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M/s Raghuvar Automobiles and General Finance P. Ltd. Versus The ITO, Ward 4 (3) , Agra

2016 (5) TMI 921 - ITAT AGRA

Liability to pay interest tax as per the Interest Tax Act - Held that:- Applying the principles for determining the nature of the transaction enunciated above to the facts of the case, we unhesitatingly hold that the transaction entered into by the assessee constituted a hire purchase transaction wherein the assessee being the owner of goods had hired the same to the customers/ hirers for specified hire charges, and gave the right to exercise the option of purchasing the asset on payment of the .....

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CIT(A) wherein he has categorically stated that no purchase bills of the vehicle were produced. The argument of the Ld. DR that the AR of the assessee had admitted that the vehicle were purchased by the hirer is rebutted by the Hire Purchase agreement, which clearly states the assessee to be the owner of the goods. In the absence of any purchase bills to establish the ownership of the vehicle, the Hire Purchase agreement will override the oral statement of the Counsel of the assessee. Ld. DR ha .....

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not amenable to Interest Tax. The order of the Ld. CIT(A) is therefore set aside and the appeal of the assessee is allowed deleting the levy of Interest Tax - Decided in favour of assessee - ITA Nos.96 & 97/Ag/2014 - Dated:- 12-4-2016 - SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER For The Appellant : Sh. Rajendra Sharma For The Respondent : Sh. Waseem Arshad ORDER PER ANNAPURNA MEHROTRA A.M. Both the appeals filed by the assessee are against the common orde .....

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ny was engaged in financing motor vehicles and was liable to pay tax on the interest income earned during the year which was assessed at ₹ 11,84,422/- and ₹ 19,95,960/- respectively as against ₹ 190/- and ₹ 2,330/- respectively shown by the assessee. The assessee filed appeal before the Ld. CIT(A), who allowed the appeals of the assessee. Against the order of the CIT(A), the department preferred appeal before the ITAT who restored the matter to the file of the AO for pass .....

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ase. The AO held as follows: It is also noted that the assessee company used to obtain from the customers blank signed documents. Even terms and conditions for so called hire are also signed blank. On those documents except the signatures of the hirers / purchasers, all other columns are blank. These factual position shows that various documents were executed by the assessee company just too safe guard the amount given on advance to the purchase. In respect to claim of assessee company that it i .....

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her, it is also noted from the order of the Ld. CIT(A)-I, 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 changed. It is an internal matter between the bank and the assessee company. Merely because the bank accepted the vehicles as stock of the company, the real nature of the transaction would not changed. Despite this, it will be open to scrutiny as to what was the real n .....

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should be transferred in the bank s name. In view of all these facts, since the bank had already secured its advance against a number of securities, it was not very much concerned to ascertain as to whether the vehicles were actually the stock of the company or not. Keeping in view the fact and circumstances and the legal position, I am of the view that the assessee company is engaged in financing business only, advancing loan on interest and it cannot be considered as hire purchases. 3. Against .....

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), who thereafter upheld the order of the AO by holding as follows : 8.1 I have considered the facts of the case as brought before me in the written submissions filed by the Ld. AR along with various documents in form of copies of hirepurchase agreements and registration documents of the vehicles and I have also considered the information given by the Ld. AR in the last hearing held on 29.11.2013 with respect to the purchase of vehicle. I have already examined the decision of Hon ble ITAT, Agra .....

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case under appeal, the vehicles have been purchased by the customers(hirers) and not by the assessee company and hence, customers are owners of the vehicles and not the assessee. This fact of the instant appeal is against the fact as found in former two decisions of the Hon ble ITAT, Agra as in those cases, the vehicles were purchased by the assessee company and then they were given on hire to its customers (hirers). In the present case under appeal, the assessee company has only made payments .....

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t case, the assessee (appellant) company is only recovering its loan amount along with the interest given to its customers (hirers) for purchase of vehicles by entering into a hire-purchase agreement and these facts of the case are very much similar to the facts of M/s Sundaram Finance Ltd. Vs. State of Kerala (supra) as well as the facts of the case of M/s S.E. Investment Ltd. (supra) in which also, the above case law of Hon ble Supreme Court was allowed holding that such type of transactions a .....

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ese vehicles were purchased, however, the Ld. AR has fairly admitted that these vehicles were purchased by the hirers. Since these vehicles were purchased by the hirers and also they were found to be registered in the name of hirers prior to the assessment year under consideration, it is quite clear that the vehicles had already been purchased and registered in the name of so called hirers and the sale invoices had also been issued in the name of the hirers before they entered in the so called h .....

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ee has been taxed under the Interest Tax Act. In the case of M/s S.E. Investments Ltd., despite that company getting registered with Reserve Bank of India as a hire purchase company, the Hon ble ITAT Agra after considering the facts of that case and examining the real intention behind executing the hire-purchase agreements, held that it is noted that merely because it is registered so with RBI, the nature of transaction would not alter. In the present case under appeal, the assessee (appellant) .....

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g the asset side of the balance sheet by reducing cash / bank and increasing advance / loan to the customers and the only amount of advance has been taken in this stock and not the total value of motor vehicles financed. In realty, there is no stock details of vehicles giving the quantitative and value wise details but only mentioning the amount of loan/advances given to the customers and keep on reducing it by the amount of repayment of the principle amounts and crediting the hire-purchase char .....

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security of the vehicles and such agreements in substance are not real hire-purchase agreements because assessee is not owner of the vehicles shown under these agreements. 8.2 Keeping in view the facts of the case under appeal so far discussed in this para and finding them similar to the facts of the case of M/s S.E. Investments Ltd. and therefore, following this decision of Hon ble ITAT Agra, I hold that the AO has correctly taxed the hire purchase charges of ₹ 11,84,420/- and ₹ 19 .....

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only issue to be decided in the present appeals is whether the assessee is liable to pay interest tax as per the Interest Tax Act. Alternatively the issue to be decided is whether the transaction entered into by the assessee is in the nature of a Hire Purchase transaction not amenable to Interest Tax or a financing transaction, which is amenable to Interest Tax. For determining the nature of the transaction whether Hire Purchase & Financing guidelines have been prescribed by the CBDT in its .....

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he nature of hire-purchase, the assessing officer should consider the issue on merits taking into account, interpreted 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 hire purchase price, etc. When a hirer is the r .....

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la AIR 1966 SC 1178, wherein it has been held as under:- If there is a bona fide and completed sale of goods evidenced by documents, anterior to and independent of subsequent and distinct 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… …the intention of the appellant in obtaining the hire purchase and the allied agreements was to secure the return of loan advanced to their cust .....

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his issue in the case of Sundaram Finance Ltd. Vs. State of Kerala AIR 1996 SC 1178. The relevant portion of the decision is reproduced hereunder: A hire-purchase agreement is normally one under which an owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hirerental payments have reached the hire-purchase price stipulated in the agreement. But there are variations when a fin .....

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e owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The decision of this Court in K. L. Johar & Company v. Deputy Commercial Tax Officer(1) dealt with a transaction of this character. (2) In the other form of transactions, goods are purchased by the customer, who in consideration of executing a hirepurchase agreement and allied documents remains in possession of the goods, subject to liab .....

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he documents and to determine the nature of the transaction, whatever may be the form of the documents. An owner of goods who purports absolutely to convey or acknowledges to have conveyed goods and subsequently purports to hire them under a hire-purchase agreement is not estopped from proving that the real bargain was a loan on the security of the goods. If there is a bona fide and completed sale of goods, evidenced by documents, anterior to and independent of a subsequent and distinct hiring t .....

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cient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hire-purchase agreement is a more, complex transaction. The owner unde .....

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ated hire and the price for exercising the option. This class of him-purchase agreements must be distinguished from transactions in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of a hire purchase agreement with the financier, but in substance evidences a loan transaction, subject to a hiring agreement under which the lender is given the license to seize the goods. The Hire Purchase Act, 1972 defines Hire P .....

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nd , such person has a right to terminate the agreement at any time before the property so passes. What derives from the above is that the distinguishing features of a Hire Purchase Transactions are: 1) The real owner of the goods is the financier who purchases the goods in the first place. 2) The Financier thereafter enters into an agreement with customers to hire goods to them on terms and conditions set out in the Hire Purchase Agreements. 3) There is an element of bailment in Hire Purchase c .....

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urn the goods or to become its owner by payment in full of the stipulated here and the price for exercising the option. The hirer also has the right to terminate the agreement at any time before the property so passes. As a corollary the distinguishing features of a financing transaction are 1. Hirer is the real purchaser of the asset. 2. Hirer does not pay the full purchase price but gets it financed through an arrangement with a financier. 3. Hirer remains in possession of the goods in conside .....

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with various parties reveals that the Motor Vehicle / asset given on hire has been stated to be the sole property of the assessee. The hirer is required to pay specified hire charges for a fixed period. And on payment of the complete hire charges the hirer has the option of purchasing the property. Clause 18 of the agreements deals with the same as follows. 18. In the event of every payment of the stipulated hire being duly and punctually made at the time stated and upon due observance and perf .....

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ump sum the balance of the total h ire then remaining unpaid with all other sums then due by the Hirer to the Owners under this agreement. Upon such prepayment the Hirer shall be allowed such rebate as the Owners, may judge to be fair and reasonable. Notwithstanding anything contained herein, the Hirer shall not be bound to exercise the option to purchase. But if he so exercise the option, he shall do it either at any time during the currency of this agreement or as stipulated after full payment .....

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f the property in the Vehicle which property indisputably belongs to the Owners and the Hirer here by agrees and affirms that if at any time the Hirer should claim any such right of ownership contrary to the aforesaid provisions, the Owners shall be entitled not only to proceed criminally against the Hirer for breach of trust but also to claim damages from the Hirers and the Hirer agrees to pay all such damages to the Owners. 20. The Hirer during the hire period shall hold the Vehicle as trustee .....

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bject to Hire Purchase agreement with the assessee i.e. Raghubir Automobiles and General Finance Co. Pvt. Ltd. We find that the Hire Purchase Agreement specifically states at pt. no. 8 that if the owner mentioned in Registration Certificate is other than the assessee, it shall not give the hirer any right to claim ownership of the vehicle and that it would imply only temporary ownership of the vehicle. 8. If due to any Govt. regulations or otherwise the name of the Owners has not been or could n .....

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icle nor to entitle him to the Ownership of the Vehicle. 7. Applying the principles for determining the nature of the transaction enunciated above to the facts of the case, we unhesitatingly hold that the transaction entered into by the assessee constituted a hire purchase transaction wherein the assessee being the owner of goods had hired the same to the customers/ hirers for specified hire charges, and gave the right to exercise the option of purchasing the asset on payment of the entire hire .....

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