Commissioner Of Income Tax Chennai v. Sundaram Finance Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS Commissioner of Income TaxChennai... Appellant/RespondentVs. Sundaram Finance Ltd.21, Patullos RoadChennai – 600 002. .. Respondent/Appearance PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal 'C' Bench, Chennai,dated 10.4.2007 made in I.T.A.No.146/Mds/2003 for the assessment year2000-2001. Against the order of the Income Tax Appellate Tribunal C Bench in ITANo.146/Mds/2003 for assessment Year 2000-2001 dated 10.4.2007 Agaisnt the Order of the Income Tax Appeals V Chennai in ITANo.07/int/2003-04 dated 04.06.2003. Against the Order of the Assistant Commissioner of Income Tax CompanyCircle VI (4) Chennai dated 31.3.2003 in GIR No./PAN:Su.048/ For Appellant :Mr.T.Ravi KumarSenior Standing Counsel The assessee has filed this appeal assailing the order of theIncome Tax Appellate Tribunal 'C' Bench, Chennai, dated 10.4.2007made in I.T.A.No.146/Mds/2003 for the assessment year 2000-2001 andthe same was admitted on the following question of law: https://hcservices.ecourts.gov.in/hcservices/ Whether the Tribunal was right in holding that interesttax cannot be charged on interest received on tradeadvances? 2.1. The brief facts of the case are as under: The assessee isa finance company. It received interest on advances made for thepurchase of goods. During the relevant assessment year, the assesseecompany has recognised a sum of Rs.3,61,98,668/- as interest on tradeadvances. The claim of the assessee that the interest earned is noton loans and, therefore, interest tax is not exigible was rejected bythe Assessing Officer and accordingly, the interest earned by theassessee was brought to tax. 2.2. Aggrieved by the said order, the assessee appealed to theCommissioner of Income Tax (Appeals), who, confirmed the order passedby the Assessing Officer. 2.3. Calling into question the said order, the assesseepreferred appeal before the Tribunal. The Tribunal, following theearlier order passed in the assessee's own case for the assessmentyear 1994-1995, allowed the appeal filed by the assessee. 2.4. Challenging the above said order passed by the Tribunal,the revenue has preferred this appeal on the question of law,referred supra. 3. We have heard Mr.T.Ravikumar, learned Senior Standing Counselappearing for the revenue and Mr. Venkat Narayanan, learned counselappearing for the assessee and perused the orders passed by theTribunal and the authorities below. 4. The main contention of the learned counsel for the assessee,which has been accepted by the Tribunal, is as follows: “The assessee had paid the advance amount to themanufacturer/dealer towards the purchase of machinery inconnection with hire-purchase/lease. On account of thedelay in the delivery of goods, on the advance made, theassessee received interest from the manufacturer.Interest thus due on the advance was later on adjustedon the price payable by the assessee for the saidgoods/machinery. Thus, at the time of advancing themoney, it was never the intention of the assessee orthe recipient to treat it as a loan. Thus, the advancecould not be treated as loan to attract the provisionsof the Interest-tax Act.” 5. A Division Bench of this Court in Commissioner of Income Taxv. Integrated Finance Co. Ltd., (2011) 339 ITR 391, considered asimilar plea raised by the assessee and held as under: https://hcservices.ecourts.gov.in/hcservices/ 5. A Division Bench of this Court in Commissioner of Income Taxv. Integrated Finance Co. Ltd., (2011) 339 ITR 391, considered asimilar plea raised by the assessee and held as under: https://hcservices.ecourts.gov.in/hcservices/ “12. Keeping this distinction in the background, asalready pointed out, the case of the assessee herein isthat it advanced money to the manufacturing company forthe purchase of the machinery. On the advance thus made,for the delay in delivery, the manufacturing company wasstated to have paid interest. The advance paid wasadjusted against the purchase price. Thus the advancepaid to the supplier was not for earning interest to berepaid at a later point of time. The Revenue does notdeny this that the amount given was a trade advancetowards the purchase of machinery and the interestamount was adjusted against the cost of goods supplied.The Revenue also does not dispute the fact that theintention of the assessee when the assessee advanced theamount was not for earning interest or for repayment ofthe amount given as advance, but towards the purchase ofmachinery.” The Division Bench, on the facts of the said case, held as under: “19. Going by the facts, we hold that the assessee'scase does not fall for consideration under sub-clause(iv) of Section 2(5B). The assessee is a creditinstitution. As a finance company engaged in hirepurchase and leasing transaction, the assessee also doesnot deny that its activities in respect of financing,falls for consideration under sub clause (iv). TheAssessing Officer has assessed the transactions relatingto hire purchase financing. However, as rightly pointedout by the assessee, when the payment of money asadvance was towards the purchase of machinery, thereexists a distinct feature from all those transactions offinancing on hire purchase and leasing that an exceptionhas to be made in respect of the amount advanced by theassessee for the purpose of purchase of machinery. Onthe delay in delivery, the manufacturer had paidinterest. As already pointed out, going by the fact - afact which is not disputed by the Revenue, that theamount given by the assessee was towards the purchase ofmachinery as advance, we hold that the case of theassessee does not fall for consideration under sub-clause (iv) of Section 5(B). Going by the definitiontherein, we hold that the trade advance given does notfall under the phrase loan or advance or otherwise so asto cover the nature of transactions herein.” 6. That apart, in the assessee's own case for the earlierassessment years, Division Benches of this Court answered the verysame question of law against the Revenue and in favour of theassessee (Judgment dated 20.7.2012 in T.C.(A) Nos.1147 and 1148 of2006 and judgment dated 7.4.2014 in T.C.(A) No.494 of 2007). 7. The learned Senior Standing Counsel appearing for the Revenuefairly concedes that the question of law raised is covered by thedecisions referred supra. In view of the law enunciated in the decisions referred supra,this appeal is dismissed by answering the question of law against theRevenue and in favour of the assessee. No costs. Sd/- Assistant Registrar //True Copy// Sub Assistant RegistrarsasiTo:1. The Assistant Registrar,Income Tax Appellate Tribunal, Besant Nagar, Chennai Bench "C", Chennai.2. The Commissioner of Income Tax (Appeals) - V Chennai. 3. The Assistant Commissioner of Income Tax Company Circle VI(4), Chennai. 1 cc to Mr.Venkat Narayanan ,Advocate, SR.No.5854T.C.(A).No.1342 of 2007 mg(co)pmk.26.2.2015