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TMI Blog2003 (8) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... erested in security of loan given by it. From the letter dated 9-1-1997 issued by Central Bank of India granting finance limit of cash credit besides stock collateral security of substantial amount in the form of movable or immovable properties were also obtained by the bank. It has also been desired by the bank that before release of enhanced facilities, fresh equitable mortgage of these properties had to be recorded and formalities regarding creation of bank charge with ROC had to be completed. It was also desired that shares/debentures should be transferred in the bank s name. Beside these, guarantees from three guarantors of more than ₹ 95,00,000 were also obtained. It is also noted that undertaking from the purchaser of vehicle was also obtained by the bank. In view of all these facts, since the bank had already secured its advance against a number of securities, it was a not very much concerned to ascertain as to whether the vehicles were actually the stock of the company or not. Similar view has also been expressed by the Constitutional Bench of Hon ble Supreme Court in the case of Padma Sundra Rao v. State of Tamil Nadu [ 2002 (3) TMI 44 - SUPREME COURT] , wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions of the appellant and statutory definition of hire charges under the Hire Purchase Act, 1972. The addition made under the Interest Tax Act, 1974 being unjustified and un-warranted is liable to be deleted. 2. Because the authorities below ought to have appreciated that interest on loans and advances as envisaged to be liable to Interest Tax under the Interest Tax Act and hire charges on hire-purchase transactions are two distinct and separate phenomena with a clear line of demarcation between the two. 3. Because the impugned orders under appeal are full of conjectures and surmises in complete disregard of the fact that the appellant on one hand and the hirer on the other have distinct civil right in the peculiar nature of business carried on by the appellant. 6. The facts of the case are that the appellant company has claimed to be engaged in business of hire purchase of vehicles and disclosed hire charges on the hire purchase transaction entered into by it. In the returns of Interest Tax, the appellant had claimed these hire charges as exempt from tax under the Interest Tax Act. However, the Assessing Officer did not accept the assessee s claim. According to the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement and other documents executed by the assessee-company were merely an arrangement for the security of loan given by it and the Assessing Officer was justified in treating the hire charges as the interest which are chargeable to Interest-tax Act. It is against the aforesaid action of CIT (A) -II, Agra, the assessee- company has come up before us in appeal. 8. The grounds of appeal challenging the findings of the CIT (A) -II that the transaction entered into between the assessee-company and the hirers are in reality loan transaction and hire purchase agreement made by the assessee-company with the hirers only for security for repayment of loan. It is also challenged that the charges collected by the company were nothing but interest charged on the loan transaction and such interest was chargeable to tax under the Interest-tax Act. The learned Counsel for the assessee reiterated the arguments raised by the assessee before the CIT (A) -II and elaborately discussed and distinguished the case of the assessee and thereafter held that the assessee s case covered by the Interest-tax Act. In his order in paras 6 to 7 of pages 5 to 13 of the order, the CIT (A) -II has discussed in detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms agreed upon with open eyes would normally be the deciding factor specially when no fraud, undue influence or camouflage exists . The Hon ble High Court further held that : . . . Is there any conflict of view between Johar Co. (1965) 16 STC 213 (Supreme Court) and Sundaram Finance Limited (1966) 17 STC 489 Supreme Court ? We do not think so. Both decisions are rendered in different backgrounds. But even if there is any, it is the former decision which is binding on us since it is unanimously rendered by a five Judges Bench and the latter by a majority of two Judges in a three Judges Bench. 9. The learned Counsel for the assessee has also placed reliance on the decision of Muthoot Leasing Finance Ltd. v. Jt. CIT (2003) 84 ITD 477 (Coch.) . 10. On the other hand the learned D.R. has relied on CBDT s Circular No. 760, dated 13-1-1998, which has been issued with reference to Hon ble Supreme Court s judgment in the case of Sundaram Finance Ltd. (supra) . The learned Sr. D.R. has also argued that almost all the decisions referred to by the ld. counsel for the assessee have been dealt with by the CIT (A) -II in detail in his impugned order and are found not applicable in the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement; (ii) The nature of the arrangement between the supplier of the asset, the hire-purchase company and the end-user of the asset. (iii) The intention of the parties, which manifests itself in the fixation of the initial payment, the method of determination of the hire-purchase price, etc. When a hirer is the real purchaser of the asset but does not pay the full purchase price and the hire-purchase company pays the price 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 Ltd. 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 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. . . . . . . . the intention of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t s contention that its name was mentioned in the registration book of the vehicles, purchase bills, insurance policy etc. which proved that the appellant was their owner, cannot be accepted. Merely because the appellant company s name appears on these documents it cannot be said that the company was the owner of the vehicles. The prime objective behind mentioning the name of the company in these documents is to safeguard the amount advanced by it. The objective is to make all other concerned persons aware of the fact that the appellant company financed those vehicles and hence, has charged interest therein, to that extent. If the company was the real owner of the vehicles then it could have easily obtained the purchase bills in its name. Similarly, there would have been no difficulty in registering these vehicles with RTO in the name of the appellant company. The appellant s contention that the vehicles were not registered in its name because of huge risk involved therein, cannot be accepted. Firstly, whatever be the amount of risk involved, no person would allow hirer or any other person to register the goods vehicle in their names it really belonged to him. If the company was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a minor and the hirer in case of hire purchase agreement could be treated as owner even though they may not be the real owners of the vehicles. These observations, in my view, does not help the case of the appellant. These two exceptions only extend the meaning of owner in so far as the Motor Vehicle Act is concerned. These two exceptions do not debar the hire purchase company to register the vehicles in its name. 16. In view of the above background, we have to see the intention of the assessee-company and so called hire purchasers with reference to the test laid down in Circular No. 760 dated 13-1-1998 and we noted that :- (i) The sale invoices in all the cases have been issued by the dealers of vehicle in the name of the so-called hirers. (ii) The purchasers/hirers of the vehicle were the owners of the vehicle as the vehicles were registered in their names. (iii) The hire purchase agreement and other papers/declarations entered into between the assessee-company and the hirer are concerned, on a careful and close examination of various clauses of declaration made by hirer, we find that the intention of the parties in executing the agreement is to advance or take loan and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration of the Hon ble Supreme Court of India though in different context in the case of K.L. Johar Co. v. Dy. CTO AIR 1965 SC 1082. In that case, the Hon ble Supreme Court of India has made the following observations : Hire-purchase agreements are not conditional sales. A hire purchase agreement has two elements : (1) element of bailment, and (2) element of sale, in the sense that it contemplates as eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. The taxable event under the act is the sale of goods and until that taxable event takes place there can be no liability to pay tax. Therefore, though eventually most cases of hire-purchase may result sales by the exercise of the option and the fulfilment of the terms of the agreement, tax is not exigible at the time when the hire purchase agreement is made, for at that time the taxable event has not taken place; it can only be regular when the option has been exercised and all the terms of the agreement fulfilled and the sale actually takes place. 20. In the instant case, question of exercising of the option by the customers does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of Hon ble Supreme Court in the case of Sundaram Finance Ltd. (supra) is applied in this case, then the conclusion would be the same that the assessee-company is only a financer advancing loan to the customers. 26. The assessee-company was never the owner of the vehicles. It does not deal in motor vehicles. Though it has been stated by the assessee-company that with the RTO, they were registered as a dealer within the meaning of Motor Vehicle Act, 1988. We further noted from the order of the CIT (A) -II at para 6.11 as under : Similarly, if the tests laid down in the decision of the Hon ble Supreme Court in the case of Sundaram Finance Ltd. (supra) are applied in this case the conclusion would the same as mentioned above. The Board have also desired in the aforesaid circular that the tests laid down by the Hon ble Supreme Court in this case should be kept in view while determining the nature of the transaction. The facts of Sundaram Finance s case are almost identical to the facts of this case. In that case also the vehicles were registered in the names of the hirers . The vehicles were directly purchased by them from the dealers. The hire purchase company was not dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that if there was a bona fide and completed sale of goods evidenced by documents, anterior to and independent of subsequent and instinct 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. However, if the intentions of the parties were to secure the return of loan and no real sale of vehicle was intended the transaction would be financing. 27. During the course of hearing, the ld. counsel for the assessee has placed reliance on the decision of ITAT Cochin Bench in the case of Muthoot Leasing Finance Ltd. (supra) . We have gone through the above decision and with due respect, we are not in agreement with the said decision for the reason that in that decision, the intention of the appellant has not been judged by way of hire purchase agreement. The Tribunal did not give any finding regarding what the true transaction was for ascertaining the reality. However, we noted that the ITAT Lucknow Bench in the combined order of Commercial Motor Finance Ltd. v. Asstt. CIT (2003) 82 ITD 176 , the intention of the appellant has been judged not only from the hire purchase agreement but throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of CIT (A) -II, Kanpur verbatim reproducing the same in the assessment order. In this regard, the CIT (A) -I, Agra has compared para 8 of the order of CIT (A) -II, Kanpur dated 2-2-1999 and para-6 of the assessment order, where it is held by the CIT (A) -I, Agra that certain sentences have been fully lifted and substituted in the assessment order. It is further mentioned by the CIT (A) -I, Agra that the said order of CIT (A) -II, Kanpur has been reversed by ITAT Lucknow Bench in the case of Commercial Finance Ltd. (supra) . In this regard, we are of the view that Assessing Officer has not committed any wrong in considering the above order of First Appellate Authority and in taking the assistance for under- standing the provisions of the Interest-tax Act. In fact, no authority can arrive at a definite conclusion without considering the views of the other Authorities. Regarding the observation made by CIT (A) -I, Agra that the order of the CIT (A) -II, Kanpur has been reversed by ITAT, Lucknow Bench, we noted that the facts of the case dealt with by ITAT, Lucknow are entirely different from the facts of the instant case. In the case referred by CIT (A) -II, Kanpur, the ownership ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion would not change. Despite this, it would be open to scrutiny as to what was the real nature of the transaction. Moreover, the bank is merely interested in security of loan given by it. From the letter dated 9-1-1997 issued by Central Bank of India granting finance limit of cash credit besides stock collateral security of substantial amount in the form of movable or immovable properties were also obtained by the bank. It has also been desired by the bank that before release of enhanced facilities, fresh equitable mortgage of these properties had to be recorded and formalities regarding creation of bank charge with ROC had to be completed. It was also desired that shares/debentures should be transferred in the bank s name. Beside these, guarantees from three guarantors of more than ₹ 95,00,000 were also obtained. It is also noted that undertaking from the purchaser of vehicle was also obtained by the bank. In view of all these facts, since the bank had already secured its advance against a number of securities, it was a not very much concerned to ascertain as to whether the vehicles were actually the stock of the company or not. 32. We further noted that several decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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