2012 (11) TMI 670 - HC - Income Tax

Notice of Reassessment AO held that he had reasons to believe that the amount declared as hire-charges were, in fact, interest. - Following the decision of court in case of Syal Leasing Ltd. Versus Assistant Commissioner of Income-Tax And Another 2003 (9) TMI 47 - PUNJAB AND HARYANA HIGH COURT held that - AO has already determined that the relevant agreements executed by the petitioner were with a view to finance the vehicles and that those were not leasing agreements. That finding of the AO was affirmed by the CIT (Appeals). Feeling aggrieved by the orders of the CIT (Appeals), the petitioner has preferred an appeal before the Income-tax Appellate Tribunal which is pending - In view of the findings recorded by the AO in the case of the assessee for the AY 1998-99 AO had sufficient reason to believe to issue a notice u/s 148 decided against Assesssee. Real nature of the transaction - Hire purchase vs Sale - Held that - Total amount payable and the period of payment, as hire-charges is part of the agreement; the sample agreement produced - executed by the assessee with one Sh. Amit Singh, discloses that the hirer was to pay Rs.12,500/- per month, effective from 10.02.2001 and that the hirer could, at any time during the hire, become owner of the vehicle on making payment of hire fully for the whole period of agreement. Having provided so, the agreement is silent as to what constituted the period of its tenure. Hire-purchase concerns two elements - bailment and sale in the sense that it visualizes an eventual sale which fructifies when the option is exercisable by the purchaser after fulfilling the terms of the agreement. In the present case, however, the tenure of the agreement itself is unknown; the hirer, in fact, is the registered owner of vehicle. Having regard to these features and the other discussed elaborately by the Tribunal and the CIT(A), this Court is of the opinion that findings impugned in this case do not call for any interference on the merits. This question too is answered against the assessee - appeal is meritless; it is, therefore, dismissed. Decision in K.L. Johar & Co. (1964 (11) TMI 58 - SUPREME COURT OF INDIA), followed

Summary

Issues Involved:
1. Legality of the reopening of assessment.
2. Nature of the transaction: whether it was hire-purchase or interest on loan.

Detailed Analysis:

1. Legality of the Reopening of Assessment:

The assessee, a Non-Banking Finance Company (NBFC), contested the reopening of its assessment by the Income Tax Appellate Tribunal (ITAT) for the assessment year 2000-01. The Assessing Officer (AO) initiated reassessment proceedings under Section 10 of the Interest Tax Act, believing that the assessee had not declared taxable amounts. The AO's decision was based on previous ITAT rulings for the years 1994-95 to 1999-2000, which concluded that the assessee's business transactions were loans and not hire-purchase agreements.

The appellate commissioner upheld the AO's decision, noting that the AO issued the notice within four years of the end of the assessment year and had specific, direct, and relevant information indicating that interest chargeable to tax had escaped assessment. The appellate commissioner relied on the Supreme Court decisions in ITO v. Saradbhai. M. Lakhani and Raymond Woollen Mills Ltd. v. ITO to support the validity of the reassessment proceedings.

During the appeal, the assessee argued that the reassessment was improper as all facts had been disclosed initially, and the AO had the opportunity to address the matter earlier. However, the court found no infirmity in the reasoning of the Tribunal and lower authorities, concluding that the reassessment under Section 10 of the Interest Act was lawful and in accordance with legal procedures. Thus, the first issue was resolved against the assessee.

2. Nature of the Transaction:

The second issue concerned whether the transactions were hire-purchase agreements or disguised loans. The appellate commissioner and the Tribunal relied on previous Tribunal rulings for the assessee's case from 1995-99-2000, which identified several key features indicating the transactions were loans:

- Sale invoices were issued in the name of the hirers.
- Vehicles were registered in the hirers' names.
- The hire-purchase agreements and declarations indicated that the transactions were structured to ensure loan recovery, not genuine hire-purchase.

The Tribunal noted that the vehicles were registered in the hirers' names from the beginning, and the agreements allowed hirers to become owners upon full payment without specifying the tenure of the agreement. This led to the conclusion that the transactions were sales rather than hire-purchase agreements.

The Supreme Court's decision in K.L. Johar & Co. v. Dy. CTO, which distinguished between bailment and eventual sale in hire-purchase agreements, was considered. However, the Tribunal found that the agreements in question did not meet the criteria for hire-purchase as the vehicles were registered to the hirers, and the agreements lacked a defined repayment period.

The court agreed with the Tribunal's findings, concluding that the transactions were sales and not hire-purchase agreements. Therefore, the second issue was also resolved against the assessee.

Conclusion:

The court dismissed the appeal, affirming the Tribunal's decision on both issues: the legality of the reassessment and the nature of the transactions being loans rather than hire-purchase agreements.