1973 (7) TMI 81 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Rate of Depreciation for Hire-Purchase Transactions.
2. Inclusion of Interest and Service Charges in the Sale Price.

Issue 1: Rate of Depreciation for Hire-Purchase Transactions

The primary issue was whether the Tribunal was justified in allowing depreciation at the rate of 25% on motor trucks and 20% on motor cars taken on hire-purchase. The Tribunal had relied heavily on the Supreme Court's decision in K.L. Johar and Co. v. Deputy Commercial Tax Officer, Coimbatore III, and Others, which suggested that depreciation should be calculated based on the entire hire amount rather than the original price of the vehicle. The Tribunal concluded that a 25% rate of depreciation was reasonable for trucks and 20% for cars, based on an illustration provided in the Supreme Court's decision.

However, the High Court found that the Tribunal had not discussed or provided evidence to justify these rates. The Tribunal appeared to adopt the 25% rate mechanically from the Supreme Court's example without considering other relevant factors like the condition and usage of the vehicles. The High Court emphasized that the Tribunal must base its findings on evidence and not merely adopt rates from judicial illustrations.

Issue 2: Inclusion of Interest and Service Charges in the Sale Price

The second issue was whether the sale price in hire-purchase transactions should include interest, finance service commission, and additional interest for late payment. The Tribunal had determined that the sale price should be the hire-purchase value, which encompasses the real price of the vehicle, interest on that price, finance service commission, and extra interest for late payments.

The High Court upheld the Tribunal's decision, citing the Supreme Court's ruling in K.L. Johar's case. The Supreme Court had indicated that the sale price should be determined by considering the entire hire amount, including interest and other charges, rather than just the original price of the vehicle. The High Court agreed that for tax purposes, the depreciation should be deducted from the entire hire-purchase value.

Conclusion:

In conclusion, the High Court found no legal evidence to justify the Tribunal's finding of a 25% depreciation rate for trucks and 20% for cars. The Tribunal's reliance on the Supreme Court's illustration without considering specific evidence was deemed inappropriate. However, the High Court upheld the Tribunal's determination that the sale price in hire-purchase transactions should include interest, finance service commission, and additional interest for late payment, aligning with the Supreme Court's guidance. The references were answered accordingly, with no order as to costs.