2016 (5) TMI 921 - AT - Income Tax

Liability to pay interest tax as per the Interest Tax Act - Held that - Applying the principles for determining the nature of the transaction enunciated above to the facts of the case, we unhesitatingly hold that the transaction entered into by the assessee constituted a hire purchase transaction wherein the assessee being the owner of goods had hired the same to the customers/ hirers for specified hire charges, and gave the right to exercise the option of purchasing the asset on payment of the entire hire charges. The Registration Certificate of the vehicle also lend credence to this view wherein the hirers have been shown as owners under hire purchase agreement entered into with the assessee. The Revenue s case we find, rests entirely on the premise that the owner of the vehicles are the hirers and hence the transaction is a financing transaction. We find no merit in this argument of the Ld. DR as there is no basis for the same which is is evident from the order of the Ld. CIT(A) wherein he has categorically stated that no purchase bills of the vehicle were produced. The argument of the Ld. DR that the AR of the assessee had admitted that the vehicle were purchased by the hirer is rebutted by the Hire Purchase agreement, which clearly states the assessee to be the owner of the goods. In the absence of any purchase bills to establish the ownership of the vehicle, the Hire Purchase agreement will override the oral statement of the Counsel of the assessee. Ld. DR has also stated that the vehicle were registered in the name of the hirer which prove that the hirer were the owner of the vehicle. We find that this argument also has no substance since the Registration Certificate clearly mentions the hirers as owners under hire purchase agreement with the assessee. Thus there is no basis to hold that the assessee was the owner of the assets. We therefore hold that the transactions entered into by the assessee were hire purchase transactions and were not amenable to Interest Tax. The order of the Ld. CIT(A) is therefore set aside and the appeal of the assessee is allowed deleting the levy of Interest Tax - Decided in favour of assessee

Issues Involved:
1. Whether the assessee is liable to pay interest tax under the Interest Tax Act.
2. Whether the transactions entered into by the assessee are in the nature of hire purchase transactions or financing transactions.

Issue-wise Detailed Analysis:

1. Liability to Pay Interest Tax:

The primary issue is whether the assessee is liable to pay interest tax as per the Interest Tax Act. The assessee's appeals were against the common order of CIT(A)-II, Agra, which confirmed the levy of interest tax amounting to ?1,29,912/- and ?2,01,129/- for the assessment years 1997-98 and 1998-99, respectively. The original assessment orders held that the assessee company was engaged in financing motor vehicles and was liable to pay tax on the interest income earned during the year. The assessee's claim was that the interest received was part of hire charges, and thus, not subject to interest tax.

2. Nature of Transactions: Hire Purchase vs. Financing:

The key determination was whether the transactions were hire purchase transactions or financing transactions. The AO, after re-examining the matter, concluded that the assessee was engaged in financing business only, advancing loans on interest, and thus, the transactions could not be termed as hire purchase. The AO noted that the assessee obtained blank signed documents from customers and executed various documents to safeguard the amount given as advance.

The CIT(A), upon reconsideration, upheld the AO's order, stating that the transactions were in the form of financing transactions. The CIT(A) referred to the Supreme Court decision in Sundaram Finance Ltd. vs. State of Kerala, which held that the nature of transactions should be determined by their substance and intention, rather than their form.

The ITAT examined the hire purchase agreements and found that the motor vehicles given on hire were stated to be the sole property of the assessee. The agreements provided that the hirer would pay specified hire charges and had the option to purchase the vehicle upon full payment. The ITAT noted that the hire purchase agreements indicated the assessee as the owner of the vehicles, and the hirers held the vehicles as trustees and bailees of the assessee.

The ITAT also considered the CBDT Circular No. 760, which provided guidelines to distinguish between hire purchase and financing transactions. The circular emphasized examining the terms of the agreement, the nature of the arrangement, and the intention of the parties.

Conclusion:

The ITAT concluded that the transactions entered into by the assessee constituted hire purchase transactions, where the assessee was the owner of the goods hired to the customers. The registration certificates of the vehicles supported this view, showing the hirers as owners under hire purchase agreements with the assessee. The ITAT found no merit in the Revenue's argument that the hirers were the owners of the vehicles, as there were no purchase bills to establish this claim.

Therefore, the ITAT held that the transactions were hire purchase transactions and not amenable to interest tax. The order of the CIT(A) was set aside, and the appeals of the assessee were allowed, deleting the levy of interest tax amounting to ?1,29,912/- and ?2,01,129/- for the assessment years 1997-98 and 1998-99, respectively.

Order Pronounced in the Open Court:

The appeals of the assessee were allowed, and the levy of interest tax was deleted.

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