1985 (9) TMI 126 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of amounts received under the 'Post Warranty Service Scheme' for service and repairs of tractors.
2. Addition on account of premium allegedly received by the assessee for tractors sold.

Detailed Analysis:

1. Taxability of Amounts Received under the 'Post Warranty Service Scheme':
The primary issue in both the assessee's and the Revenue's appeals pertains to whether the amounts received by the assessee under the 'Post Warranty Service Scheme' for services and repairs of tractors could be subjected to tax during the accounting period ending 31st March 1978.

Background:
The assessee, a dealer in Massey Ferguson tractors, introduced a 'Post Warranty Service Scheme' in 1974-75, which was bifurcated into Scheme 'A' and Scheme 'B'. Customers could voluntarily join these schemes, and the subscription amounts were to be paid in advance. The services under these schemes were to be rendered either on the customer's farm or in the workshop, depending on the nature of the service required. The scheme allowed for refunds if no services were availed within three years.

Assessee's Argument:
The assessee maintained that the receipts under the 'Post Warranty Service Scheme' were essentially trust money and should not be considered taxable income until the stipulated period for availing services or claiming a refund had expired. The method of accounting consistently adopted by the assessee treated these receipts as advance payments for future services, and any excess amount was only taken to the Profit & Loss Account at the end of the stipulated period.

ITO's Stand:
The ITO, for the first time during the assessment year under consideration, added the total amount of Rs. 4,19,661, being the closing credit balance in the 'Post Warranty Service Scheme' account, to the taxable income. The ITO argued that since no services were rendered, the amount should be treated as trading receipts and thus taxable.

CIT (A) Decision:
The CIT (A) partially upheld the ITO's decision by sustaining the addition of Rs. 91,260, which was the amount received during the year under consideration, while deleting the addition of Rs. 3,28,401, representing the opening balance from earlier years.

Tribunal's Decision:
The Tribunal, after considering the rival submissions and reviewing the facts, concluded that the amounts received under the 'Post Warranty Service Scheme' should not be taxed until the period for availing services or claiming refunds had expired. The Tribunal emphasized the consistency in the assessee's accounting method and the terms of the scheme, which allowed for refunds and services within a stipulated period. The Tribunal found the CIT (A)'s observation that no services were rendered to be factually incorrect. The Tribunal cited previous decisions, including those of the Amritsar and Chandigarh Benches, which supported the assessee's method of accounting and treatment of these receipts. Consequently, the Tribunal deleted the addition of Rs. 91,260 sustained by the CIT (A) and rejected the Revenue's appeal for the addition of Rs. 3,28,401.

2. Addition on Account of Premium Allegedly Received:
The second issue in the Revenue's appeal was the addition of Rs. 2,40,000 made by the ITO on the premise that there was a premium on Massey Ferguson tractors, which the assessee allegedly pocketed.

ITO's Stand:
The ITO added Rs. 2,40,000, assuming a premium of Rs. 10,000 per tractor for 24 tractors sold by the assessee. This assumption was based on the high demand for Massey Ferguson tractors and the fact that some purchasers did not make themselves available to the Revenue.

Assessee's Argument:
The assessee argued that the sales were made through regular bookings, affidavits were filed by the purchasers, and the tractors were duly registered in the names of the purchasers. The assessee contended that the ITO's addition was based on mere conjecture and surmise without any concrete evidence.

CIT (A) Decision:
The CIT (A) deleted the addition, finding the ITO's assumptions unfounded and unsupported by evidence.

Tribunal's Decision:
The Tribunal upheld the CIT (A)'s decision, emphasizing that the assessee's business involved regular bookings and proper documentation, including affidavits and registrations. The Tribunal found the ITO's addition based on surmise and conjecture, without any substantial evidence to support the claim of a premium being pocketed by the assessee. The Tribunal confirmed the CIT (A)'s action in deleting the addition of Rs. 2,40,000.

Conclusion:
The Tribunal allowed the assessee's appeal by deleting the addition of Rs. 91,260 related to the 'Post Warranty Service Scheme' and dismissed the Revenue's appeal, thereby confirming the deletion of Rs. 3,28,401 and Rs. 2,40,000 by the CIT (A).