Commissioner Of Income-Tax v. Sanmac Motor Finance Ltd.

The Judgment of the Court was delivered by

K. Raviraja Pandian, J.:— The Revenue on appeal against the order of the Income-tax Appellate Tribunal, Madras “C” Bench, dated April 17, 2008, in I.T.A Nos. 12, 11, 13, 14, 15 and 16.Mds/2007 in respect of the assessment years 1992-93 to 1997-98 by formulating the following questions of law:

“1. Whether, on the facts and circumstances of the case, the Tribunal was right in treating the appeal filed by the assessee-company to the Commissioner (Appeals) as maintainable and valid in law, when the official liquidator was appointed and had taken charge prior to the filing of appeal before the Commissioner (Appeals)?

2. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the Commissioner (Appeals) was right in condoning the delay of 1,826 days in filing the appeal before him?

3. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the finance charges and related interest is not assessable to the Interest-tax Act by merely stating that the order of the Commissioner of Income-tax (Appeals) need not be interfered with?”

2. We have heard the argument of learned senior counsel appearing for the Department. Upon hearing his argument and on perusal of the materials available on record, which are the orders of the authorities below including that of the Tribunal, we find absolutely there is no merit in these cases.

3. The materials facts culled out from the statement of facts in the memorandum of grounds of appeals are as follows:

(i) The assessee is a finance company assessable to interest-tax. For the assessment years 1992-93 to 1997-98, the Assessing Officer while completing the assessment proceedings levied interest-tax. The Assessing Officer brought to tax the finance charges and related interest as chargeable to interest-tax under section 2(7) of the Interest-tax Act, 1974, among other additions/disallowances.

(ii) As against that order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) with a delay of 1,826 days. The Commissioner of Income-tax (Appeals), condoned the delay on being satisfied that there were sufficient cause, and decided the issue on the merits and held that interest-tax is not applicable to the transaction.

(iii) Aggrieved by the same, the Revenue filed an appeal before the Income-tax Appellate Tribunal. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) for condoning the delay and further held that the Tribunal did not find any reason to interfere or tinker with the order of the Commissioner of Income-tax (Appeals) and upheld the order of the Commissioner of Income-tax (Appeals).

(iv) The correctness of the same is now canvassed in these appeals by formulating the questions of law extracted above.

4. As already stated, we are not able to concur with the argument of learned senior counsel appearing for the Department. In respect of the first question of law, on the reading of the Tribunal's order, it is evident that it has not been raised before the Tribunal as a point in issue for consideration. The one and only point for consideration taken up before the Tribunal was whether the order of the Commissioner of Income-tax (Appeals) in condoning the delay is correct or not which could be seen from paragraph 2 of the order of the Tribunal.

5. When this point in issue has been argued by learned senior counsel, he has stated that on August 1, 2001, the winding-up order has beien passed by the company court. However, the assessee filed a petition under sections 391 to 394 of the Companies Act to sanction the scheme of arrangement for reconstruction and revival of operations of the company. The company court ordered that petition on October 27, 2006. Hence, at the time of filing of appeal on November 20, 2006, the managing director was competent to file the appeal. However, he very strenuously contended that as the delay is 1,826 days, which is more or less 5 ½ years, the Tribunal should not have confirmed the order of the Commissioner of Income-tax (Appeals) for the sake of passing the order.

6. Here again, we are not able to approve the argument of learned senior counsel. In paragraph 3 of the order, the Tribunal has extracted the averment of the assessee in extenso. The crux of the same is that the order of the interest-tax assessment and notice of demand were not served on the person who was duly authorised by the company to receive the said order and notice. The managing director of the company was in charge of the affairs of the company. He was arrested on April 28, 2001, and was in judicial custody and released after 90 days. Even prior to his release, the company got wound up. After revival of the scheme sanctioned by the High Court, the company could not detect that there were income-tax dues and through their authorised representative applied for copies of the assessment order and notice of demand. The delay was further explained by the assessee that due to the sudden introduction of stringent measures as regards the non-banking financial institutions, they were required to restrict the borrowings of the company to three times of its net owned funds. In view of that, the company was required to peg down its borrowing to three times. But the actual borrowings were more than six times. That made not only this company but also the other companies which were doing the same non-banking financial activities to face severe financial crunch and they could not pay the secured creditors like nationalised banks. Hence, the secured creditors have initiated civil and criminal proceedings in several courts of law and the depositors also filed several petitions before the Economic Offences Court, Chennai, and after the revival arrangement has been accepted by the company court, an appeal came to be filed with a delay of 1826 days.

7. We are of the view that the delay has been properly explained. It is clear that the assessee was constrained to face so many legal litigations and virtually in the prison for 90 days and after he came out, he made arrangement for revival of the company and also because of the pendency of the winding-up proceedings, the assessee was not able to file an appeal within the time prescribed. However, the reasoning stated is more than sufficient to condone the delay.

8. It is often said that the primary function of the court is to adjudicate the dispute between the parties and to advance substantive justice. The timelimit has been fixed for approaching the court in different situations is not because on the expiry of such time a bad cause would transform into a good cause. Rules of limitation are not meant to destroy the rights of the parties. They are meant to see that the parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. The law of limitation fixes a lifespan for such legal remedy for the redress of the legal injury so suffered. The law of limitation is thus founded on public policy. It is enshrined in the maxim interest reipublicae ut sit finis litium (it is for the general welfare that a period be put to litigation). The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. The condonation of delay is the discretion of the court. Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within certain limit. Length of delay is not the matter, acceptability of the explanation is the only criterion. Sometimes delay of the shortest range may be uncondonable due to a want of acceptable explanation whereas in certain other cases, delay of a very long range can be condoned as the explanation thereof is satisfactory. In every case of delay, there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy, the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time, then the court should lean against acceptance of the explanation. The court knows that refusal to condone the delay would result in foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. The words “sufficient cause” under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice. Once the court accepts the explanation as sufficient, it is the result of positive exercise of discretion and normally the superior court should not disturb such finding, unless the exercise of discretion was on wholly untenable grounds or arbitrary or perverse. But it is a different matter when the first court refuses to condone the delay. In such cases, the superior court would be free to consider the cause shown for the delay afresh and it is open to such superior court to come to its own finding even untrammelled by the conclusion of the lower court.

9. In this case, the delay has been explained by the assessee cogently and giving valid reasons, which have been extracted by the Tribunal in paragraph 3 of its order in extenso. The conspectus of the reasons are extracted in this order earlier. The extract shows that the assessee has taken all and every steps despite the difficult time faced by it to revive the company and as such obtained an order from the company court for its revival. The nonserving of the order impugned on the duly authorised person has also been properly explained. If this explanation has not been accepted as a sufficient cause, no other explanation could be accepted as sufficient cause. Hence, we are of the view that both the Commissioner (Appeals) as well as the Tribunal have exercised their discretion judicially.

10. The third question of law formulated has not been considered by the Tribunal inasmuch as much was concentrated before the Tribunal about the action of the Commissioner of Income-tax (Appeals) in condoning the delay. But, as a matter of fact, this point has been taken up for consideration by the Commissioner and the Commissioner has recorded a finding that on a perusal of the sample copies of the agreement filed during the appellate stage, revealed that finance charges and interest earned by the assessee were exclusively in connection with hire purchase transactions. The hire purchase finance charges are not to be subjected to “interest-tax” in view of the decisions of the High Court. The Commissioner further recorded a finding that the hirer in the assessee's case is the real purchaser of the asset and that the assessee was only a financier to assist the purchaser. Accordingly, the assessee's case is found to be squarely covered by the decisions of this court in Commissioner Of Income-Tax v. Harita Finance Ltd. [2006] 283 ITR 370, Commissioner Of Income-Tax v. Sri Ram Investment Ltd. [2006] 283 ITR 371 and Vandana Finance Ltd.

11. Though the questions of law have been formulated as aforesaid, nothing was argued to rebut the factual finding arrived at by the Commissioner (Appeals). In the absence of any material to support the case of the Revenue, we will have to accept the finding recorded by the Commissioner of Income-tax (Appeals) as correct. In addition to that, this court has, in the case of Commissioner Of Income-Tax v. Harita Finance Ltd. [2006] 283 ITR 370 held that the question as to whether the agreement entered into between the parties was a hire purchase agreement or not was examined by the Tribunal in great detail and the finding was that it was a hire purchase agreement. The further finding was that it was not the case of the Revenue that the hirer was the real purchaser of the asset and the assessee was only a financier to help the purchaser and such things were not seen from the agreement. This was a finding of fact. Therefore, the hire purchase finance charges and service charges did not constitute chargeable interest-tax under section 2(7) of the Interest-tax Act, 1974. On the facts recorded by the authorities that the agreement entered into between the parties was a hire purchase agreement and the hirer was a real purchaser of the asset and the assessee was only a i financier to help the purchaser. In similar set of facts in the case of Sri Ram Investment Ltd. [2006] 283 ITR 371 and Vandana Finance Ltd., this court has held against the Revenue.

12. In the light of the decisions cited supra and on the facts and circumstances of the case, we do not find any material to interfere or rather tinker the order of the Tribunal. The appeals are dismissed. Consequently, connected miscellaneous petitions are dismissed.