Amount received in advance leviable to tax in the year of its collection: Madras HC

CIT Vs Johnson Lifts Pvt Ltd (Madras High Court)

Madras High Court held that amount received in advance towards Annual Maintenance Service is revenue in the hands of the assessee at the time of receipts and accordingly tax is leviable in the year of its collection.

Facts-

In this appeal, the dispute is confined to the “Annual Maintenance Charges” (AMC) collected by the respondent-assessee in advance from its customers for maintenance of Lifts installed and commissioned by the respondent-assessee.

The respondent-assessee had treated the same in their Books of Accounts as a “current liability” viz., “Income Received in Advance”. Therefore, the Respondent-Assessee did not offer the same to tax in the returns filed for A.Y. 2009-10. The Assessing Officer disallowed the same in the assessment order. The said decision was affirmed by the Appellate Commissioner.

Conclusion-

Held that the amount was collected by the appellant in advance towards Annual Maintenance Charges (AMC). The advance is a revenue in its hands at the time of its receipt. It is taxable in the year of its collection, as is contended by the Appellant/Income Tax Department. Further, there is no uncertainty in the amount of consideration derived for rendering of service and the amount is non­refundable.