9911796707
TMI Blog2015 (5) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... se Agreement. As observed hereinabove, in substance, the transaction is a financial transaction and the agreement is a Finance Agreement and therefore, the assessee is liable to pay the Tax on interest as defined under Section 2(7) of the Act on the finance interest component which even according to the assessee would be ₹ 1,03,47,165/-.- Decided against the assessee. - Tax Appeal No. 1028 of 2005 - - - Dated:- 1-4-2015 - M. R. Shah And S. H. Vora,JJ. For the Petitioner : Mr Varun K Patel, Adv. For the Respondent : Mr R K Patel, Adv. JUDGMENT (Per : Honourable Mr. Justice M. R. Shah) 1.0 Feeling aggrieved and dissatisfied with the impugned judgment and order dated 16.09.2014 passed by the learned Income Tax Appellate Tribunal, Ahmedabad Bench 'C' (hereinafter referred to as Tribunal ) in ITA No.5/AHD/2001 for Assessment Year 1996-97 by which the learned Tribunal has allowed the Appeal preferred by the respondent assessee - UTI Bank Ltd. and has held that the lease rental on the lease of certain assets' interest under the Interest Tax Act (hereinafter referred to as Act ) is not chargeable to the Revenue has preferred the present Tax Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DT had substantially expanded the scope of interest as defined in Section 2(7) of the Act beyond its delegated authority. In the alternative it was submitted that the assessee bank is not covered by the definition of Hire Purchase Finance Company as given in Section 2(5B)(i) of the Act and therefore, the provisions of the Act would not be applicable to the assessee Bank. It was submitted that the assessee Bank is a Banking Company to which the Banking Regulation Act, 1949 is applicable and is, therefore, a credit institution covered under Section 2(5A)(i) of the Act and therefore, the extended definition contained in Section 2(5B) of the Act cannot be applied in the case of the assessee bank as the assessee bank is not covered by residuary clause mentioned in Section 2(5A)(iv) of the Act. It was further submitted that section 2(5B) of the Act was an extension of Section 2(5A)(iv) only. That the Assessing Officer did not accept the contentions of the assessee for the reasons elaborated in paras 3.1 to 3.4 of the assessment order and finalized the assessment under Section 8(3) of the Act on 26.03.1999 on chargeable interest income of ₹ 71,86,33,250/- after making addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operly appreciated the Lease Agreement in substance. It is further submitted by Shri Patel, learned Advocate appearing on behalf of the Revenue that the learned Tribunal has materially erred in not properly appreciating the fact and the Agreement that as such the Lease Agreement is a Finance Agreement which has been given a color of Lease Agreement / Hire Purchase Agreement with certain clauses which are nothing but a camuflage. It is further submitted that as such the assessee bank itself furnished the details of finance interest component included in the lease rental income i.e. ₹ 1,03,47,165/-. It is submitted that therefore when a finance interest component was capable of being separated and in substance the assessee Bank recovered the interest on the finance, the learned Tribunal ought to have held that the assessee Bank was liable to pay the Interest Tax under the Act on the finance interest component included in the lease rental income as per Section 2(7) of the Act. 3.3 It is further submitted by Shri Patel, learned Advocate appearing on behalf of the Revenue that as such the finance charges accruing on carrying out of the purchase transactions were in the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest leviable under Section 2(7) of the Act. 3.6 Relying upon clauses / paras 1(b), 2, 8, 10, 13, 14, 17, 18, 20 and 30, it is further submitted by Shri Patel, learned Advocate appearing on behalf of the Revenue that the Hire Purchase Agreement / Lease Agreement in substance is a Finance Agreement and therefore, on the finance interest component the assessee Bank is liable to pay the interest leviable under Section 2(7) of the Act. It is submitted that therefore as such considering the aforesaid clauses in the Hire Purchase / Lease Agreement, it is the lessee who, for all the practical purposes, is the owner of the asset and not the lessor and therefore, in substance the Hire Purchase Agreement / Lease Agreement is a financial lease. In support of his above submissions, Shri Patel, learned Advocate appearing on behalf of the Revenue has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Ltd. vs. Industrial Finance Corporation of India reported in (2005) 126 Company Cases 332. 3.7 It is further submitted by Shri Patel, learned Advocate appearing on behalf of the Revenue that as such and as per the Memorandum of Association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther clarified vide Circular No.762 dated 13.01.1998 and as per the said circular the hire charges per se would not be in the nature of interest but only when the transaction in substance is in the nature of finance transaction, the hire charges would be treated as interest chargeable to Act. It is submitted that thereafter considering the agreement of lease entered into by the assessee and considering various clauses in the Agreement of Lease, the learned Tribunal has rightly held that the transactions cannot be said to be financial transactions but they are purely lease transactions and therefore, income received by the assessee from lease rental cannot be said to be in the nature of interest chargeable to Act. It is submitted that therefore, the learned Tribunal has rightly deleted the addition of ₹ 1,03,47,165/- and ₹ 53,02,200/- for Assessment Year 1996-97 and 1997-98 respectively. 4.2 Shri Patel, learned advocate appearing on behalf of the assessee has heavily relied upon various clauses of the agreement more particularly paras 4, 11, 12, 15 and 24 of the agreement which inter alia provides (1) that the property and the equipment shall at all times remain sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion. 5.1 It is the case on behalf of the assessee that the agreement entered into by the assessee is a Lease Agreement / Hire Purchase Agreement and therefore, whatever is recovered by the assessee is a lease rental and therefore, not liable to pay the Tax on the interest as defined under Section 2(7) of the Act. On the other hand it is the case on behalf of the Revenue that the agreement entered into by the assessee is, in substance, in the nature of finance transaction and/or Finance Agreement and therefore, the assessee is liable to pay the Tax as defined under Section 2(7) of the Act, on the interest component. Therefore, whether the agreement entered into by the assessee is a Finance Agreement or the Lease / Operating Agreement is required to be considered on considering the agreement as a whole. As observed by the Hon'ble Supreme Court in the case of Sundaram Finance Ltd. (Supra), the true effect of a transaction may be determined from the terms of the agreement considered in light of the surrounding circumstances. It is further observed in the said decision that in each case, the Court has, unless prohibited by statute, appear to go behind the documents and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods. If there is a bona fide and completed sale of goods, evidenced by documents, anterior to and independent of a 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. If the real transaction is a loan of money secured by a right of seizure of the goods, the property ostensibly passes under the documents embodying, the transaction, but subject to the terms of the hiring agreement, which become part of the buyer's title, and confer a licence to seize. When a person desiring to purchase goods and not having sufficient money on hand borrows the amount needed from a third person and pays it over to the vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hirepurchase agreement is a more, complex transaction. The owner under the hirepurchase agreement enters into a transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be finance interest component. At this stage it is required to be noted that in the present case admittedly the assessee had purchased the equipment as per the requirement of the lessee and from the manufacturer suggested by the lessee and even the equipment can be used only by the lessee as per its requirement. It is also required to be noted that in the agreement itself it is specifically mentioned that in consideration of the lessor acceding to the request of the lessee, to purchase and let on lease to the lessee said equipment / machinery / apparatus / vehicles purchased . It is submitted that therefore the assessee had purchased the equipment acceding the request made by the lessee. It is also further stated that the equipment described in the schedule to this lease, purchased by the lessor at the request of the lessee from the manufacturer/supplier named in the schedule . The agreement also further provides that the equipment will be delivered by the manufacturer / supplied to the lessee and it is agreed that the risk in respect of the equipment shall be to the account of the lessee at the time of taking delivery of the equipment from the premises of the lessor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts regarding the Lessee's rights or position in respect to any law relating to taxation or any other matter; and (i) that the Lessee is obliged to pay rental every month/quarter during the contracted period regardless of whether the Equipment is in repairs or otherwise not working. It is true that in the agreement the installment of ₹ 9,95,383/is termed as lease rental and in the agreement it is also mentioned that the ownership of the equipment shall be of the lessor and on completion of 60 months' period the lessee has to return the equipment to the lessee. However, at this stage it is required to be noted and even in one of the correspondence by the lessor it is stated that the equipment installed will not be of any use to any other person. Therefore, merely because in the agreement it is mentioned that the ownership of the equipment would be that of the lessor and the amount paid monthly is termed as lease rental and one of the clause in the agreement provides that on completion of 60 months' period the lessor shall have a right to get back the possession of the equipment, by that itself the agreement which otherwise and in substance would be a Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
