M/S.SUNDRAM FIN LTD vs. THE JOINT COMMISSIONER OF IN

1/7 T.C.A.Nos.272&275/2022 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED :: 26-09-2022 CORAM THE HONOURABLE MR.JUSTICE S.VAIDYANATHAN AND THE HONOURABLE MR.JUSTICE C.SARAVANAN T.C.A.Nos.272 & 275 of 2022 M/s.Sundaram Finance Ltd. ... Appellant in both appeals -vs- The Joint Commissioner of Income Tax, Company Range-VI, Chennai-600 034, Now Large Tax Payer Unit, Chennai-600 034. ... Respondent in both appeals T.C.A.No.272 of 2022 is filed against the order of the Income Tax Appellate Tribunal, ''B'' Bench, Chennai, dated 04.09.2019, in ITA No.72/Chny/2015. T.C.A.No.275 of 2022 is filed against the order of the Income Tax Appellate Tribunal, ''B'' Bench, Chennai, dated 04.09.2019, in ITA No.73/Chny/2015. For Appellant : Mr.R.Venkatanarayanan, for M/s.Subbaraya Aiyar Padmanabhan & Ramamani For Respondent : Mr.T.Ravikumar,

Senior Standing Counsel https://www.mhc.tn.gov.in/judis 2/7 T.C.A.Nos.272&275/2022 COMMON JUDGMENT The appellant-assessee has challenged the impugned order of the Income Tax Appellate Tribunal, dated 04.09.2019, passed in ITA No.72/Chny/2015 and ITA No.73/Chny/2015, for the Assessment Years 2004-05 and 2005-06 respectively. 2. By the impugned common order, the Income Tax Appellate Tribunal disallowed the appellant/assessee's claim for protection under Section 41 of the Income Tax Act,1961, in short, ''the Act''. 3. The specific case of the appellant is that during those years the appellant recovered the bad debts of the companies, which got amalgamated with the appellant company, and, therefore, they are not taxable in the hands of the appellant and that the appellant was not the assessee for the purpose under Section 41 of the Act. Learned counsel for the appellant has placed reliance on the following decisions : (1) Commissioner of Income Tax v. P.K.Kaimal, (1980) 4 Taxman 319 (Mad.). (2) Saraswathi Industrial Syndicate Ltd. v. Commissioner of Income Tax, (1990) 186 ITR 278. https://www.mhc.tn.gov.in/judis 3/7 T.C.A.Nos.272&275/2022 4. It is submitted that pursuant to the decision of the Hon'ble Supreme Court in Saraswathi Industrial Syndicate Ltd., referred to supra, though an attempt was made to amend the provisions of Section 41 of the Act with effect from 01.04.1993, there was no corresponding amendment to sub-clause (4) to Section 41 and, therefore, the bad debts recovered by the appellant cannot be taxed, as they are bad debts of the companies, which got amalgamated with the appellant company. 5. Appeals are opposed by the learned Senior Standing Counsel for the Revenue, stating that the orders passed by the Assessing Officer as also the Appellate Tribunal are well reasoned and, as such, they require no interference. It is submitted that the decision rendered by this Court in CIT v. P.K.Kaimal, cited above, was prior to the amendment to Section 41 of the Act and, hence, the said decision cannot be relied upon by the appellant. It is further submitted that though the issue was answered by the Hon'ble Supreme Court in Saraswathi Industrial Syndicate Ltd.'s case, cited supra, in favour of the asessee, there was an amendment to Section 41 of the Act with effect from 01.04.1993 by the Finance Act,1992, and, therefore, there is no merit in these appeals. The learned Standing Counsel also submitted that the issue is now squarely covered against appellant/assessee by the decision of the Hon'ble Apex Court in Commissioner of Income Tax v. T.Veerabhadra Rao, (1985) 155 ITR 152 (SC). https://www.mhc.tn.gov.in/judis 4/7 T.C.A.Nos.272&275/2022 6. We have considered the arguments advanced by the learned counsel for the appellant and the learned Senior Standing Counsel for the respondent. 7. For the Assessment Years 2001-2002 and 2003-2004, the issue is now relegated to the Tribunal in the light of T.C.A.No.1938 of 2008. The appellant has raised the following substantial questions of law for consideration of this Court :

(1) Whether the order of the Tribunal is perverse in holding that the amounts recovered in respect of bad written off by the amalgamating companies is taxable in the hands of the amalgamated company i.e., assessee company under Section 41 (4) of the Income Tax Act ? (2) Whether the order of the Tribunal is perverse in holding that the amounts recovered in respect of bad written off by the amalgamating company will become taxable in the hands of the amalgamated company as business receipt irrespective of the provisions of Section 41 (4) ? (3) Whether on the facts and in the circumstances of the case, the Tribunal has erred in ignoring the ratio of the decision of the jurisdictional High Court in the case of P.K.Kaimal reported in 123 ITR 735 (Mad) and the decision of the Hon'ble Apex Court in the case of CIT v. Saraswathi Industrial Syndicate Ltd., reported in 186 ITR 278 ? https://www.mhc.tn.gov.in/judis 5/7 T.C.A.Nos.272&275/2022 8. The point for consideration is, whether the bad debt recovered by the appellant, which was written off by the amalgamating company, which got amalgamated, can be taxed in the hands of the appellant or not ? 9. The decisions cited by both the appellant as also the Revenue in support of their respective stands pre-date the amendment to Section 41 of the Act vide the Finance Act,1992. Therefore, the decisions rendered prior to the above amendment cannot be strictly applied to the facts of this case. However, Section 41 has to be considered as a complete Code by itself, as far as profit is chargeable to tax. Section 41 (1) cannot be read in isolation with Section 41 (4). The assessment contemplated under Section 41 (1) is the same as the assessment contemplated under Section 41 (4). Therefore, merely because there is no corresponding amendment in sub-clause (4), it would not mean that the provisions of Section 41 (1) will not apply. 10. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject of the transfer. If the law permits the transferor to treat the whole or part of the debt as irrecoverable and to claim a deduction on that account, it is difficult to accept that the same right should not be recognised in the transferee. https://www.mhc.tn.gov.in/judis 6/7 T.C.A.Nos.272&275/2022 11. For the above reasons, we are of the view that the order of the Appellate Tribunal, confirming the order of the lower authority, is well reasoned and it requires no interference. Accordingly, we answer the substantial questions of law against the appellant and dismiss these appeals. No costs.

(S.V.N.,J.) (C.S.N.,J.)

26-09-2022 Index : Yes/No Internet : Yes/No Speaking / Non-Speaking Order dixit To The Joint Commissioner of Income Tax, Company Range-VI, Chennai-600 034, Now Large Tax Payer Unit, Chennai-600 034. https://www.mhc.tn.gov.in/judis 7/7 T.C.A.Nos.272&275/2022 S.VAIDYANATHAN,J. AND C.SARAVANAN,J.

dixit T.C.A.Nos.272 & 275/2022 26-09-2022 https://www.mhc.tn.gov.in/judis