TMI Blog2000 (12) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefits under Circular No. 760 of CBDT. 4. He was not justified in holding that the hire transactions have to be treated as financing transaction and as such the hire charges have to be treated as interest liable to, interest-tax." 4. As per the statement of facts, assessee was engaged in the business of leasing, hire purchase finance and real estate. During the year, the appellant-company earned 'hire charges' amounting to Rs. 11,59,216, which according to the appellant was not chargeable to tax under the Interest-tax Act, as it did not constitute interest within the meaning assigned to this word. under that Act, whereas the Assessing Officer has held the said "hire charges' as interest chargeable to tax. Further, the appellant has also earned interest on loans and advances amounting to Rs. 4,82,141, which also was not considered as chargeable interest by the assessee-company on the ground that it does not fall within the meaning of 'credit institution'. The stand of the assessee has been with respect to "hire charges' that the liability to pay interest tax arises only in case of a "credit institution' and it was not a 'credit institution'. Pleas of the assessee were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-1998 to emphasise that even Board has clarified that interest tax is not leviable on the hire charges collected by a hire purchase company. In the end, he made a prayer for reversing the orders of the authorities. 5.1 On the other hand, Id. Sr. Deptl. Representative Shri C.P. Ramaswamy argued that hire purchase agreements though designated as hire purchase agreements are in substance agreements for financing the transactions. He emphasised that what is to be seen is the substance of an agreement and not the form thereof and, according to him, if various terms and conditions given in the agreement are read in conjunction with and if viewed in the context of the facts of the transactions, it will come out that hire purchase agreement was a camouflaged way of converting a loan transaction. According to him, it was pure and simple financing transaction and hire charges are nothing but interest, which falls within the definition of interest exigible to interest tax under the Interest-tax Act, 1974. It was further argued by him in support of his contention that even on the guarantee form, the words *amount of advance' are mentioned, which clearly shows the intention of the appellant- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1974. In order to resolve this controversy, following aspects need to be examined, as the reply of the above said main question is dependent upon the replies of the following questions : 1. Whether appellant can be treated as a 'credit institution' within the meaning of section 2(5A) of the Interest-tax Act as, if it is not " credit institution' there shall not be exigibility of the interest tax at all under the Interest-tax Act, 1974. 2. Whether interest income included in the other income on the loans and advances stated to have been given to the sister concerns can be covered within the' definition of 'chargeable interest,' attracting the rigours of the levy of interest tax under the Interest tax Act, 1974. 3. Whether the "hire charges' earned by the assessee can be said to be 'hire charges' ' and can be brought within the meaning of 'chargeable interest' and can be made exigible to the levy of interest-tax, as aforesaid. 9. Though the appellant had submitted that it was engaged in the business of leasing, hire purchase finance and real estate, yet Profit and Loss Account for the years under consideration clearly shows, as recorded by Id. Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by showing to us any fact or figures from its P L A/c or the balance sheet of the years under consideration or with the help of the documents of the earlier years, or the succeeding years, except making a sketchy and general arguments that its object clause in the Memorandum of Association include several objects e.g. leasing, real estate so on so forth. It is settled law that the apparent is real unless proved by the person who alleges that it is not so. In the instant case, as pointed out above also, P L A/ c clearly shows that the hire charges constituted a dominant portion of the total income, thus constituting the hire purchase business as the principal business carried on by the assessee. If the appellant wanted to negate this apparent state of fact, it ought to have come out with facts and figures of the years under consideration, or of the earlier years or succeeding years to prove that hire purchase was not the principal business carried on by it. Though Id. counsel, as stated above, has invited our attention to the main object clause of the Memorandum of Association to drive home his argument that there were several objects which could be pursued and in fact pursued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such interest income should not suffer interest tax under Interest Tax Act, 1974. Therefore, we uphold the action of the Assessing Officer, confirmed by ld. CIT(A) in charging interest tax on the following interest amounts for the 3 years 'Le., Rs. 3,26,41 1, Rs. 4,01,714 and Rs. 4,82,141. 13. Insofar as the levy of interest tax on the hire charges earned by the appellant is concerned, it is stated that hire charges do not find mention in the plain text of the definition of the term 'interest'. There can be no gainsaying that hire charges cannot be said to be interest on loans and advances in any manner unless it is shown that the hire charges have resulted from the execution of such agreements which are nothing but agreements of loans and advances and thus hire charges are nothing but interest. Hire charges per se are not the interest as clarified by the CBDT too, albeit in the context of section 2(28A) of the Income-tax Act and in the context of section 194A of that Act, by way of issuing Instruction No. 1425 in F. No. 275/9/80-IT(B) dated 16-11-1.981, which is reproduced hereunder, for the sake of convenience. 'In a hire-purchase contract the owner delivers goods to anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at hire charges and interest are of two different and distinct character, so understood by CBDT too and hire charges cannot be termed as interest so as to be brought within the mischief of section 2(7) or in other words, within the ambit and net of the Interest-tax Act, 1974. 14. According to the Assessing Officer, hire purchase agreement entered into by the assessee with the hirers, in substance, are not hire purchase agreements but they were the agreements of sale of vehicles with further facility to pay purchase amount in instalment on the security of the vehicle. This, in our opinion, is a very serious construction put by the Assessing Officer on the hire purchase agreement and this was confirmed by ld. CIT(A) too and, therefore, it will be necessary for us to closely look at the nature of the agreements entered into by the assessee and referred to by the authorities below, as it will go a long way in appreciating the issue before us. 15. Copies of hire purchase agreements placed before us were closely examined and we find certain salient features coming out from those agreements, which are summed up as under: - 1. that the appellant shall be and remain the owner of the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Narayan v. Laxmi Nassimmam AIR 1955 Hyd. 104(FB). Therefore, if we see and scan the hire purchase agreement so entered into by the appellant with the hirers in the light of the above principles emerging out from the characteristics of a typical hire purchase transaction, the inescapable conclusion that emerges is that it contains all the attributes of a hire purchase agreement and it cannot be said to be an agreement for the repayment of loan with the security of vehicle as contended by Revenue throughout. Vehicle is not sold to the hirer at the time of delivery and it is sold on the conclusion of the payment of all hire charges, if the hirer exercises his option to buy. Ld. assessing officer's contention in the assessment order that there was no completed sale supports the case of the assessee than that of Revenue. Merely, because registration is made in the name of the hirer, it cannot be said that the vehicle has been sold conclusively to the hirer, as this has to be seen and read in conjunction with the overriding clause contained in the hire purchase agreement to the effect that subject-matter of hire shall remain the property of the appellant. If the explicit clauses contai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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