TMI Blog2003 (8) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... re, therefore, the same are rejected and dismissed. 5. Ground Nos. 1, 2 and 3 for all the assessment years from assessment years 1994-95 to 1999-2000 except for assessment year 1998-99 are as under : ITA Nos. 15, 16, 17, 18 19 - Assessment years : 1994-95, 1995-96, 1996-97, 1997-98 and 1999-2000 1. Because the authorities below have grossly erred on facts and in law in equating hire charges with interest ignoring the submissions of the appellant and statutory definition of hire charges under the Hire Purchase Act, 1972. The addition made under the Interest Tax Act, 1974 being unjustified and un-warranted is liable to be deleted. 2. Because the authorities below ought to have appreciated that interest on loans and advances as envisaged to be liable to Interest Tax under the Interest Tax Act and hire charges on hire-purchase transactions are two distinct and separate phenomena with a clear line of demarcation between the two. 3. Because the impugned orders under appeal are full of conjectures and surmises in complete disregard of the fact that the appellant on one hand and the hirer on the other have distinct civil right in the peculiar nature of busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loan/advance and the hire charges received on such transactions were in the nature of interest which was chargeable to tax under the Act. 7. The CIT (A) -II, Agra in his order has discussed in detail the nature of transaction involved by the assessee-company and he distinguished the assessee company s case with the cases relied upon by the learned Counsel for the assessee and after detailed discussion he arrived at the conclusion that the hire purchase agreement and other documents executed by the assessee-company were merely an arrangement for the security of loan given by it and the Assessing Officer was justified in treating the hire charges as the interest which are chargeable to Interest-tax Act. It is against the aforesaid action of CIT (A) -II, Agra, the assessee- company has come up before us in appeal. 8. The grounds of appeal challenging the findings of the CIT (A) -II that the transaction entered into between the assessee-company and the hirers are in reality loan transaction and hire purchase agreement made by the assessee-company with the hirers only for security for repayment of loan. It is also challenged that the charges collected by the company were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form is the deciding factor. But now does one find out substance of a transaction in a commercial world where persons knew the ways of the world. If the transaction is reduced into writing in all material details, substance has to be ultimately found in the description and the various terms in the agreement which necessarily have mutual bearing upon each other. After all finance can be obtained in various ways including execution of hypothecation bond. In this background the terms agreed upon with open eyes would normally be the deciding factor specially when no fraud, undue influence or camouflage exists . The Hon ble High Court further held that : . . . Is there any conflict of view between Johar Co. (1965) 16 STC 213 (Supreme Court) and Sundaram Finance Limited (1966) 17 STC 489 Supreme Court ? We do not think so. Both decisions are rendered in different backgrounds. But even if there is any, it is the former decision which is binding on us since it is unanimously rendered by a five Judges Bench and the latter by a majority of two Judges in a three Judges Bench. 9. The learned Counsel for the assessee has also placed reliance on the decision of Muthoot Leasing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in substance, in the nature of hire-purchase, the receipts of the hire charges would not be in the nature of interest. On the other hand, if the transactions are in substance in the nature of financing transactions, the hire chargers should be treated as interest subject to interest-tax. 3. As to what constitutes a transaction in the nature of hire-purchase, the Assessing Officer should consider the issue on merits taking into account, inter alia, the following facts and circumstances : (i) The terms of the agreement; (ii) The nature of the arrangement between the supplier of the asset, the hire-purchase company and the end-user of the asset. (iii) The intention of the parties, which manifests itself in the fixation of the initial payment, the method of determination of the hire-purchase price, etc. When a hirer is the real purchaser of the asset but does not pay the full purchase price and the hire-purchase company pays the price or a substantial part thereof on behalf of such hirer, and a hire-purchase agreement is entered into merely as an arrangement, then such agreement is a security for repayment of the loan and is essentially a loan transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany but it was admitted that this margin money was recovered from the purchasers mostly in the first instalment itself. Thus, in effect, the margin money was paid by the hirers/purchasers . The road tax, insurance premia and other payments in respect of such vehicles have also been paid by the hirers/purchasers . Though, initially the road-tax insurance premium are paid by the appellant company but the same are recovered immediately from the purchasers/hirers . This being the case, it is difficult to accept that the appellant company was the owner of these vehicles. The appellant s contention that its name was mentioned in the registration book of the vehicles, purchase bills, insurance policy etc. which proved that the appellant was their owner, cannot be accepted. Merely because the appellant company s name appears on these documents it cannot be said that the company was the owner of the vehicles. The prime objective behind mentioning the name of the company in these documents is to safeguard the amount advanced by it. The objective is to make all other concerned persons aware of the fact that the appellant company financed those vehicles and hence, has charged interest ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . . .these persons are the owners of the vehicles. By their conduct the act as the owners of the vehicles. In fact the purchasers/hirers who maintain the books of account show these vehicles as assets in their balance sheets. For instance, one of the hirer namely Sri Ved Prakash, whose statement was recorded by the Assessing Officer during the course of remand proceedings accepted that the vehicle was shown as asset in the balance sheet. So is the position in the case of M/s. Lal Chand Shobh Raj Sons Jewellers (P.) Ltd., Agra. The Hon ble Court in the aforesaid decision has held that guardian of a minor and the hirer in case of hire purchase agreement could be treated as owner even though they may not be the real owners of the vehicles. These observations, in my view, does not help the case of the appellant. These two exceptions only extend the meaning of owner in so far as the Motor Vehicle Act is concerned. These two exceptions do not debar the hire purchase company to register the vehicles in its name. 16. In view of the above background, we have to see the intention of the assessee-company and so called hire purchasers with reference to the test laid down in Circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case there is no question of option because the vehicle has already been owned or registered under the Motor Vehicle Act in the name of the so-called hirer. The delivery of the possession of the vehicle is not given by the assessee-company, but it has been delivered directly by the dealers of the vehicle to the so-called hirers. The possession of vehicles has already been passed to the so-called hirer without payment of any instalment. Therefore, as per the definition of hire purchase agreement, discussed above, it can only be said that this is only an act of advancing money or loan and not a transaction of hire purchase. This issue also came for the consideration of the Hon ble Supreme Court of India though in different context in the case of K.L. Johar Co. v. Dy. CTO AIR 1965 SC 1082. In that case, the Hon ble Supreme Court of India has made the following observations : Hire-purchase agreements are not conditional sales. A hire purchase agreement has two elements : (1) element of bailment, and (2) element of sale, in the sense that it contemplates as eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their balance sheet. In their Profit and Loss Account, they have declared income from the vehicle owned by them. 24. It is also noted by the CIT (A) that at the time of payment of final instalment, no sale letter or any other document evidencing the sale of the vehicle to the purchaser/hirer was executed. However, only a letter to the effect that no dues were pending from the purchaser/hirer was issued. These facts clearly go to show that it was only to obtain loan/advance. The intention of both the parties was to raise and give loan so as to meet the total purchase price of the vehicle. 25. On the above facts and circumstances, it may be seen that if the test laid down by the decision of Hon ble Supreme Court in the case of Sundaram Finance Ltd. (supra) is applied in this case, then the conclusion would be the same that the assessee-company is only a financer advancing loan to the customers. 26. The assessee-company was never the owner of the vehicles. It does not deal in motor vehicles. Though it has been stated by the assessee-company that with the RTO, they were registered as a dealer within the meaning of Motor Vehicle Act, 1988. We further noted from the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lender is given the license to seize the goods, was basically a financing transaction. While holding so the Court also found that the intention of the parties was not to transfer any interest in the vehicle by the hirer to the hire purchase company. All the documents executed were to safeguard the loan given by the hire purchase company. The Court further concurred with the views expressed in English case laws that for ascertaining the true nature of transaction one must not look merely at the documents executed by the parties. It must be discovered as to what the true transaction was. For ascertaining the reality the Court is to look behind the documents. The Hon ble Supreme Court also held that if there was a bona fide and completed sale of goods evidenced by documents, anterior to and independent of subsequent and instinct hiring to the vendor, the transaction may not be regarded as a loan transaction even though the reason for which it was entered into was to raise money. However, if the intentions of the parties were to secure the return of loan and no real sale of vehicle was intended the transaction would be financing. 27. During the course of hearing, the ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finance company giving advance on which interest is charged by the assessee- company and such interest income has been declared as revenue receipts in the profit and loss account. 29. The ld. counsel for the assessee emphasized that in assessment year 1998-99, the CIT (A) -I, Agra in his order has rightly appreciated the facts of the case and has allowed the appeal of the assessee. We have gone through the said order of the CIT (A) -I, Agra and noted at para-1 of page 6 of his order, he has given more emphasis that the Assessing Officer has been greatly influenced by the Appellate order passed by CIT (A) -II, Kanpur and further observed that the Assessing Officer has lifted certain portion of the order of CIT (A) -II, Kanpur verbatim reproducing the same in the assessment order. In this regard, the CIT (A) -I, Agra has compared para 8 of the order of CIT (A) -II, Kanpur dated 2-2-1999 and para-6 of the assessment order, where it is held by the CIT (A) -I, Agra that certain sentences have been fully lifted and substituted in the assessment order. It is further mentioned by the CIT (A) -I, Agra that the said order of CIT (A) -II, Kanpur has been reversed by ITAT Lucknow Bench in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the Board s circular, and in the Supreme Court decision in Sundaram Finance Ltd. s case (supra) , it is only the intention and the substance of the transaction, which are relevant for deciding the issue. Thus, the fact that it is registered with RBI as a hire purchase company would not make any difference. Further, we also noted from the order of CIT (A) -II, Agra that the assessee-company, had obtained loan from bank and for this purpose, the vehicles were shown as its stock. Even if it is so, the nature of transaction would not change. It is an internal matter between the bank and the assessee-company. Merely because the bank accepted the vehicle as stock of the company, the real nature of the transaction would not change. Despite this, it would be open to scrutiny as to what was the real nature of the transaction. Moreover, the bank is merely interested in security of loan given by it. From the letter dated 9-1-1997 issued by Central Bank of India granting finance limit of cash credit besides stock collateral security of substantial amount in the form of movable or immovable properties were also obtained by the bank. It has also been desired by the bank that before release ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it can be considered as a Hire Purchase Company. Thus, we dismiss all the three grounds of appeal of the assessee-company and uphold the order of CIT (A) -II, Agra for the assessment years 1994-95, 1995-96, 1996-97, 1997-98 and 1999-2000. Revenue s Appeal No. 01/Agra/2002 - Assessment year 1998-99 34. Now we take up the Revenue s appeal No. 01. 35. The ground taken by the Revenue is that the Commissioner of Income-tax (Appeals) -I, Agra has erred in law and on facts in allowing relief by holding that hire charges are not in the nature of financing transaction ignoring the facts mentioned in the Assessment Order and also the facts that the Assessing Officer s decision is based on Board s Circular No. 760 dated 13-1-1998 and the decision of the Hon ble Supreme Court in the case of Sundaram Finance Ltd. (supra) . 36. The grounds taken by the Revenue has already been dealt with in foregoing paragraphs and we noted therein that none of the ingredients for being owner of an asset being present in the case of the assessee- company. Further in the light of Board s Circular and the ratio laid down by the Hon ble Supreme Court in the case of Sundaram Finance Ltd. (supra) and in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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