1960 (11) TMI 105 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of rule 5(1)(b) of the Turnover and Assessment Rules for deduction in sales turnover based on hire-purchase agreements.

Analysis:
The judgment by the High Court of Madras, delivered by Rajagopalan and Srinivasan, JJ., dealt with the assessment year 1955-56 of an assessee firm involving the deduction claim of Rs. 68,275 from its gross sales turnover under rule 5(1)(b) of the Turnover and Assessment Rules. The assessee had sold cinema machinery and apparatus under long-term hire-purchase agreements, with some purchasers defaulting on payments in 1955-56. The total unpaid instalments amounted to Rs. 21,191-1-6. The Tribunal disallowed the deduction claim, leading to the question of whether the assessee was entitled to any deduction under the mentioned rule and the correct amount to be deducted for 1955-56 assessment.

The Court referenced a prior case to establish that although the transactions were in the form of hire-purchase agreements, the element of sale was predominant, making them assessable to sales tax. The unpaid instalments represented the outstanding sale price, and when the goods were returned to the seller due to defaults, the liability to pay the balance ceased. Rule 5(1)(b) allowed deductions for amounts refunded for returned goods, subject to specific conditions, which were met in this case as the goods were returned, and the unpaid purchase money liability was terminated and shown in the accounts.

The Court emphasized that the date of sale determined inclusion in the assessable turnover, while the date of allowance decided exclusion under rule 5(1)(b). The assessee was entitled to claim the total unpaid instalments as an allowance under the rule since the liability for unpaid purchase money was terminated as per the agreement, and the ledger accounts reflected the unpaid amount. Therefore, the Court held that the assessee was entitled to a deduction of Rs. 21,191-1-6 for the assessment year 1955-56, allowing the petition and reducing the assessment accordingly, with the assessee entitled to costs.

In conclusion, the judgment clarified the application of rule 5(1)(b) in cases of hire-purchase agreements involving returned goods and unpaid instalments, affirming the entitlement of the assessee to claim deductions based on the real nature of the transactions and compliance with the rule's conditions.