TMI Blog2023 (1) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 (11) TMI 869 - SUPREME COURT] which have given a very limited and restricted meaning to Section 2(7) of the Act as interest directly arising on loans and advances, and not any other interest, be it interest earned on investment or interest payable on delayed payment of the discounted bill of exchange. Findings of fact generally recorded by the ITAT are treated as conclusive. The High Court can interfere with the findings of fact while deciding a substantial question of law when the findings are not supported by the material on record, so as to be treated as perverse. See Karnataka Board of Wakf v. Anjuman-E-Ismail Madris-Un-Niswan, [ 1999 (8) TMI 1018 - SUPREME COURT] and C. Doddanarayana Reddy (Dead) By Legal Representatives and Others v. C. Jayarama Reddy (Dead) By Legal Representatives and Others [ 2020 (2) TMI 1676 - SUPREME COURT] For this, however, the High Court must frame a separate substantial question of law and only then interfere with the findings of fact by the ITAT, while applying the strict parameters. In the present case, the High Court did not frame a specific substantial question of law and thus, the interference with the findings of fact is unwarr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, AOR Mr. A. Raghunath, AOR JUDGMENT SANJIV KHANNA, J. Leave granted in Special Leave Petition (Civil) No. 4441 of 2011. 2. The common question which arises for consideration in this batch of Civil Appeals is: whether the appellants assessees are liable to pay tax under the Interest-Tax Act, 1974 For short, the Act on the interest component included in the hire-purchase instalments paid under the hire-purchase agreement? 3. The facts, in brief, are that the appellants assessees are non-banking finance and leasing companies registered with the Reserve Bank of India. Some of the appellants assessees have been reclassified as hire-purchase finance companies. It is not disputed that the appellants assessees are credit institutions within the meaning of Section 2(5-A) of the Act, which reads as follows: (5-A) credit institution means,- (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in Section 51 of that Act); (ii) a public financial institution as defined in Section 4-A of the Companies Act, 1956 (1 of 1956); (iii) a State financial corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the vehicle is kept and seize, remove and retake possession thereof. The owner is also entitled to sue for all the instalments due, damages for breach of the agreement, and the cost in retaking possession of the vehicle. The owners, if agreeable, may permit the hirer to have the registration of the vehicle in his own name, provided that the hirer shall transfer the registration in the name of the owner whenever required to do so by the owner, especially when the hirer commits breach of any of the conditions of the agreement, due to which the owners are obliged to seize the vehicle. 5. On these facts, the ITAT accepted the plea of the appellants assessees that they are not liable to pay interest tax on the interest component imbedded in the hire-purchase instalment. The ITAT referred to Circular No. 760 dated 13th January 1998 issued by the Central Board of Direct Taxes For short, CBDT and observed that the hire-purchase agreement is a composite transaction, and has elements of bailment and sale. Relying on the terms and conditions of the hire-purchase agreement noted above, the ITAT held that hire-purchase agreements are distinguishable from loans and advances. The h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irer towards the hire is chargeable to interest tax under the Act. At this stage, it may be relevant to state that the special leave petition preferred by the Commissioner of Income Tax, New Delhi against the decision of the Delhi High Court in a connected matter, in the case of Commissioner of income Tax, New Delhi v. M/s G.E. Capital Services India SLP(C) No. 14202 of 2008, was dismissed by this Court on 16th May 2008. The dismissal being in limine and at the admission stage, would not constitute a binding precedent under Article 141 of the Constitution of India. 9. Section 2(7) of the Act, post amendment with effect from 1st October 1991, reads as under: (7) interest means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i) interest referred to in sub-section (1-B) of Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii) discount on treasury bills; 10. There are two direct decisions of this Court interpreting Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st within the meaning of Section 2(7) of the Act. The amount credited on this account had been booked by the appellant Bank therein in its interest account. Agreeing with the assessee therein, this Court observed that the definition of interest in the Act is a narrow one, and is exhaustive as it is a means and includes definition. The reasoning of the Karnataka High Court in State Bank of Mysore v. Commissioner of I.T., Karnataka-I, Bangalore (1989) 175 ITR 607 that discounting of a bill is a form of advance or loan and hence, compensation paid on delayed payment of money due thereon is interest on loans and advances, was overruled as overlooking the limited coverage in Section 2(7) of the Act. There is a distinction between loans and advances, and discounted bills of exchange drawn or made in India. If discounted bills of exchange were also to be treated as loans and advances made in India, there would be no need to extend the definition of interest to include discount on bills of exchange. This Court, accordingly, agreed with the views expressed by some other High Courts, including Madras High Court in Commissioner of Income Tax v. Cholamandalam Investment and Finance Co. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f giving a loan or advance on which interest is payable. The transaction(s) in commercial and legal sense are far more complex with corresponding rights of the parties. Even if the hirer is recorded as the owner of the vehicle under Section 51 of the MV Act, the name of the appellant assessee is also recorded in the registration book, which is in recognition of the hire-purchase agreement. The registered owner under the MV Act may be liable in case of accidents/traffic challans, etc. But this, in no way, dilutes the right of the appellants assessees in respect of the title of the property, that is, the vehicle. Any transfer or sale made by the hirer or any violation of the hire-purchase agreement can lead to civil as well as criminal consequences. Given the dictum and ratio in Sahara India Savings and Investment Corporation Limited (supra) and State Bank of Patiala Through General Manager (supra), the view taken by the High Court of Delhi in M/s G.E. Capital Transportation ITA 1275 of 2006 (supra), as followed by the High Court of Delhi in Commissioner of Interest Tax v. M/S G.E. Capital Transportation ITA 1280 of 2006, is correct and the view taken by the High court of Kerala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcising his option to purchase the goods on payment of a nominal price. In another form of hire-purchase transactions, goods are purchased by the customer who, in consideration of executing a hire-purchase agreement and allied documents, remains in possession of the goods, subject to the liability to pay the amount paid by the financier on behalf of the customer to the owner or the dealer. The financier obtains the hire-purchase agreement which gives him a license to seize the goods in the event of failure by the customer to abide by the conditions of the hire-purchase agreement. The true effect of a transaction may be determined from the terms of the agreement considered in light of the surrounding circumstances. In some cases, the real bargain would be 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 why it was entered into was to raise money. Recording the aforesaid, the appeal of the assessee in Sundaram Finance Limited (supra) was allowed by the majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hire-purchase agreements as in the context of the sales tax enactment. In the present case, however, we are dealing with and interpreting Section 2(7) of the Act, which has been interpreted in two decisions, that is, in the case of Sahara India Savings and Investment Corporation Limited (supra) and State Bank of Patiala Through General Manager (supra), which have given a very limited and restricted meaning to Section 2(7) of the Act as interest directly arising on loans and advances, and not any other interest, be it interest earned on investment or interest payable on delayed payment of the discounted bill of exchange. 18. Taxation depends upon the language of the charging section and what is brought to tax within the four corners of the charging section. Therefore, one should be careful and cautious when applying the ratio of judgments relating to one tax enactment as a precedent in a case relating to another tax enactment. This rule of caution is important and should not be overlooked, more so when the language of the enactment and the object and purpose of the enactment are different. This ratio is somewhat expressed by this Court in Association of Leasing and Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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