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TMI Blog2011 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... der against the objections filed by the assessee against initiation of reassessment proceedings of Interest Tax Act is bad in law and deserves to be quashed. 4. That the CIT(A) has erred on facts and in law in not following the ratio as laid down by the Hon'ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. vs. ITO & Others reported in (2003) 259 ITR 19 (SC). 5. That the authorities below have erred on facts and in law in ignoring the basic issue that the transactions involved are in the nature of contract of hire purchase having an element of bailment as well as that of sale. 6. That the authorities below have erred on facts and in law in ignoring the basic issue that the hire purchase transactions in the appellant case cannot be considered as transactions of money lending or advancing of loans. 7. That the authorities below have erred on facts and in law in not appreciating the fact that transactions are in the nature of hire purchase transactions only and the provisions of Interest Tax Act are not applicable. 8. That the authorities below have erred on facts and in law in not appreciating the fact of appellant company being a nonbanking finance company re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfills the legislative intent and is also not opposed to principles of nature justice, unless otherwise expressly excluded by the legislature. 15. That the appellant craves to add or alter any other ground of appeal as may be warranted." 2. Adverting first to ground nos. 1 to 4 in the appeal, facts, in brief, as per relevant orders are that return declaring net interest of Rs. 75,530/- was filed in this case by the assessee carrying on the hire purchase business. In response to a notice issued u/s 8(1) read with sec. 10 of the Interest Tax Act,1974[hereinafter referred to as the 'Act'], the ld. AR appeared before the Assessing Officer[AO in short]. To a query by the AO seeking to treat the hire charges as chargeable interest, the assessee replied that they are a non-banking finance company registered with RBI as hire purchase company and their case is covered by provisions of sec. 2(b), 2(c), 2(e), sections 3, 4 & 14 of the Hire Purchase Act, 1972. The receipts from hire purchase could not be brought to tax u/s 2(7) of the Act, the assessee contended .It was pointed out that while entering into hire purchase transactions, the ownership of vehicles remains with the assessee till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10 of the Interest Tax Act, 1974 on 13.11.2003 as under: - "In the appellant's case, the Hon'ble ITAT in Interest Tax appeal numbers 15, 16, 17, 18 and 19/Agra/2002 and Interest Tax Appeal No. 01/Agra/2002 for the A.Yrs. 1994-95, 1995-96, 1996-97, 1997-98 and 1999-2000 and 1998-99 has held that "the appellant company is engaged in financing business and only advancing loan on interest and by no stretch of imagination it can be considered a hire purchase company. Thus, we dismiss all the three grounds of appeal of the appellant company and uphold the order of CIT(A)-II, Agra for the A.Yrs. 1994-95, 1995-96, 1996-97, 1997-98 and 1999-2000". "....further in the light of Board's circular and the ratio laid down by the Hon'ble Supreme Court in the case of Sundram Finance Ltd. and in view of the various decisions discussed therein, it would be evident that the transactions of the appellant company were in the nature of loan and not hire purchase". Similar nature of business transactions involve in subsequent year 2000-01. The hire purchase charges are nothing but interest charged on money financed to hirers, therefore, the hire charges come in the definition of chargeable inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and the jurisdiction was validly assumed by the AO. Hence, this issue is decided against the appellant." 4. Regarding treatment of hire charges as interest chargeable u/s 5 of the Act, the ld. CIT(A), following the decision dated 14th August, 2003 of ITAT Agra Bench in ITA No. 15 to 19/Agra/2002 for the A.Ys. 1994-95 to 1997-1998 & 1999-2000 upheld the findings of AO. The ITAT in their decision concluded as under: "15. We have carefully considered the facts and circumstances relation to the issue involved, the material to which or attention was invited, the case laws referred by both the sides and reveal submission. We also noted factual position from the order of CIT(A)-II, Agra at page 7 to 9 of his order dated 30.09.2002 as under: - "It is an admitted fact that the vehicles, in respect of which the transactions have been entered into, are registered with the RTO in the names of the so called 'hires'. Similarly, the purchase bills are to the names of 'hires'. In these bills, the hires have been shown as the buyers. In most of the cases, vehicles have been delivered by the dealers to the hirers directly. With the insurance company also, the hirers have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very important factor for determining the same". During the course of appellant proceedings reference was made to the Allahabad high court's decision in the case of Uma Shankar Tiwari and another AIR 1950 (All) 231. In view of aforesaid decision, it has been stated that in spite of registration, the ownership is to be taken as it is ordinarily understood and that ownership implies title with the incidental right of the transfer. In my opinion, this decision is of no help to the appellant. The same was given in a different context and on all together different facts. In the aforesaid case the manager of the limited company was sought to be prosecuted on account of certain default committed under the Motor Vehicle Act. The court held that the manager of the company was not the owner of things vesting in a company. It was in this context, it was held that the word 'owner' must be taken to mean what it orderly means, namely a person in whom the property title vests. In my opinion, the aforesaid decision rather supports the view of AO as not the vehicles remained in possession of the purchasers but even the property titles also vested in them ............. these persons are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vehicle will be only when I shall pay full installment and on fulfillment of all other conditions. " From the above, it is seen that the vehicle has already been registered in the name of the so called hirer and even the sale invoice has been issued in the same of the hirer, however, in declaration form given in the so called hire purchase agreement is just to insure the recovery of the loan/advance along with interest thereon. 18. As per the hire purchase act 1972, hire purchase agreement is defined as under :- "Hire-purchase agreement' means an agreement under which goods are let on hire and under which the hirer has an option to purchase these in accordance with the terms of the agreement and include an agreement under which-Possessions of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and, the property in the goods is to pass to such person on the payment of the last month of such installments, and, such person has a right to terminate the agreement at any time before the property so passes". 19. However, in the instant case there is no question of option because the vehicle ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning 34 pages, which is placed on record. In the said paper book at page -8 to 11, there are invoices issued by the dealers directly in the name of the customers and it further proves that the name of the assesses company has been entered in the invoice as financer. The Ld. Counsel for the assesse company has been mentioned as the vehicle hypothecated to it. 22. It is further noted from page 11 and 12 that the registration has been made in the name of the customers. 23. The Ld. Sr. D. R. has also filled statement recorded by the Assessing Officer of Sh. Neeraj Kumar Jain, Suresh Chand Gupta and Ved Prakash Thekedar, wherein these customers have deposed that the assessee company has advanced loan on interest. It is also confirmed that they have paid road tax, insurance premium etc. The Assessing Officer also noted from some of the returns of income filled by the hirers that they have declared the vehicle as their asset in their balance sheet. In their profit and loss account, they have declared income from the vehicle owned by them. 24. It is also noted by the CIT ( A) that at time of payment of final installment, no sale letter or any other document evidencing the sale of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to obtain loan and all the documents including hire purchase agreement, promissory note etc. were executed only to secure the return of loan advanced to the hirers. It was also held that the right to seize the vehicle was merely a license to ensure compliance with the terms of hire purchase agreement. The hirers....at large remained owners of the vehicles. The court held that when a person desiring to purchase goods and not having sufficient money borrows the amount from a third person and pays to the vendor the transaction between the customer and the lender will unquestionably be a loan transaction. The court further held that in all cases, where the customer was the owner of the goods and with view to finance its purchase, he entered into an agreement which is in the form of hire purchase agreement with the financer but in substance evidenced a loan transaction subject to hire agreement under which the lender is given the license to seize the goods, was basically a financing transaction. While holding so the court also found that the intention of the parties was not to transfer any interest in the vehicle by the hirer to the hire purchase company. All the documents executed were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstant case, the facts are entirely different discussed above. 28. During the course of hearing, our attention was drawn to para 18 of page-5 of the assessment order for the assessment year 1998-99, wherein the Assessing Officer has given the finding that the closing stock shown in the balance sheet is running stock in the amounts financed to the hirers, which clearly indicates that the stock is a capital stock and not the revenue stock and the same has not been disclosed in the trading and profit and loss Account. It nowhere affects the trading result. The assesse company has only given the name of the stock to create confusion; rather it is an advance/Loan to the customer, which only is affecting the asset side of the balance sheet by reducing cash/bank and increasing advance/ loan to the customers. Further, the only amount of advance has been taken in the this stock and not the total value of motor vehicles financed which further proves that the assessee is not dealing in hire purchase but it is finance company giving advance on which interest is charged by the assessee company and such interest income has been declared as revenue receipts in the profit and loss account. 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they remained the owners of the vehicle. Therefore, the inference drawn from the decision of ITAT, Lucknow Bench by CIT(A)- I, Agra is erroneous as he has decided the issue of the assessee company, under consideration on the facts entirely different from the instant case. Therefore, we do not agree with the ClT (A)-I, Agra in allowing the appeal of the assessee company. 30. It is also noted that the assessee company used to obtain from the customers blank signed documents. Even terms and conditions for so-called hire are also signed blank on those documents, except the signatures of the hirers/ purchasers, all other columns are blank. These factual position show that various documents were executed by the assessee company just to safe guard the amount given on advance to the purchase. 31. In regard to claim of Assessee Company that it is registered with Reserve Bank of India as a hire purchase Company. It is noted that merely because it is registered so with RBI, the nature of transaction would not alter. As mentioned in the Board's circular and in the Supreme Court Decision in Sundaram Finance Ltd. (supra), it is only the intention and the substance of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole and the observations from the judgment have to be considered in the light of the question which were before the court. Similar view has also been expressed by the constitutional bench of Hon'ble Supreme Court in the case of Padma Sundra Rao Vs. State of Tamilnadu 225ITR147, wherein it is held that the court should not place reliance on the decisions without discussing as to how the factual situation fitted in with the fact situation of the decision on which reliance is placed. They concurred with the view that there was always a peril in treating the words of a speech or judgments though they were words in a legislative enactment, and it was to be remembered that judicial utterances are made in the light of the facts of the particular case. In view of above, no help can be drawn by the assessee company in its case. 33. Keeping in view the facts, circumstances and the legal position, we are of the view that the assesse company is engaged in financing business and only, advancing loan on interest and by no stretch of imagination it can be considered as a Hire Purchase Company. Thus, we dismiss all the three grounds of appeal of the assessee company and uphold the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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