Clarification on applicability of Interest-tax Act to hire purchase transactions - Income Tax - 738/1996

Clarification on applicability of Interest-tax Act to hire purchase transactions Circular No. 738 Dated 25/3/1996 The Board have received representations seeking clarification about chargeability of interest-tax on finance charges accruing or arising to hire purchase finance companies. 2. The matter has been examined in consultation with the Ministry of Law. The Finance (No. 2) Act, 1991, extended the scope of interest-tax so as to cover "credit institutions" which include financial companies and in particular hire purchase finance companies carrying on their principal business as hire purchase transactions or the financing of such transactions. 3. Hire purchase transactions are generally in the nature of finance transactions entered into by the companies engaged in the business of financing. 4. The Board are of the view that the finance charges accruing or arising to hire purchase finance companies are in the nature of interest as defined in section 2(7) of the Interest-tax Act and, therefore, chargeable to interest-tax. 5. The above clarification may be brought to the notice of all the officers concerned. (Sd.) Nishi Singh, Secretary, Central Board of Direct Taxes.