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TMI Blog2013 (12) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... that such official or employees are duly and regularly representing it, then the Departemntal Officials are bond to be led or misled by such conduct. This representation of the assessee is further found to be supported by the conduct of the assessee in making compliance of the notice on the basis of such receipt. In the present case, it is established on record that the assessee had filed return in compliance to the notice, which was received on its behalf by is employees. Not only this, the assessee continued to be represented during assessment proceedings and never raised any objection on this count. - Decided against the assessee. - Income Tax Appeal No. - 367 of 2012, ITA No. 32 of 2002, ITA No. 77 of 2002, ITA No. 78 of 2002, ITA No. 79 of 2002, ITA No. 366 of 2012, ITA No. 368 of 2012, ITA No. 369 of 2012, ITA No. 370 of 2012, ITA No. 371 of 2012, ITA No. 247 of 2012, ITA No - - - Dated:- 13-12-2013 - Hon'ble Sunil Ambwani And Hon'ble Surya Prakash Kesarwani,JJ. For the Appellant : B. J. Agarwal,S. Chopra For the Respondent : S. D. Singh ORDER (Delivered by Hon'ble Surya Prakash Kesarwani,J.) 1. Income tax appeal No. 32 of 2002, ITA No. 77 of 2002, IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 2(7) of the Interest Tax Act, 1974 (hereinafter referred to as the Act, 1974) and consequently the charging provision of Section 4 of the Act, 1974 gets attracted. The Assessing Officer held the assessee to be a finance company. Aggrieved with the assessment order passed under Section 8(2) of the Act, 1974 the assessee filed an appeal before the CIT (A) who upheld the assessment order. Thereafter the assessee filed an appeal before the ITAT which set aside the order of the authorities below by the impugned order. ITAT observed that the transactions involved are in the nature of contract of hire purchase having an element of bailment as well as that of sale. Therefore, the hire purchase transactions in the present case cannot be considered as transactions of money lending or advancing of loans. Consequently, provisions of the Act, 1974 are not applicable. Aggrieved with the impugned order of the ITAT dated 28.9.2001 the department has preferred appeals on the above quoted substantial question of law. 6. We have heard Sri Shambhu Chopra, learned counsel appearing for the appellant and Sri S.D.Singh assisted by Sri Abhijeet Banerjee, Advocate appearing for the respondent ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement filed at page 113 of the paper book in the Appeal No. 367 of 2012. He submits that it is not the case of the assessee company that it holds trade certificate under Rule 34 and 35 of the Central Motor Vehicle Rules 1989. In support of his submissions Sri Chopra has relied on the judgment of Hon'ble Supreme Court in the case of Sundaram Finance Ltd. Vs. State of Kerala and another, AIR 1966 SC 1178, para 23, 24 and 28. He submits that the judgment of Madras High Court in the case of CIT Vs. Sanmac Motor Finance Ltd. (2010) 323 ITR 0309 is distinguishable in view of the facts recorded in the last but one paragraph of the said judgment to the effect that it was not the case of the revenue that the hirer was the real purchaser of the asset and the assessee was only a financier to help the purchaser. He submits that the other judgment of Madras High Court in the case of CIT Vs. Harita Finance Ltd. (2006) 283 ITR 370 is also distinguishable for the same reason as stated in the case of Sanmac Motor Finance Ltd.(supra). He submits that in view of the provisions of the Act, 1974, the judgment in the case of Sundaram Finance (supra) and the facts of the present case, the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the continuation of hire and even before the property in article passed to him." Sri S.D.Singh further submits that after recording the aforesaid findings of fact, the ITAT held in para 34 that the intention of the parties as is discernible in the agreement appears to be that it is a pure arrangement of hire purchase. The principal business activity of the assessee being hire purchase trading, it cannot be treated to be financing activity and thus it will not be correct approach to say that profit on hire purchase trading is "interest of loan and advances" within the meaning of Section 2(7) of the Act, 1974. He submits that in view of the findings of facts recorded by the ITAT which is the last fact finding authority, the appeal of the department is devoid of substance and, therefore, deserves to be dismissed. The order of the ITAT is wholly correct and, therefore, it may not be interfered with. He has relied on the following judgments : (i)CIT Vs. Sanmac Motor Finance Ltd. (2010) 323 ITR 0309(Madras) (ii) CIT Vs. Harita Finance Ltd. (2006) 283 ITR 0370 (Madras) (iii) Charanjit Singh Chadha and others Vs. Sudhir Mehra (2001)7 SCC 417. Our Findings 9. By Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d held in paragraphs 23, 24 and 28 as under : "23. A hire-purchase agreement is normally one under which an owner hires goods to another party called the hirer and further agrees that the hirer shall have an option to purchase the chattel when he has paid a certain sum, or when the hire-rental payments have reached the hire-purchase price stipulated in the agreement. But there are variations when a financier is interposed between the owner of the goods and the customer. The agreement, ignoring variations of detail, broadly takes one or the other of two forms : (1) when the owner is unwilling to look to the purchaser of goods to recover the balance of the price, and the financier who pays the balance undertakes the recovery. In this form, goods are purchased by the financier from the dealer, and the financier obtains a hire-purchase agreement from the customer under which the latter becomes the owner of the goods on payment of all the instalments of the stipulated hire and exercising his option to purchase the goods on payment of a nominal price. The decision of this Court in AIR 1965 SC 1082 dealt with a transaction of this character. (2) In the other form of transactions, goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instalments are paid and not before. In 'such a hire-purchase agreement there is no agreement to buy goods; the hirer being under no legal obligation to buy, has an option either to return the goods or to become its owner by payment in full of the stipulated hire and the price for exercising the option. This class of hire-purchase agreements must be distinguished from transactions in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of a hire purchase agreement with the financier, but in substance evidences a loan transaction, subject to a hiring agreement under which the lender is given the licence to seize the goods. 28. In the light of these principles the true nature of the transactions of. the appellants may now be stated. The, appellants are carrying on the business of financiers: they are not dealing in motor-vehicles. The motor-vehicle purchased by the customer is registered in the name of the customer and remains at all material times so registered in his name. In the letter taken from the customer under which the latter agrees to keep the vehicle insured, it is expressly recited t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The appellant company buys the vehicle, from the dealer identified by the hirer. The hirer gets the vehicle from the dealer. An agreement is entered into between the appellant company and the hirer to hire the motor vehicle to the Hirer. The Hirer agrees to pay to the appellant company, a certain sum as initial payment by way of 'hire'. He also agrees to pay to the appellant company the "total amount of hire" in pre-determined instalments (generally monthly instalments, the frequency and interval of which are determined at the time of the agreement). The Hirer gets an option to purchase the hired motor vehicle from the appellant company on payment of the total amount of hire plus Re.1/- . On payment of this additional amount of Rs. 1/- over and above the total amount of hire paid in instalments, the hiring comes to an end and the appellant company makes over all their rights, title and interest in the motor vehicle to the Hirer. 11.The manner in which the transactions were effected in the appellant's case differs from that in the case of Sundaram Finance Ltd. (AIR 1966 SC 1178) in some respects. In the case before me the motor vehicle was purchased from the dealer by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dealer. It is he who selects the dealer from whom the vehicle should be purchased. It is he who selects the vehicle that is to be purchased. The appellant company does not at all come into the picture up to this stage. It is only after the 'hirer' has exercised his purchaser's right of identifying the product and the seller that he approaches the appellant company. He does so because he is either unable or unwilling to finance, out of his own funds, the purchase of the vehicle. He needs some one who can pay the price of the vehicle or a substantial part thereof on his behalf. He wants the delivery of the vehicle now but wants to apply for it later in instalments. He is willing to pay a 'price' for this facility The facility is that the some one else should arrange money for purchase of the vehicle. The appellant company does so. It finances the purchase of the vehicle. The vehicle is delivered to the hirer. This, therefore, has all the features of a loan transaction. The vehicle is registered in the name of the appellant company and a hire-purchase agreement entered into between the hirer and the appellant company only by way of a security for repayment of the loan. An objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the hirer. 14. The appellant has pointed out to a possibility where the hirer terminates the transaction at any time. This, according to the appellant,is possible only when there is no loan transaction. In my opinion, this possibility (even if a distant and remote one-that in any case, did not materialise in this case in the year under consideration) does not lead to the conclusion that this is not a loan transaction. Premature termination of the transaction by the hirer will lead to recovery of the vehicle by the appellant company. This will ensure recovery, by the appellant, of the entire loan amount plus interest payable by the hirer. A similar pattern can be seen in any other loan transaction. Therefore, this situation also leads to the conclusion that the transactions entered into between the appellant company and hirers are in reality loan transactions and the hire purchase agreements act as security for repayment of the loans. 15. In view of the points made above, I am of the opinion that the Assessing Officer rightly held that the finance charges in this case were nothing but the interest charged on the loan transactions between the appellant company and the hirer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CHEDULE A hereto hereafter collectively called the Motor Vehicle. (c) AND WHEREAS the Guarantor along with the Hirer has approached the owner to hire out the said Motor Vehicle to the Hirer on the guarantee for the due performance of the Clauses. Terms and conditions of this Agreement by the Hirer (d) AND WHEREAS the Hirer and the Guarantor have completed and signed the owners 'Proposal Form' (which is the basis of Agreement with respect to Hirer's means, properties and other assets as being absolutely true and correct which has induced the owners to enter into this Agreement and whereas they have declared that they shall neither sell, alienate, encumber nor charge their property or any part thereof till such time their liability is fully discharged under this Agreement and the owners the first and paramount lien on all the assets stated by the hirer and Guarantor in the proposal form for any amount due to the owners under this Agreement. (e) Clause-I: The owners are the absolute owners of the Motor Vehicle with fittings, tools, tyres and accessories, inclusive of the body, already built or to be built by the Hirer. The body so built by the Hirer as his own expense, shall alw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther dues and for his agreement to do so, the article is delivered to him on hire for use by him. (vi) during the period of hire, he pays the official money and other charges as stipulated in the agreement. (vii) The Hirer has right to terminate the agreement during the continuation of hire and even before the property in article passed to him. 34. We, therefore, conclude that the intention of the parties as discernible from the agreement appears to be that it is a pure arrangement of hire purchase and the principal business activity of the assessee being hire purchase trading cannot be treated to be financing activity. There may be an element of financing in these transactions, but it cannot be said that they are exclusively and solely financing transactions. The process of the hire purchase transaction involves choice of article required by the hirer, purchase of such article by him from the hire purchase trader and his choice to purchase the vehicle not at the initial stage, but at the last stage, which shows that it is not the financing activities simplicitor, but activity of hire purchase alone. 34.1. There is another point involved, which is deferable to the treatment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have no liability in matter of settlement of claims with the Insurance Company and the Hirer and the Guarantor absolve the Owners from any loss of damage that may occur through any bona fide mistake or omission of the Owners in their dealings with the Insurance Company. 10. The Hirer and the Guarantor shall execute a Demand Promissory Note with joint and several liability in favour of the Owners for Total Hire payable for the Motor Vehicle as per "SCHEDULE B" as Collateral Security. The Owners shall have the right to negotiate the said Demand Promissory Note in favour of their bankers or any other party for valuable consideration and also sue upon the same. This extends to Bankers the right to inspect vehicle at the Cost of Hirer. 11. The Hirer and the Guarantor hereby indemnify the Owners against any additional Sales Tax liability that the Owners may incur and this indemnify will be a Continuing indemnify and shall remain effective till the Sales Tax assessment of the Owners has been finalised in respect of this Motor Vehicle." 14. Section 4 of the Act of 1974, is the charging Section. Sub-Section (2) of Section 4 provides that notwithstanding anything contained in Sub-Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom 1.4.1993 from 1.4.1993. The above insertion was made so as to include in the definition of a "finance company", finance and investment companies which receive deposits under any scheme or arrangement in one lump sum or in instalments. (vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding sub-clauses ;" The word "interest" has been defined in Section 2(7) of the Act as under : "(7) "interest" means interest on loans and advances made in India and includes- (a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India ; and (b) discount on promissory notes and bills of exchange drawn or made in India, but does not include- (i)interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934); (ii)discount on treasury bills;" 15. Section 4(2) of the Act makes it clear that every credit institution which includes a financial company i.e. a company which carries on its principal business in hire purchase transaction or the financing of such transactions or a loan comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in para 23, 24 and 28 of the judgment of Hon'ble Supreme Court, in the case of Sundaram Finance Ltd. (supra) which have been reproduced above. The judgment of Madras High Court in the case of Sanmac Motors Finance Ltd.(supra) and relied in Harita Finance Ltd. (supra) is wholly distinguishable on the facts of the present case inasmuch as in the present appeals, the stand of the revenue is that the hirer was the real purchaser of vehicles and the respondent assessee was only a financier to help the purchaser to purchase vehicle while this was not the stand of the Revenue before the Madras High Court, as noted in last but one paragraph of the judgment. The judgment of Hon'ble Supreme Court in the case of Charanjit Singh Chaddha and others (supra) relied by the respondent assessee is not applicable on the facts of the present case inasmuch as that judgment arose from a petition filed under Section 482 Cr.P.C. The allegation in that case was that the appellants forcibly took away the vehicles from the motor mechanic and thus committed offences under Section 406/420/120-B IPC and pursuant to the complaint, the Magistrate took cognizance of the offences and issued summons to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ITAT completely ignored the discussion and findings of fact recorded by CIT (A) in paragraphs 8 and 11 to 15 which will show that despite some difference in the pattern of transactions in the two cases, the principle that emerges from the Supreme Court's decision in the case of Sundaram Finance Ltd. are fully applicable to the facts of the case. It was pointed out by the Assessing Officer that sale of vehicles have not been shown by the respondent assessee in its profit and loss account and no sales tax return has been filed by it. In its audited account, filed with the income tax returns, the respondent assessee has shown the finance charges as revenue receipts. The auditor has certified that the respondent assessee is not a trading company. The auditor has also certified that the respondent assessee has followed the norms issued by the Reserve Bank of India for non-banking financial companies (NBFC).This shows that the respondent assessee is a finance company engaged in financing of vehicles. There is no evidence that respondent assessee is a trader dealing in purchase and sale of vehicles. Thus the hirer is the real purchaser of vehicles from the dealer. He selects the veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y indicate as to what were the questions which arose for determination, what was the evidence pro and contra in regard to each of them and what were the findings reached on the evidence held before it. Para 42 of the said judgment is reproduced below : "42. We are aware that the Income -tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its own conclusions of fact after due consideration of the evidence before it this Court will not interfere. It is necessary, however, that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the Tribunal should not coloured by any irrelevant considerations or matter of prejudice and if there are any circumstances which required to be explained by the assessee, the assessee should be given opportunity of doing so. On no account whatever should the Tribunal base its findings on suspicions, conjecture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 10 read with Sec. 7 of the Act. The Ld. Counsel for the assessee, Shri Garg cioted several decisions to canvass the point that the notice u/s 10 of the Interest Tax Act being akin to notice u/s 148 of the I.T.Act, 1961, is a jurisdictional notice and, therefore, if the notice is invalid, the entire assessment order and proceedings of assessment stand vitiated. So far as this legal position is concerned, there cannot be any dispute. However, the situation is different. Under the Income Tax Act, 1961, the provisions of Sec. 148, before 1989, contained a clause in accordance with which the notice waqs to be issued requiring the assessee to file the return "within the period not being less than 30 days". By the finance Act (No.2) of 1996, these words have been omitted and the amended provisions of Sec. 148 as it stands now does not contain this time limitation. So far as Sec. 10 of Interest Tax Act is concerned unlike un-amended Section 148, it does not contain any time limitation. Thus, the authorities cited before us , which related to the interpretation of un-amended provision of Sec. 148 are not applicable to the present matter. In view of this difference, most of the cases cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ployees. Not only this, the assessee continued to be represented during assessment proceedings and never raised any objection on this count. It is significant to point out that neither during the assessment proceedings nor during first appellate proceedings, the plea regarding improper service was taken by the assessee. It may also be pointed out that the assessee had filed reply dt. 1.6.98 and 2.6.98, but in these replies, no objection has been taken about the appeal also no ground was taken to challenge the validity of notice. It was only on 12.10.2000 that the ground was taken for the first timebefore the Tribunal and subsequent to that the documents/evidences in support of this ground was adduced. This conduct of the assessee shows that the additional ground has been taken as an after thought. 18. So far as the affidavit of Shri Ishwar Chand, Director of the assessee company is concerned, it is true that no affidavit has been filed by the Department in rebuttal to this affidavit, but it may be very difficult for the Department to ascertain and depose about the authority of the person, who received the notice. However, the reports of the department, against this affidavit cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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