TMI Blog2016 (5) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has also stated that the vehicle were registered in the name of the hirer which prove that the hirer were the owner of the vehicle. We find that this argument also has no substance since the Registration Certificate clearly mentions the hirers as owners under hire purchase agreement with the assessee. Thus there is no basis to hold that the assessee was the owner of the assets. We therefore hold that the transactions entered into by the assessee were hire purchase transactions and were 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions would not alter. As mentioned in the Board s Circular and in the Hon ble Supreme Court decision in Sundaram Finance Ltd. (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, 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 nature of the transaction. Moreover, the bank is merely interested in security of loan given by it. Besides stock collateral security of substantial amount in the form moveable or immovable properties were also obtained by the bank. It has also been desired by the bank that before release of enhanced facility, fresh equitable mortgage of these prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer 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 for purchase of vehicles but vehicles have been purchased by the customers (hirers) and such type of transactions are in the form of second type of transaction as found in the decision of Sundaram Finance Ltd. Vs. State of Kerala (supra) which has been held in the nature of finance transaction because the customers after purchasing the vehicle have got them financed by a financier and the role of financier in this case has been played by the assessee (appellant) company. Therefore, in the present 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder head Hire Purchase Stock , similar to the case of M/s S.E. Investments Ltd, the amount shown is an advance / loan to the customers, which only is affecting 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 charges in the Profit Loss Account from year to year. Therefore, such hire-purchase charges credited in Profit Loss Account is nothing but the interest paid by the customers on loan/advances taken by them on the security of the vehicles. Therefore, the hire-purchase agreements produced by the Ld. AR before me to justify the hire-purchase charges credited in the Profit Loss Account are in fact just an instrument for ensuring the recovery of loans / advances given to customers on the security of the vehicles and such agreements in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al payment, the method of determination of 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 hirer 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 transaction. 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 Ltd. Vs. State of Kerala 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 customers and no real sale of the vehicle was intended by the customer to the appellant. The transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go behind the 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 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. If the real transaction is a loan of money secured by a right of seizure of the goods, the property ostensibly passes under the documents em. bodying, the transaction, but subject to the terms of the hiring agreement, which become part of the buyer's title, and confer a licence to seize. When a person desiring to purchase goods and not having sufficient 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 transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers who hold them as trustees for the owner. 4) There is also an element of sale in the sense that it contemplates an eventual sale to the hirer on payment of all installments as stipulated in the agreement and on exercising the option to purchase the goods on payment of a nominal price. 5) There is no agreement to buy goods between the financier and the hirer and the hirer is under no legal obligation to buy, but has an option either to return 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 consideration of executing an agreement and allied documents. 4. Financer obtains a license under the hire purchase agreement to seize the goods in the event of failure by the customer to abide by the conditions of the agreement. 5. Real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 in accordance with the terms and conditions of this agreement on behalf of Owners. The breach of any term or condition will automatically amount to termination of trust and Hirer in such condition shall immediately surrender the Vehicle to the Owners at their Office. Holding the Vehicle after the termination of trust shall amount to criminal breach of trust as defined in Indian Penal Code. Further the copy of the Registration certificate of the vehicles reveals that the hirers are the owners subject 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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