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Integrated Finance Co. Ltd. Versus The Deputy Commissioner of Income Tax, The Joint Commissioner of Income Tax

2015 (8) TMI 849 - MADRAS HIGH COURT

Levy of interest tax - Finance charges received on purchase and hire back transactions - whether is in the nature of loan and hence chargeable to interest tax as held by ITAT - whether the real intention of parties in all cases of purchase and hire back transactions is only to obtain finance and not to hire the asset? - Held that:- We are unable to accept the contention of assessee that if the sale precedes the Hire Purchase Agreement, it would still fall within the definition of Sale and Hire B .....

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f of actual sale though it is claimed as Sale and Hire Back transaction. As all these are findings of fact, we have no other option but to accept the department's plea and reject the assessee's contention. - Decided against assessee. - Tax Case (Appeal) Nos: 759, 950 and 951 of 2007 - Dated:- 21-7-2015 - R Sudhakar And K B K Vasuki, JJ. For the Appellant : Mr. Vijayaraghavan For the Respondent : Mr. T R Senthilkumar Jr. Standing Counsel for I.T. Department ORDER This Court has framed the followi .....

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Appellate Tribunal was right in law in holding that the real intention of parties in all cases of purchase and hire back transactions is only to obtain finance and not to hire the asset?" 2. The assessee's contention that the sale on Hire Back transaction should be treated on par with regular Hire Purchase transaction and therefore, the interest on loans and advances are not chargeable to tax under the Interest Tax Act was rejected by the assessing officer and was confirmed by the Comm .....

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ions and therefore cannot be treated as loans and advances under the provisions of Interest Tax Act. The assessing officer, however, found that in the present case, certain hire purchase transactions are with the parties who were already in possession of the assets which were the subject matter of hire purchase contract. In cases where the asset is pre-existing with the client, then the hire purchase contract is in effect a loan transaction whereby a loan relatable to the value of the asset is g .....

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ons involving second hand assets come within the meaning of term 'interest' defined under Sec. 2 (7) of the Interest Tax Act." 4. The findings rendered by the Commissioner (Appeals) at paragraph 8 of his order dated 5.12.2002 is as follows : "8. I have carefully considered the submissions of the learned counsel for the appellant and perused the requisite material available on record. Admittedly, the hire purchase / lease transactions in question involved old/second hand assets, .....

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in the appellant's own case earlier assessment year. The addition for both the years is therefore confirmed. The appellant fails." 5. Consistently, the Commissioner (Appeals) have upheld such orders and the Tribunals have also followed the same. The Tribunal, in the instant case, taking note of the Circular No. 760 issued by the CBDT dated 13.01.1998 came to the conclusion that in the absence of an agreement or document produced by the assessee to prove that it is a sale-cum-hire back t .....

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ase of the assessee in Int. T.A. Nos. 57, 58, 134 to 136/Mds/1999 and 57/Mds/2003, where it has been held by the Tribunal vide para 8 that transactions regarding old vehicles are only finance transactions and would come under the purview of interest-tax. He submitted that no evidence has been produced before the Tribunal or even before the lower authorities to prove that such transactions involved bonafide sales and ultimately amount to hire purchase transactions only." 8. The Tribunal, tak .....

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under, is in confirmity with the circular and the decision of the Supreme Court : "4. We have considered the rival submissions carefully. Paragraphs 4 & 5 of the Circular No. 760 issued by the CBDT reads as under : "4. In this connection, the Assessing Officer should keep in mind the tests laid down by the Supreme Court in the case of Sundaram Finance v. State of Kerala (AIR 1996 SC 1178) wherein it has been held as under - "If there is a bonafide and completed sale of goods e .....

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ctions were merely financing transactions. 5. Accordingly, instead of routinely treating all hire-purchase transactions as merely financing transactions, the Assessing Officers may be advised to examine each transaction in the above light and charge interest-tax in such of those transactions which are not in the nature of hire-purchase." From the above, it is clear that transactions can be treated as hire purchase transactions only if there is bonafide and complete sale of goods, as evidenc .....

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. We agree with the contention of the ld. DR. As observed by the Special Bench of the Tribunal in the case of Mideast Portfolio Management Ltd. v. DCIT (supra), normally court must proceed on the basis of the declared intention of the parties to a document/transaction/arrangement. However, if such intentions are under doubt or are challenged, then court is duty bound to find out the real intention of the parties by looking at the real intention exhibited in the documents. The decisions relied on .....

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ation is allowable in case of sale and lease back transactions or not. In Karam Chand Thapar Bros vs. DCIT (Supra), again the issue involved was whether depreciation was allowable in case sale and lease back transaction or not. As far as the case of Harita Finance Ltd. v. ACIT (Supra) is concerned, there new assets were involved and financing of new assets is quite different from financing of old assets. The Tribunal in case of Harita Finance Ltd. v. JCIT, TVS Lakshmi Credit Ltd. vs. JCIT and TV .....

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