High Court Of Kerala
CIT vs. Supreme Kuries & Loans (P) Ltd. & Ors.
Sections 5
Asst. Year 1988-89, 1990-91, 1992-93
G. Sivarajan & J.M. James, JJ.
IT Appeal Nos. 12, 13, 14, 48 & 49 of 1999 & IT Ref. Nos. 33, 36 & 39 of 2000
30th May, 2003
Counsel Appeared
P.K. Ravindranatha Menon & George K. George, for the Applicants : P. Balachandran, for the Respondent
JUDGMENT
G. Sivarajan, J. :
A common question of law, namely, whether the profits arising under various heads of terminated Kuries accrues in the year in which the Kuri has terminated, arises for consideration in all these cases. All these appeals and references are at the instance of the Revenue. Though assessees in some of the cases are different, as already stated, since the question involved in all these cases is, by and large same, all these cases are disposed of by this common judgment. The respondent-assessee in ITA Nos. 12 and 14 of 1999 is the same, namely, M/s Oriental Kuries (P) Ltd., Trichur. The respondent-assessee in ITA Nos. 13 and 48 of 1999 is the same, namely, Assyrian Charities Kuri Ltd., Thrissur. In all the other cases, the respondent-assessees are different, who are conducting Kuries at Thrissur. The assessment orders concerned in all these cases are for any one of the assessment years from 1988-89 to 1992-93. Since the details of the assessment orders have not much relevance for the purpose of this case, they are not set out in detail. The brief facts necessary for disposal of these cases are as follows. The respondent-assessees in all these cases are conducting Kuries at Thrissur. The question as already noted is as to whether the respondent-assessees are liable to return the profits arising out of the various Kuries conducted by them as accruing on the date of termination of the Kuries. The various items which formed the profit of the Kuri business other than commission are Veetha palisa and auction discount. The assessee had been disclosing the said receipts as income for assessment only after expiry of three years from the date of termination of the Kuri. According to the assessee, this is a practice which is being followed by them consistently ever since they started the Kuries, and that this was being accepted by the AOs concerned till the assessment years with which we are concerned. According to the AO, Veetha palisa amount which had been forfeited had become the income of the assessees on the date of forfeiture and at any rate, the said amount accrued to the assessees on the termination of the respective Kuries. In this view of the matter, the AO had brought amounts which are kept in the Veetha palisa account and in the auction discount account, as the income of the assessees during the previous year, on which the said Kuries were terminated. Being aggrieved by the assessment orders, the assessees filed appeals before the CIT(A). Except in the case of two assessees for two assessment years, the CIT(A) allowed the case of the assessees by holding that the amount of Veetha palisa and the auction discount belong to the defaulted subscribers and that it acquired the character of income only after a period of three years from the termination of the Kuri, which is the period of limitation provided for recovery of money due and further that since the assessees have followed a particular method of accounting consistently for over a period of years, the AO was not justified in upsetting the said method by introducing his own method. The CIT(A) also relied on the decisions of the Tribunal in the case of some of the assessees and in other cases for taking the above view. However, in two cases (in the case of the assessee in ITR Nos. 33 and 36 of 2000 and in the case of the assessee in ITA No. 13 of 1999), the CIT(A) has taken a contrary view upholding the order of the AO. The Department took up the matter in appeal in all cases where the CIT(A) allowed the claim of the assessee. The assessees who were aggrieved by the CIT (A) order in three cases mentioned above had also filed appeals. The Tribunal disposed of the appeals by separate orders except in one or two cases. The appeals filed by the Department were dismissed and the appeals filed by the assessees were allowed. In all these appellate orders, the Tribunal had relied on its earlier decisions, and held that when the assessee was following a particular method of accounting relating to the income from Kuries, it is not for the Revenue to substitute its own method of accounting because that method was more palatable. Against the order of the Tribunal, the Revenue has sought reference of certain questions of law and the same was referred in ITR Nos. 33, 36 and 39 of 2000. The question of law referred in ITR No. 33 of 2000 reads as follows : “Whether, on the facts and in the circumstances of the case and in the light of the finding of the AO that the profit on terminated Kuries accrues in the year in which the Kuri has terminated and Veetha palisa outstanding in respect of the terminated Kuries in the relevant previous years has to be included in the assessee’s income the Tribunal is right in law in holding differently and in directing the officer to assess the profit on the basis of the actual realisation in accordance with the method consistently followed by the assessee ?”
The question of law referred in the other two references and in the appeals are also by and large similar to the one extracted above. The learned Central Government standing counsel for taxes appearing for the applicants/appellants in all these cases submitted that the Veetha palisa due to the defaulted subscribers were forfeited as per the Variyola governing the chit and had become the income by accrual on the date of forfeiture and that at any rate, such income accrues to the assessees on the termination of the respective chits. He further submitted that since the assessees in all these cases had been following the mercantile system of accounting, they were bound to return the income which arose from the forfeited Veetha palisa or auction discount in the year in which the respective Kuries were terminated. The standing counsel submitted that the method adopted by the assessee in returning such profits long after the termination of the Kuries was not justified and, therefore, the AO is entitled to treat the said profits as the income of the assessees of the previous year relevant to the assessment years in question. The Tribunal, according to the standing counsel, was not justified in relying on the decisions of this Court in CIT vs. Trichur Kuri Syndicate Ltd. (1995) 124 CTR (Ker) 169 : (1995) 211 ITR 365 (Ker) and CIT vs. Popular Kuries Ltd. (1995) 214 ITR 38 (Ker) for allowing the claim made by the assessee, since the said decisions were rendered by this Court on the basis of the concrete findings of fact entered by the Tribunal in these cases. The standing counsel accordingly submitted that the Tribunal has decided all the appeals which are subject- matter of these cases erroneously and, therefore, the same has to be set aside. Sri. P. Balachandran, the learned counsel appearing for the appellants in ITA Nos. 12 and 14 and the respondents in ITR Nos. 33, 36 and 39 of 2000, submitted that except in ITR Nos. 33 and 36 of 2000, where the CIT(A) has rejected the claim made by the assessees, in all other cases, the CIT (A) had entered a categorical finding that the amount standing in the credit of Veetha palisa account and auction discount account belongs to the defaulted subscribers and that the right to treat the said amount as income will accrue only when the claim of the defaulted subscribers had become stale and irrecoverable and, therefore, the method of accounting” followed by the assessees are justified. The counsel further submitted that it is based on the findings entered by the CIT(A) that the Tribunal has further stated that when it is found that the assessee is consistently following a particular method of accounting in respect of the Veetha palisa and auction discount, the AO cannot adopt a different method. The counsel accordingly submitted that though there is no definite finding by the Tribunal on the above factual situation, the conclusion reached by the Tribunal has to be sustained.
The counsel further submitted that the decision of the Court in Trichur Kuri Syndicate’s case (supra) has been rightly applied. Sri. P. Balakrishnan, the learned counsel appearing for the respondents in ITA Nos. 13 and 48 of 1999, had also made submissions on the above lines, and submitted that there is no scope for interference with the orders of the Tribunal. Sri. N. Subramanyan, the learned counsel appearing for the respondent in ITA No. 49 of 1999, has also addressed arguments based on the findings of fact entered by the CIT(A) and submitted that on the said findings, the decision of this Court in Trichur Kuri Syndicate’s case (supra) squarely applies . We have considered the rival submissions and have also perused the orders of the AO as well as the two appellate authorities in these cases. Though the AO has taken a consistent view in all these cases that the assessee who is maintaining books of account following the mercantile system is bound to return the income on accrual basis, and that in the instant case, the right to receive the income from forfeited Veetha palisa and auction discount accrued on the date of forfeiture and that at any rate, the income on that account had accrued on the termination of the Kuries which happened to be during the previous year relevant to the assessment years concerned, however, we find that the appellate authority has taken divergent views in the matter. In the case of some of the assessees, the CIT(A) had affirmed the view taken by the AO, but in some other appeals, in the case of the very same assessee, the CIT(A) has taken a contrary view by entering a categoric finding that Veetha palisa and auction discount really belong to the defaulted subscribers and that it could be treated as the income of the assessees only at a later period when the possible claims by the defaulted subscribers had become stale and irrecoverable. The first appellate authority in such cases also rendered a finding that the assessees has been consistently following a method of accounting by returning profits of this nature only in the assessment years subsequent to the assessment year during which the Kuries were terminated. However, we find that the Tribunal had not noted the said fact, though the Tribunal had considered the appeals filed by the assessees, and by the Department taking the revival contentions in the common order which is the subject-matter of ITA Nos. 13 and 48 of 1999. According to us, when the CIT(A) had taken different views on the same set of facts, the Tribunal should have entered a factual finding based on records as to whether the amount standing in the Veetha palisa account and in the auction discount account can really be treated as the income of the assessees on the date of forfeiture or on the date of termination of the Kuries. This has not been done. Further, though the appeals were disposed of by the Tribunal in favour of the assessee, relying on its earlier decisions, in the case of the assessees and others, where it was held that when it is found that the assessee has been consistently following a particular method of accounting in respect of the income from Kuries, it is not for the Revenue to substitute its own method of accounting because that method was more palatable. We have also noticed that the decision of this Court in Trichur Kuri Syndicate Ltd. (supra), was rendered on the basis of the facts found by the Tribunal. This Court had noted that the assessee’s explanation in relation to the surplus income from chitties was that subscribers some times used to make excess payment towards instalments due from them, and when the chitty was terminated and when the surplus was lying to the credit of the subscribers, the assessees treat them as amounts due to the subscribers liable to be refunded to them on their demand, and accordingly wait for a period of three years, within which the subscribers could seek refund of the excess amount, that as and when any amount remains unrefunded at the end of the three year period, they were disclosed for the assessment for that year and assessed. This Court also noted the further contention that the amount of surplus were thus amounts due in credit to the various subscribers who had paid in excess and did not constitute income of the assessee during the relevant year when the chitties stood terminated. This Court noticed that the Tribunal has accepted the said plea of fact and the explanation offered by the assessee in relation to the surplus amounts and that it was on that basis, the Tribunal had held that the amounts lying in credit to the subscribers shall have the characteristic of income in the hands of the assessee. The Division Bench further observed that this finding of fact entered by the Tribunal though sought to be challenged by the Revenue as wrong, perverse and unsupported by any material, is really based on the material available in the case and that nothing has been brought to the notice of the Bench which shakes the findings of the Tribunal about the real character of the surplus amounts. It was also observed that there is nothing to show that the amounts were actually income and not surplus amount due to the subscribers as contended by the assessee.
Thus, it can be seen that the decision of this Court in Trichur Kuri Syndicate’s case (supra) was rendered in the context of a specific finding of fact entered by the Tribunal. However, as already ‘noted, there is no such finding by the Tribunal in these cases, for the Tribunal went by its earlier decisions and followed those decisions in this case, without considering the factual matrix. Here, it must also be noted that the decision of this Court in Popular Kuries Ltd.’s case (supra), also cannot have any application to the facts of the present case for the reasons that this Court had decided the said case solely on the question as to whether the reopening of the assessment was justified. Thus, though the counsel appearing for the assessees in all these cases had canvassed for acceptance of the conclusion reached by the Tribunal, in all these cases, we are unable to accept the said contention, for the reason that the Tribunal has not entered any categoric finding with regard to the factual matters pointed out above, and dealt with in Trichur Kuri Syndicate’s case (supra). We are also not in a position to accept the findings entered by the CIT(A) for deciding this matter, for the reason that divergent findings have been entered by the CIT(A) on almost similar facts. According to us, the Tribunal ought to have considered the factual situation and entered a finding with regard to the relevant matters. The Tribunal should have applied their earlier decisions as also the decision of this Court, only if the facts so found fit in with the decision of the Tribunal or of this Court. In the absence of any findings of fact on the relevant matters, we are of the view that the orders of the Tribunal which are the subject-matter of the appeals and references cannot be sustained. We accordingly set aside the appellate orders of the Tribunal in all these cases and direct the Tribunal to consider the matter afresh in accordance with law and in the light of the observations made in this judgment. In these circumstances, we decline to answer the question referred in ITR Nos. 33, 36 and 39 of 2000. The appeals and references are disposed of as above. We make it clear that it is open to the parties to raise all contentions which are available to them in support of their respective contentions and that we have not considered the merits of the matter in these cases.
[Citation : 267 ITR 593]
