DCIT Vs Johnson Lifts Private Limited (ITAT Chennai)
Chennai ITAT: Advance AMC Receipts Taxable Over Service Period Under Section 43CB; ₹7.65 Crore Additions Deleted
DCIT v. Johnson Lifts Pvt. Ltd., ITA Nos. 3401 & 3460/Chny/2025 (AYs 2020-21 & 2018-19), order dated 20.08.2026, the Chennai ITAT decided whether Annual Maintenance Contract (AMC) charges received in advance should be taxed entirely in the year of receipt or recognised proportionately over the period during which maintenance services are rendered.
Johnson Lifts Pvt. Ltd., engaged in manufacture, sale and maintenance of lifts and escalators, collected AMC consideration generally in advance for a 12-month contract period. Since contracts often extended over two financial years, the company recognised only the proportion attributable to services rendered during the relevant year and carried forward the balance as deferred income. The AO rejected this method and added ₹5.08 crore for AY 2018-19 and ₹2.56 crore for AY 2020-21, holding that the entire amount accrued upon receipt.
The Revenue relied significantly on the Madras High Court’s judgment in the assessee’s own case for AY 2009-10, which had held that the entire AMC consideration was taxable in the year in which the contract was entered into. The assessee, however, pointed out that the legal position had materially changed because Section 43CB was subsequently inserted by the Finance Act, 2018 with retrospective effect from 01.04.2017.
The Tribunal accepted this crucial distinction. Under Section 43CB, a service contract “involving indeterminate number of acts over a specific period of time” is required to recognise income on the straight-line method. An AMC precisely fits this description because the number of maintenance/service calls cannot be predetermined, although the contractual period is fixed. Therefore, AMC revenue must be recognised over the contract period rather than wholly upfront.
Importantly, the ITAT held that the Madras High Court ruling for AY 2009-10 did not govern the later years, because that decision concerned a period before Section 43CB became operative. The Tribunal observed that each assessment year is a separate unit of assessment, and consistency cannot compel application of an earlier legal position when Parliament has subsequently enacted a specific provision governing the issue. Further, once Section 43CB applies, the presence or absence of a refund clause in the AMC becomes immaterial to the statutory method of revenue recognition.
Accordingly, the ITAT upheld the CIT(A)’s deletion of ₹5,08,23,286 for AY 2018-19 and ₹2,56,34,992 for AY 2020-21, aggregating to about ₹7.65 crore, and dismissed both Revenue appeals.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
