This civil appeal is filed by the assessee. Assessee is a
Non Banking Finance Company. This civil appeal concerns
assessment
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? JUDGMENT
3. Whether on the facts and in the circumstances
of the case, the Appellate Tribunal was
right in
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? JUDGMENT
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
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 JUDGMENT 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
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 JUDGMENT 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
(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 JUDGMENT 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
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.
New Delhi, September 11, 2012.
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 JUDGMENT 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.
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]