Contingent deposits received from customers is income – SC

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

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5895 OF 2008

M/s. Sundaram Finance Ltd.

Versus

Assistant Commissioner of Income Tax, Chennai

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)

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