2014 (5) TMI 237 - HC - Income Tax

Chargeability of hire charges Interest Tax Act, 1974 - Interest on loans and advances - Whether the hire charges received by the assessee under the hire purchase agreement was in fact interest on loans and advances Held that - Following Commissioner of Income Tax-Ii Versus M/s. Commercial Motors Finance Ltd. 2013 (12) TMI 848 - ALLAHABAD HIGH COURT - the hire charges received by the assessee under the hire purchase agreement is an interest on loan and liable to tax under Interest Tax Act, 1974 Decided against Assessee.

Summary

Issues:
Six Income Tax Appeals under Section 260 A of the Income Tax Act relating to the assessment years 1994-95, 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000 arising from the order of the Tribunal.

Analysis:

Issue 1:
The first substantial question of law raised in the appeals was whether the receipts from hire purchase transactions were interest chargeable under section 2 (7) of the Interest Tax Act 1974 read with section 5 and 6 of the Interest Tax Act, 1974. The appellant contested the justification of the Tribunal and authorities in holding that the hire purchase receipts were indeed interest. The court observed that the hire charges received by the appellant under the hire purchase agreement were deemed as interest on loans and advances, making them liable for tax under the Interest Tax Act, 1974. The decision was influenced by a previous ruling by the Division Bench of the Court, which established a precedent in a similar case.

Issue 2:
The second substantial question pertained to whether the hire purchase receipts were correctly categorized as interest on loans and advances, thereby making them chargeable to Interest Tax under the relevant legislation. The appellant challenged the findings of the Tribunal and lower authorities on this matter. However, the court, guided by the precedent set by the Division Bench in a related case, ruled in favor of the revenue. It was established that the hire charges under the hire purchase agreement constituted interest on loans, subject to taxation under the Interest Tax Act, 1974.

Issue 3:
The third question raised whether the Tribunal had erred in its findings, alleging that the conclusions were baseless and lacked supporting evidence. The appellant argued that hire charges could not be equated to interest under the Interest Tax Act, 1974. However, the court, following the precedent established by the Division Bench, rejected this argument. The court found in favor of the revenue, dismissing the appeal and affirming that the hire charges were indeed akin to interest on loans and advances, thus subject to taxation.

In conclusion, the court answered questions (i) and (ii) in the affirmative, supporting the view that hire charges under the hire purchase agreement were tantamount to interest on loans and advances, thus taxable under the Interest Tax Act, 1974. Question (iii) was answered in the negative, favoring the revenue and rejecting the appellant's contentions. Consequently, the appeals were dismissed based on the established legal principles and precedents.