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TMI BlogCLARIFICATION ON APPLICABILITY OF INTEREST-TAXX X X X Extracts X X X X X X X X Extracts X X X X ..... purchase transactions or the financing of such transactions. 3. Hire purchase transactions are generally in the nature of finance transactions entered into by the companies engaged in the business of financing. 4. The Board are of the view that the finance charges accruing or arising to hire purchase finance companies are in the nature of interest as defined in section 2(7) of Interest-tax Act and, therefore, chargeable to interest-tax. 5. The above clarification may be brought to the notice of all the officers concerned. Circular No. 738, dated 25-3-1996. CLARIFICATION I In Board's Circular No. 738, dated 25-3-1996 it was stated that hire-purchase transactions entered into by the hire-purchase companies and other credit institution are ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or a substantial part thereof on behalf of such hirer, and a hire-purchase agreement is entered into merely as an arrangement, then such agreement is a security for repayment of the loan and is essentially a loan transaction. 4. In this connection, the Assessing Officer should keep in mind the tests laid down by the Supreme Court in the case of Sundaram Finance v. State of Kerala AIR 1996 SC 1178 wherein it has been held as under— "If there is a bona fide and completed sale of goods evidenced by documents, anterior to and independent of subsequent and distinct hiring to the vendor, the transaction may not be regarded as a loan transaction even though the reason for which it was entered into was to raise money. . . . . . . the intention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng companies to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act) from the levy of interest-tax in respect of their income from interest on securities with effect from the financial year 1995-96. Notification No. 9858 [F. No. 160/2/94-IT(A)], dated 11-9-1995. III In exercise of the powers conferred by section 28 of the Interest-tax Act, 1974 (45 of 1974), the Central Government, on the recommendation of the Reserve Bank of India, being of the opinion that it is necessary and expedient so to do in the public interest, hereby exempts interest, accruing or arising on or after the 1st day of April, 1993, to any banking company referred to in sub-clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the peculiar circumstances of the case, hereby exempts State co-operative banks included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), from the levy of interest-tax in respect of their income from interest on the borrowings of the Central Co-operative Banks which qualify for rebate under the scheme for the financial year 1974-75 and for the period beginning on the 1st day of April, 1975, and ending with the 30th day of June, 1975. Explanation.— In this notification, the expressions "Central co-operative bank" and "State co-operative bank" shall have the same meaning assigned to them in the Reserve Bank of India Act, 1934 (2 of 1934). Notification No. SO 2214, dated 15-5-1976. - - statute, statutory provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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