1965 (10) TMI 58 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the transactions: Whether they were financing agreements or hire-purchase agreements.
2. Applicability of the definition of "sale" under section 2(28) of the Bombay Sales Tax Act, 1959.
3. Whether the transactions were casual sales or if the assessees could be considered dealers in motor vehicles.

Detailed Analysis:

Issue 1: Nature of the Transactions
The primary contention was whether the transactions were purely financing agreements or hire-purchase agreements. The assessees argued that despite the form of hire-purchase agreements, the essence and substance of the transactions were financing agreements. However, the Court examined the agreements and concluded that they were indeed hire-purchase agreements. The agreements contained elements of both bailment and sale, with the property in the vehicles passing to the hirers upon payment of all instalments and the exercise of the option to purchase. The Court emphasized that the entire transaction, including the simultaneous execution of proposals and agreements, indicated that the assessees were the owners of the vehicles until all conditions were met, thus making the transactions more than mere financing arrangements.

Issue 2: Definition of "Sale" under Section 2(28) of the Bombay Sales Tax Act, 1959
The Court held that the hire-purchase agreements, upon the hirers fulfilling all conditions and exercising the option to purchase, matured into contracts of sale. The legal effect was that the transactions resulted in the sale of motor vehicles, which fell within the definition of "sale" under section 2(28) of the Bombay Sales Tax Act, 1959. The Court referred to a similar case, Johar & Co. v. Deputy Commercial Tax Officer, where the Supreme Court held that such transactions amounted to sales and were assessable to tax. This reinforced the conclusion that the transactions were taxable events under the Act.

Issue 3: Casual Sales vs. Dealers in Motor Vehicles
The assessees contended that even if the transactions were sales, they were casual and did not make the assessees dealers in motor vehicles. The Court rejected this argument, noting that the transactions were part of a consistent course of dealings aimed at earning interest on deployed amounts. The transactions were not isolated or casual but were conducted in a manner characteristic of a business. The Court concluded that the assessees were indeed dealers in motor vehicles for the purposes of these transactions, and the sales could not be regarded as merely occasional.

Conclusion:
1. The transactions were hire-purchase agreements and not financing agreements.
2. The transactions fell within the definition of "sale" under section 2(28) of the Bombay Sales Tax Act, 1959.
3. The transactions were not casual sales, and the assessees were considered dealers in motor vehicles.

The assessees were ordered to pay the costs of the reference to the State of Gujarat. The reference was answered accordingly.