THE COMMISSIONER OF INCOME TAX vs. M/S.S.M.V FIRM KOLLAM

We have heard the Standing Counsel for the petitioner who relied on the decision Pandian Chemicals Ltd. v. Commissioner of Income-Tax (S.C) {(2003) 262 ITR 278} and the three decisions of the Supreme Court referred to in the Tribunal's order, and also heard the counsel appearing for the ITA No.29 & co. cases. respondent/assessee who contended that, but for the deposit maintained with the bank, the assessee would not have able to carry on his business in management and financial services. The Tribunal, after analysing the facts, found that the assessee is engaged in the business for rendering financial and management services to different associate concerns, in the following words: “The assessee has availed the credit facility from the State Bank of India. The copy of the letter issued by the State Bank of India is placed at page 13 of the paper book. On perusal of the said letter, it is clear that State Bank of India, Chinnakada (Quilon) had originally sanctioned current account overdraft limit of Rs.75 lakhs. In the said letter, the bank also sanctioned the facility of cheque payment “at par” on the different branches. The assessee firm is issuing cheques to the creditors of the associate concerns which are honoured immediately on presentation. The argument of the Id. Counsel is that for availing of the facility of honouring the cheques 'at par', the assessee is required to keep fixed deposits which has reached at present to Rs.2.50 crores. The contention of the assessee is that by utilising the “at par” facility for effecting payment to the suppliers of its associate concerns all over India, the DD commission, time, man power, interest on ITA No.29 & co. cases. DD, office work, etc. are saved. At par facility given by the bank which the assessee firm is selling to its associate concerns is the crux of the service. For getting 'at par' facility, certainly the bank will ask for deposit and the assessee firm is providing the financial services and it is the main business of the assessee”.

The cases relied on by the Department pertains to industries which are not rendering financial services. In this case, the clear finding of the Tribunal is that the assessee is engaged in rendering financial services to its associate concerns and assessee used to make payments to the creditors of the associate concerns and the deposit maintained with the bank was for availing cash credit facility for substantial amount and to make payment of cheque amount at par on presentation by the creditors. In view of the finding of the Tribunal that deposit was made in the course and for the purpose of business of the assessee which includes financial service, we are of the view that the decisions relied on by the Department have no application in these cases. We