M/s.Sundaram Fin.Ltd. Vs Asst.Commissioner of Income Tax,chennai

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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5895 OF 2008

M/s. Sundaram Finance Ltd. … Appellant(s)

Versus

Assistant Commissioner of Income Tax, Chennai …Respondent(s)

With

Civil Appeal No. 6388/2012 (arising out of SLP(C) No. 11552/2009 and Civil Appeal No.6389/2012 (arising out of SLP(C) No. 11191/2009)

O R D E R

CIVIL APPEAL NO. 5895 OF 2008

This civil appeal is filed by the assessee. Assessee is a

Non Banking Finance Company. This civil appeal concerns

assessment

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year 1998-99. Assessee had filed its return of income for

assessment year 1998-99 for total income of Rs. 50,38,16,950/-.

The substantial questions of law which arise for

determination in this civil appeal are as follows:

“1. Whether on the facts and in the

circumstances of the case, the Appellate

Tribunal was right in law in holding that the

appellant is not entitled to deduction of the

‘provision’ made in respect of Non Performing

Assets which are considered irrecoverable?

2. Whether the Appellate Tribunal was justified

in not appreciating that the provision made in

respect of Non Performing Assets if not

allowable as a bad debt is allowable as a

business loss?

3. Whether on the facts and in the circumstances

of the case, the Appellate Tribunal was

right in

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treating the amount of Rs. 36,47,585/- collected

as contingent deposit as Income of the

Appellant?”

At the outset, Shri Preetesh Kapur, learned counsel

appearing for the assessee, fairly stated that questions 1 and 2

have been answered by this Court in favour of the Department

vide judgment dated 11.01.2010 in the case of Southern

Technologies Ltd. v. Joint Commissioner of Income Tax (320

ITR 577).

The only question which this Court is required to answer

is whether the Tribunal was right in treating the amount of

Rs. 36,47,585/- collected by the assessee as contingent deposit,

as income of the assessee under Section 28 of the Income Tax

Act, 1961?

Assessee is engaged in the business of hire purchase

financing, equipment leasing and allied activities.

The only question which this Court needs to answer

is whether the aforestated contingent deposit is

income of the

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assessee. Assessee has been collecting certain sums as

“contingent deposit” from the leasing/hire purchase customers

with a view to protect themselves from sales tax liability.

These amounts have been collected on ad-hoc basis.

Assessee did not offer such sums to tax as income on the

ground that such sums were collected as contingent

deposits.

The case of the assessee before us was that the said

collection was in anticipation of sales tax liability, which was

disputed.

For assessment years 1997-98 to 2000-01 orders were

passed by Sales Tax Authorities levying lease tax on inter-State

and import lease transactions executed in various States, (as

deemed sales pursuant to the Forty-sixth Amendment to the

Constitution) against which the assessee herein had filed

appeals, which even today are pending before the High Court

(some appeals, however, are pending before the Tribunal). For

the assessment years 1986-87 to 1996- 97, the Tribunal has

disallowed the assessee’s appeals against which the assessee

has filed appeals before the High Court, which are also

pending. These facts concern disputes raised by the

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assessee concerning its sales tax liabilities with which we are not

concerned in this civil appeal. According to the assessee, in

order to safeguard itself against, inter alia, the said sales tax

liabilities, the assessee received Rs.36,47,585/- as

contingent deposits from its customers which were

“refundable” if the assessee was to succeed in its challenge

to the levy of the said sales tax. According to the assessee

the sum of Rs. 36,47,585/- is, therefore, an imprest with a

liability to refund, that the said sum bears the character of

“deposits” and hence not taxable in the year of receipt but is

taxable only in the year in which the liability to refund the sales

tax ceases (in case the assessee fails in the pending sales tax

appeals).

It is now well settled that in determining whether a

receipt is liable to be taxed, the taxing authorities cannot ignore

the legal character of the transaction which is the source of the

receipt. The taxing authorities are bound to determine the true

legal character of the transaction. In the present case, the

assessee received Rs. 36,47,585/- in the assessment year 1998-

99. As per the statement made by learned counsel for the

assessee in Court on 6.09.2012

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(which statement is ordered to be taken on record and marked

“X”), the said sum of Rs. 36,47,585/- was not kept in a

separate interest bearing bank account but it formed part of the

business turnover. In view of the said statement, we see no

reason to interfere with the impugned judgment. Applying the

substance over form test, we are satisfied that in the present case

the said sum of Rs. 36,47,585/- constituted income. The said

amount was part of the turnover. The said amount was

collected from the customers. The said amount was collected

towards sales tax liability. The said amount formed part of the

turnover.

For the aforestated reasons, the judgment of this Court

in the case of CIT v. Bazpur Co-operative Sugar Factory Ltd.

reported in (1988) 3 SCC 533 is not applicable. That judgment

concerns Loss Equalisation Fund created by co-operative

society carrying on business of manufacture and sale of sugar.

In cases of sugar co-operative societies principle of mutuality

applies. Such principle does not apply to the present case.

In the circumstances, the judgment of this Court in the

case of Bazpur Co-operative Sugar

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Factory Ltd. (supra) has no application to this case. The civil

appeal of the assessee is, accordingly, dismissed with no order

as to costs.

Civil Appeal No.6388/2012 (arising out of SLP(C) No. 11552/2009 and Civil Appeal No.6389/2012 (arising out of SLP(C) No. 11191/2009)

Leave granted.

In view of the order passed in Civil Appeal No. 5895 of

2008, both these appeals filed by the assessee are also dismissed

with no order as to costs.

……………………………………CJI [S.H. KAPADIA]

…………………………………….J. [MADAN B. LOKUR]

New Delhi, September 11, 2012.

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ITEM NO.1A COURT NO.1 SECTION IIIA

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

CIVIL APPEAL NO.5895 OF 2008

M/S.SUNDARAM FIN.LTD. Appellant (s)

VERSUS

ASST.COMMISSIONER OF INCOME TAX,CHENNAI Respondent(s) (With office report)

With S.L.P. (C) No.11552 of 2009 (With prayer for interim relief and office report)

S.L.P. (C) No.11191 of 2009 (With prayer for interim relief and office report)

Date: 11/09/2012 These Matters were called on for Orders today.

For Appellant(s) Mr. Preetesh Kapur,Adv. Ms. Radha Rangaswamy,Adv.

For Respondent(s) Mr. Rajiv Dutta,Sr.Adv. Mr. Arijit Prasad,Adv. Mr. Nedumaran,Adv. Ms. Anil Katiyar,Adv.

for Mr. B.V. Balaram Das,Adv.

Hon'ble the Chief Justice pronounced the

Order of the Bench comprising of His Lordship and Hon'ble Mr. Justice Madan B. Lokur.

Civil Appeal No.5895 of 2008:

The civil appeal of the assessee is dismissed with no order as to costs.

Civil Appeal No.6388 of 2012 @ S.L.P. (C) No.11552 of 2009 and Civil Appeal No.6389 of 2012 @ S.L.P. (C) No.11191 of 2009:

Leave granted. ....2/-

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- 2 -

In view of the order passed in Civil Appeal No. 5895 of 2008, both these appeals filed by the assessee are also dismissed with no order as to costs.

[ Alka Dudeja ] [ Indu Satija ] A.R.-cum-P.S. Court Master

[Signed Order is placed on the file]