real profit has ' arisen on the un-expired period of annual maintenance contract. "

In respect of the assessment year 1985-86, the Commissioner of Income-tax (Appeals) and the learned Appellate Tribunal allowed the deduction of Rs.72.05 lakhs in respect of the un-expired period of annual maintenance contract. Till the accounting year relevant to the assessment year 1984-85, the assessee-company used to record the receipt of annual, maintenance charges (AMC) on accrual basis showing the income from maintenance contract of the amount which had actually accrued and providing for the unexpired period of maintenance contract at the end of the year. However, in the books of account relevant to the assessment year in dispute, the assessee-company transferred to the profit and loss account the entire AMC received during the year. However, in the return fled, it claimed deduction of Rs.72.05 lakhs as the amount pertaining to the unexpired period of AMC received. According to the Revenue, the assessee was not entitled to this deduction for the reason that the assessee changed the system of accounting from that of mercantile system to cash system of accounting. In its judgment, a copy of which is Annexure 3 to the application, the learned Appellate Tribunal has mentioned seven circumstances for its finding that the assessee had not changed the system of accounting from the mercantile system to the cash system. According to the Tribunal, the mercantile system of accounting was followed prior to the assessment year 1985-86 and also in the subsequent year, i.e., 1986-87. Further, the Tribunal has recorded the finding that even in respect of the assessment year in question, i.e., 1985-86, except for the item in dispute the assessee followed the mercantile system of accounting. The Tribunal has also recorded that the sum of Rs.72.05 lakhs was taxed in the next assessment year, i.e., 1986-87. According to the Tribunal, merely because the entire receipt on account of AMC was transferred to the profit and loss account, did not have the effect of changing the system of accounting. No question has been framed by the Revenue questioning the finding of the Tribunal that the assessee had not switched over to the cash system of accounting from the mercantile system. It was held by the apex Court in Kamani Properties Ltd. v. CIT (1971) 82 ITR 547 that when the question referred to the High Court speaks of "on the facts and in the circumstances of the case", it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be found by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal.

The order of the Tribunal is concluded by the finding of fact. In our opinion, no statable question of law arises for reference. The application under section 256(2) of the Income-tax Act is, accordingly, rejected.

M.B.A/3343/FC ???????????????????????????????????????????????????????????????????????????????? Application rejected.