2001 (9) TMI 258 - AT - Income Tax

Summary

Issues Involved:

1. Validity of reassessment proceedings u/s 10(a) of the Interest Tax Act.
2. Whether finance charges on hire purchase transactions are chargeable to interest tax.

Summary:

Validity of reassessment proceedings u/s 10(a) of the Interest Tax Act:

Ground No. 7(a) challenged the initiation of reassessment proceedings under section 10(a) of the Interest Tax Act, arguing that there was no material to form a belief that "chargeable interest" had escaped assessment. The Tribunal held that the Assessing Officer had specific reasons to believe that chargeable interest had escaped assessment, making the initiation of reassessment proceedings valid. The Tribunal rejected the argument that the notice provided only seven days instead of 30 days, stating that section 10 of the Interest Tax Act does not specify a time limit for filing the return. The Tribunal also dismissed the objection regarding the improper service of notice, noting that the assessee had filed returns in response to the notice and participated in the assessment proceedings, indicating acquiescence to the notice. Therefore, ground Nos. 7(a) and 7(b) were rejected.

Whether finance charges on hire purchase transactions are chargeable to interest tax:

Ground Nos. 1 to 6 challenged the findings of the CIT(A) that the transactions between the assessee-company and the hirers were loan transactions and that the finance charges were interest charges chargeable to tax under the Interest-tax Act. The Tribunal examined the terms of the hire purchase agreements and concluded that the transactions were genuine hire purchase transactions and not mere financing transactions. The Tribunal referred to various case laws, including the Supreme Court's decision in Sundaram Finance Ltd. v. State of Kerala, and CBDT Circulars, which clarified that genuine hire purchase transactions are not subject to interest tax. The Tribunal held that the finance charges collected by the assessee-company under hire purchase transactions were not "interest" as defined in section 2(7) of the Interest-tax Act and thus not chargeable to interest tax. Consequently, ground Nos. 1 to 6 were allowed, and the additions made on account of chargeable interest under the Interest-tax Act were directed to be deleted.

Conclusion:

The Tribunal partly allowed the appeals in ITA Nos. 6 & 7 to 12/Alld./1999 and fully allowed the appeal in ITA No. 4/Luck./2001, directing the deletion of additions made on account of chargeable interest under the Interest-tax Act.