2002 (2) TMI 315 - AT - Income Tax

Summary

Issues Involved:
1. Whether finance charges on hire purchase transactions are chargeable under the Interest-tax Act.
2. Determination of the nature of hire purchase transactions.
3. Applicability of CBDT Circulars and Supreme Court judgments on the nature of hire purchase transactions.

Summary:

1. Finance Charges on Hire Purchase Transactions:
The assessee filed returns for the assessment years 1996-97 and 1997-98 declaring chargeable interest under the Interest Tax Act, 1974. The Assessing Officer included finance charges on hire purchase transactions as chargeable interest. The CIT(A) confirmed this inclusion, leading the assessee to appeal to the Tribunal. The Tribunal examined whether finance charges on hire purchase transactions qualify as interest under the Interest-tax Act.

2. Nature of Hire Purchase Transactions:
The assessee argued that finance and service charges on hire purchase transactions are not chargeable under the Interest-tax Act, citing compliance with CBDT Circular No. 760 dated 13-1-1998 and the Supreme Court judgment in Sundaram Finance Ltd. v. State of Kerala AIR 1966 SC 1178. The Assessing Officer, however, considered these transactions as financial in nature, emphasizing the method of fixation of initial payment, finance charges, and hire purchase price. The CIT(A) supported this view, noting that the transactions were essentially financial, with the assessee advancing money for the purchase of vehicles.

3. Applicability of CBDT Circulars and Supreme Court Judgments:
The Tribunal reviewed the CBDT Circulars and the Supreme Court judgment in Sundaram Finance Ltd., which distinguish between bona fide hire purchase transactions and financial transactions disguised as hire purchase. The Tribunal noted that the CBDT Circular No. 760 clarified that genuine hire purchase transactions are not subject to interest tax, while financial transactions are. The Tribunal also considered the Reserve Bank of India's classification of the assessee as a hire purchase finance company, which supported the assessee's claim.

Conclusion:
The Tribunal concluded that the finance charges collected by the assessee on hire purchase transactions do not constitute interest under the Interest-tax Act. The Tribunal emphasized the nature of the transactions, the intention of the parties, and the compliance with relevant legal provisions and circulars. Consequently, the Tribunal allowed the assessee's appeals, setting aside the orders of the Revenue authorities.