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TMI Blog1990 (8) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... chase charges paid in connection with the acquisition of industrial unit at Jaipur by the assessee from Rajasthan Financial Corporation. The assessee is a private limited company and during the previous year ending 31-12-1979 relevant for the assessment year 1980-81 the assessee purchased one sick unit at Jaipur which is manufacturing felts, blankets, floor coverings etc. The assessee maintained the accounts on mercantile basis. The assessee offered by letter dt. 29-1-1979 an amount of Rs. 32 lakhs as out-right purchase price to the said industrial unit at Jaipur. The aggregate consideration towards the purchase price and hire charges was Rs. 47 lakhs. This offer was accepted by the Rajasthan Financial Corporation in their letter dt. 17-2-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchaser at once but as per para (iii) of the said circular where the terms of agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire-purchase. In such cases, the periodical payments made by the hirer should, for tax purposes, be regarded as made up of (a) consideration for hire to be allowed as a deduction in the assessment ; and (b) payment on account of purchase, to be treated as capital outlay, depreciation being allowed to the lessee on the initial value (i.e., the amount for which the hired subject would have been sold for cash at the date of the agreement). Further, he held that as per para 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 9 of 1943, R. Dis. No. 27(4)-IT/43 dated 23-3-1943 is extracted which is reproduced below : " Allowances in assessing business income - Depreciation allowance - Plant and machinery acquired on hire-purchase agreement - The following instructions are issued for dealing with cases in which an asset is being acquired under, on what is known as, a hire-purchase agreement-- (i) In every case of payment purporting to be for hire-purchase, production of the agreement under which the payment is made should be insisted on. (ii) Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee (e.g., where the lessor obtains a right to sue for arrear instalments but no right to recovery of the asset) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed above). Where no certificate or satisfactory evidence is forthcoming, the initial value should be arrived at by computing the present value of the amount payable under the agreement at an appropriate rate per centum. In doubtful cases the facts should be reported to the Board. " He urged that in the absence of final agreement concluded the instalments paid by the assessee should be treated as capital expenditure. 4. The learned counsel for the assessee, on the other hand, relied on the hire-purchase agreement dated 13-3-1984, a certified true copy of which has been filed together with the correspondence of the assessee with Rajasthan Financial Corporation, Jaipur. Relying on the clause (vii) of the said agreement, he argued that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms and conditions of the agreement and after payment of the final sum of Rs. 2,00,000 the assessee shall become sole and absolute owner of the properties and the Corporation would sign and execute the deed of conveyance. Therefore, it is clear that the ownership of the property was not transferred at once to the assessee as visualised in clause (ii) of the said circular. On the other hand, clause (iii) of the said circular is applicable because it is applicable only in case of the hire-purchaser eventually become the owner of the property under consideration. In such eventuality the difference between the aggregate amount of the periodical payment under the agreement and the initial value which is fixed at Rs. 30 lakhs should be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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