Applicability of Sec.194A to hire purchase agreements. - Income Tax - 1425/CBDT

INSTRUCTION NO. 1425/CBDT Dated: November 16, 1981 On the representation of the Federation of Indian Hire purchase instalment paid by a hirer to the owner under a hire-purchase contract can be deemed to constitute payment of interest within the meaning of sec.2(28A) of the I.T.Act thereby attracting the provisions of section 194 A of the said Act, This has been examined by the board in consultation with the Ministry of law. 2. In a hire purchase contract the owner delivers goods to another person upon terms on which the hirer is to hire them at a fixed periodical rental. The hirer has also the option of purchasing the goods by paying the total amount is paid. It may be pointed out that part of the amount of the hire purchase price is towards the hire and part towards the payment of price. The agreed amount payable by the hirer in periodical instalments cannot, therefore be characterised as interest payable in any manner within the meaning of sec.2(28A) of the I.T.Act as it is not in respect of any money borrowed or debt incurred. In this view of the matter it is clarified that the provisions of section 194 A of the Income-tax Act are not attracted in such transactions. 3. A copy each of the referral note to the Ministry of Law and its opinion is attached for information. 4. These instructions may please be brought to the notice of all the officers under your control.