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TMI Blog1965 (10) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... though the agreements were in the form of hire-purchase agreements; (2) that, therefore, they did not fall within the definition of "sale" as defined by section 2(28) of the Bombay Sales Tax Act, 1959, and (3) that even if these transactions were sales, the business of the assessees being in piece-goods they were casual sales and therefore the assessees could not be said to be dealers in motor vehicles. All the three contentions were rejected by the Tribunal and this reference challenges the correctness of that decision. All the three transactions in question were evidenced by documents. Since the procedure followed in all these agreements was the same, it will be sufficient if we examine one of them as typical of the rest. Messrs. N.B. Patel Co., who may be described as hirers, first selected a motor truck to be purchased from the said Messrs. Prem Nath Motors (P.) Ltd. and then made a proposal dated 11th August, 1960, in writing to the assessees to finance the purchase. The proposal inter alia stated that "If you accept and agree to advance me/us a loan, I/we for security of the loan to be advanced to me/us hereby agree to sign the usual agreement and to enter your name in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hirer become his property and the owners would make over all their rights, title and interest in the same to the hirer; but until the owners made over all their rights, title and interest to the hirer the vehicle should remain the absolute property of the owners. The sums mentioned in the margin in the agreement aggregated to Rs. 20,000 payable as aforesaid by monthly instalments of Rs. 2,000 each and this amount was over and above the amount of Rs. 9,620, being the initial payment, the total payment thus to be made by the hirer being Rs. 20,000 plus Rs. 9,620 equal to Rs. 29,620. The rest of the agreement dealt with the guarantee for the performance of this agreement by a surety which we do not recite here as we are not concerned in this reference with that part of the transaction. The hirers also executed a promissory note in favour of the assessees for an amount of Rs. 22,000 as a collateral security, the amount of Rs. 22,000 consisting of Rs. 20,000 being the aggregate of the ten instalments and Rs. 2,000 being interest payable on that amount. Thus, the hirers in all would have to pay the amount of Rs. 22,000 over and above the sum of Rs. 9,620 payable by them as initial payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to return the goods, either during the hiring, thereby determining the bailment, or after the conclusion of the hiring and before the payment of such further sum as is required to complete the purchase, the agreement is not a contract of sale but an agreement to hire with an option to buy. A hire-purchase agreement thus is an agreement for the bailment of goods under which the bailee may buy the goods or under which the property in the goods will or may pass to the bailee. When the property in the goods passes to the bailee on his exercising the option, the bailment comes to an end and the transaction then becomes one of sale. (See Halsbury's Laws of England, Third Edition, Volume 19, pages 510 to 511). But Mr. Mody's argument was that, though the form of the transaction adopted by the parties was the hire-purchase form, what the Court has to ascertain is the essence and substance of the transaction and not the form and if we were to examine and ascertain the substance of the transaction entered into by the parties, it would be found that the transaction in substance was not a hire-purchase transaction but a financing agreement. The question then is, what in substance and ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the truck in question was to be in possession of Messrs. N.B. Patel Co., they could not and were not entitled to pass title thereunder to a third party. As already seen, the agreement then provided that if the hirers, over and above the initial payment made by them to the assessees, were to pay all the instalments set out in the margin in the agreement and other moneys payable thereunder, they were to be entitled to exercise the option to purchase the truck. Thus, in fact and in substance though the transaction may be said to have commenced with the proposal for financing, it was up to a certain stage a hiring agreement ultimately ending, on payment of all instalments and the exercise of option provided therein by the hirers, in a contract of sale. On the happening of these events, the agreement thus would be a contract of sale and would be then amenable to tax under the Sales Tax Act. This conclusion is reinforced by the manner in which the assessees maintained the account of Messrs. N.B. Patel Co. in their books of account. That account clearly demonstrates that the transaction was not merely a financing transaction. Had it been so, the only amount actually advanced to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant there was a financing company, whose business was to advance moneys to persons to purchase motor vehicles but were themselves not in a position to find ready money to pay the price. A person desirous of acquiring a motor vehicle made a selection of the vehicle, fixed its price with the motor dealer and then approached the appellant for financial assistance on hire-purchase basis. The practice followed by the appellant was that sometimes an initial payment was made by the hirer to the motor dealer which was taken into account at the time of hire-purchase agreement, while in others the payment was made in a number of instalments to the appellant. In either case the appellant paid the price or the balance thereof to the dealer and thereafter the hire-purchase agreement was entered into between the appellant and the person purchasing the motor vehicle. The agreement provided, as did the agreement before us, that the owner (i.e., the appellant) would let and the hirer, i.e., the person who wanted to purchase the vehicle, would take on hire the vehicle for a certain period. The hirer had to pay, during the period of hire, the monthly instalments, keep the vehicle in good condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he truck in question, the transaction thus maturing or ending in actual sale of the motor truck in question. That being so, it is not possible to accept the contention raised by Mr. Mody that the transaction in question did not amount to a hire-purchase agreement ending in a sale. Questions Nos. 1 and 2, therefore, must be decided against the assessees. As regards question No. 3, Mr. Mody argued though somewhat faintly that even if the transactions were to be held as sales, the business of the assessees being in textile goods it would not be possible to treat the assessees as dealers in motor truck and that the transactions in question should be held as casual transactions. He also argued, relying upon our decision in Ambica Mills Ltd. v. State of Gujarat[1964] 15 S.T.C. 367., that the test of volume and degree of frequency was not a conclusive test and that the transactions in any event being very few, it would not be possible to hold that the assessees were dealers in motor trucks. The three transactions which were brought to assessment by the Sales Tax Officer in all aggregated to the amount of Rs. 96,000. These transactions cannot be held to be casual sales as they were made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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