M/s Raghvar Automobiles &, Agra V. I.T.O., Ward- 4(3), Agra

ITA 96/AGR/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1977 (ITAT-AGRA)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-07-2014
• Assessment Year: 1997-1998
• Appeal Filed On: 11-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NOS.96 & 97/AG/2014 ASSESSMENT YEAR:1997-98 & 1998-99 M/S RAGHUVAR AUTOMOBILES & , VS. THE ITO GENERAL FINANCE P.LTD. AGRA WARD 4(3), AGRA PAN NO. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAJENDRA SHARMA RESPONDENT BY : SH. WASEEM ARSHAD DATE OF HEARING : 04/02/2016 DATE OF PRONOUNCEMENT : 12/04/2016 ORDER PER ANNAPURNA MEHROTRA A.M. BOTH THE APPEALS FILED BY THE ASSESSEE ARE AGAINST THE COMMON ORDER OF CIT(A)-II, AGRA FOR ASSESSMENT YEAR 1997-98 & 1998 -99, PASSED ON 29.11.13, CONFIRMING THE LEVY OF INTEREST TAX, AMOUNTING TO R S. 1,29,912/- & RS. 2,01,129/- RESPECTIVELY UNDER THE INTEREST TAX ACT, 1974. THE ISSUE INVOLVED IN BOTH THE APPEALS IS THE SAME AND HENCE THEY ARE BEING DISPOS ED OFF BY A COMMON ORDER. 2. BRIEF FACTS RELATING TO THE CASE ARE THAT ORIGIN AL ASSESSMENT ORDER FOR BOTH THE ASSESSMENT YEARS WAS PASSED ON 27.03.01 WHEREIN IT WAS HELD THAT THE ASSESSEE COMPANY WAS ENGAGED IN FINANCING MOTOR VEH ICLES AND WAS LIABLE TO PAY TAX ON THE INTEREST INCOME EARNED DURING THE YE AR WHICH WAS ASSESSED AT RS. 11,84,422/- AND RS. 19,95,960/- RESPECTIVELY AS AGAINST RS. 190/- AND RS. 2,330/- RESPECTIVELY SHOWN BY THE ASSESSEE. THE ASSESSEE FI LED APPEAL BEFORE THE LD. CIT(A), WHO ALLOWED THE APPEALS OF THE ASSESSEE. AG AINST THE ORDER OF THE 2 CIT(A), THE DEPARTMENT PREFERRED APPEAL BEFORE THE ITAT WHO RESTORED THE MATTER TO THE FILE OF THE AO FOR PASSING A FRESH OR DER AFTER GIVING OPPORTUNITY TO THE ASSESSEE. THE AO AFTER EXAMINING THE MATTER AFR ESH TAKING INTO CONSIDERATION THE DOCUMENTS FILED BY THE ASSESSEE BEING AGREEMENT S ENTERED INTO WITH THE CUSTOMERS FOR FINANCING THE PURCHASE OF VEHICLE AND CONSIDERING THE CLAIM OF THE ASSESSEE THAT THE INTEREST RECEIVED BY IT WAS O NLY PART OF HIRE CHARGES, HELD THAT THE ASSESSEE WAS ENGAGED IN FINANCING BUSINESS ONLY, ADVANCING LOAN ON INTEREST AND ITS TRANSACTIONS COULD NOT BE TERMED A S HIRE PURCHASE. THE AO HELD AS FOLLOWS: IT IS ALSO NOTED THAT THE ASSESSEE COMPANY USED TO OBTAIN FROM THE CUSTOMERS BLANK SIGNED DOCUMENTS. EVEN TERMS AND CONDITIONS F OR SO CALLED HIRE ARE ALSO SIGNED BLANK. ON THOSE DOCUMENTS EXCEPT THE SIGNATU RES OF THE HIRERS / PURCHASERS, ALL OTHER COLUMNS ARE BLANK. THESE FACT UAL POSITION SHOWS THAT VARIOUS DOCUMENTS WERE EXECUTED BY THE ASSESSEE COMPANY JUS T TOO SAFE GUARD THE AMOUNT GIVEN ON ADVANCE TO THE PURCHASE. IN RESPECT 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 TRANSACTIONS WOULD NOT A LTER. AS MENTIONED IN THE BOARDS CIRCULAR AND IN THE HONBLE SUPREME COURT D ECISION IN SUNDARAM FINANCE LTD. (SUPRA), IT IS ONLY THE INTENTION AND THE SUBS TANCE OF THE TRANSACTION WHICH ARE RELEVANT FOR DECIDING THE ISSUE. THUS, THE FACT THA T IT IS REGISTERED WITH RBI AS A HIRE PURCHASE COMPANY WOULD NOT MAKE ANY DIFFERENCE. FUR THER, IT IS ALSO NOTED FROM THE ORDER OF THE LD. CIT(A)-I, AGRA THAT THE ASSESS EE COMPANY HAD OBTAINED LOAN FROM BANK AND FOR THIS PURPOSE, THE VEHICLES WERE S HOWN AS ITS STOCK. EVEN IF IT IS SO, THE NATURE OF TRANSACTION WOULD NOT CHANGED. IT IS AN INTERNAL MATTER BETWEEN THE BANK AND THE ASSESSEE COMPANY. MERELY BECAUSE THE B ANK ACCEPTED THE VEHICLES AS STOCK OF THE COMPANY, THE REAL NATURE O F THE TRANSACTION WOULD NOT CHANGED. DESPITE THIS, IT WILL BE OPEN TO SCRUTINY AS TO WHAT WAS THE REAL NATURE OF THE TRANSACTION. MOREOVER, THE BANK IS MERELY INTER ESTED IN SECURITY OF LOAN GIVEN BY IT. BESIDES STOCK COLLATERAL SECURITY OF SUBSTAN TIAL AMOUNT IN THE FORM MOVEABLE OR IMMOVABLE PROPERTIES WERE ALSO OBTAINED BY THE B ANK. IT HAS ALSO BEEN DESIRED BY THE BANK THAT BEFORE RELEASE OF ENHANCED FACILITY, FRESH EQUITABLE MORTGAGE OF THESE PROPERTIES HAD TO BE RECORDED AND FORMALITIES REGARDING CREATION OF BANK CHARGE WITH ROC HAD TO BE COMPLETE D. IT WAS ALSO DESIRED THAT SHARES / DEBENTURES SHOULD BE TRANSFERRED IN THE BA NKS NAME. IN VIEW OF ALL THESE FACTS, SINCE THE BANK HAD ALREADY SECURED ITS ADVAN CE AGAINST A NUMBER OF SECURITIES, IT WAS NOT VERY MUCH CONCERNED TO ASCER TAIN AS TO WHETHER THE VEHICLES WERE ACTUALLY THE STOCK OF THE COMPANY OR NOT. KEEPING IN VIEW THE FACT AND CIRCUMSTANCES AND THE LEGAL POSITION, I AM OF T HE VIEW THAT THE ASSESSEE COMPANY IS ENGAGED IN FINANCING BUSINESS ONLY, ADVA NCING LOAN ON INTEREST AND IT CANNOT BE CONSIDERED AS HIRE PURCHASES. 3. AGAINST THE ABOVE ORDER, APPEAL WAS FILED BEFORE THE CIT(A), WHO DISMISSED THE SAME FOR NON-ATTENDANCE. THE MATTER W AS CARRIED IN APPEAL BEFORE THE ITAT WHO RESTORED THE APPEALS BACK TO TH E FILE OF THE CIT(A) FOR RECONSIDERATION ON MERITS AND AFTER CONSIDERING TWO ORDERS OF THE ITAT AGRA BENCH ON SIMILAR ISSUE IN THE CASE OF M/S AUTOMOBIL E & GENERAL FINANCE LTD. AND 3 M/S ASHOKA AUTO FINANCE AND LEASING LTD. IN PURSUAN CE TO THE ABOVE DIRECTION OF THE ITAT, THE MATTER WAS RECONSIDERED BY THE LD. CIT(A), WHO THEREAFTER UPHELD THE ORDER OF THE AO BY HOLDING AS FOLLOWS : 8.1 I HAVE CONSIDERED THE FACTS OF THE CASE AS BRO UGHT BEFORE ME IN THE WRITTEN SUBMISSIONS FILED BY THE LD. AR ALONG WITH VARIOUS DOCUMENTS IN FORM OF COPIES OF HIRE- PURCHASE AGREEMENTS AND REGISTRATION DOCUMENTS OF T HE VEHICLES AND I HAVE ALSO CONSIDERED THE INFORMATION GIVEN BY THE LD. AR IN T HE LAST HEARING HELD ON 29.11.2013 WITH RESPECT TO THE PURCHASE OF VEHICLE. I HAVE ALREADY EXAMINED THE DECISION OF HONBLE ITAT, AGRA IN THE CASE OF M/S AUTOMOBILE AND GENERAL FINA NCE COMPANY (P) LTD. (SUPRA) AS WELL AS IN THE CASE OF M/S ASHOKA FINANCE & LEASING LTD. (SUPRA) ALONG WITH ANOTHER DECISION OF HONBLE ITAT, AGRA IN THE CASE OF M/S S.E. INVESTME NT LTD. (SUPRA). ON EXAMINING THE FACTS OF THE PRESENT CASE UNDER APPEAL, I FIND THAT THE F ACTS OF THE CASE OF THE PRESENT APPEAL ARE SIMILAR TO THE FACTS OF M/S S.E. INVESTMENT LTD . AND NOT TO THE FACTS OF FORMER TWO DECISIONS OF HONBLE ITAT AGRA BECAUSE IN THE PRESE NT CASE UNDER APPEAL, THE VEHICLES HAVE BEEN PURCHASED BY THE CUSTOMERS(HIRERS) AND NO T BY THE ASSESSEE COMPANY AND HENCE, CUSTOMERS ARE OWNERS OF THE VEHICLES AND NOT THE ASSESSEE. THIS FACT OF THE INSTANT APPEAL IS AGAINST THE FACT AS FOUND IN FORMER TWO D ECISIONS OF THE HONBLE ITAT, AGRA AS IN THOSE CASES, THE VEHICLES WERE PURCHASED BY THE ASS ESSEE COMPANY AND THEN THEY WERE GIVEN ON HIRE TO ITS CUSTOMERS (HIRERS). IN THE PRE SENT CASE UNDER APPEAL, THE ASSESSEE COMPANY HAS ONLY MADE PAYMENTS FOR PURCHASE OF VEHI CLES BUT VEHICLES HAVE BEEN PURCHASED BY THE CUSTOMERS (HIRERS) AND SUCH TYPE O F TRANSACTIONS ARE IN THE FORM OF SECOND TYPE OF TRANSACTION AS FOUND IN THE DECISION OF SUNDARAM FINANCE LTD. VS. STATE OF KERALA (SUPRA) WHICH HAS BEEN HELD IN THE NATURE OF FINANCE TRANSACTION BECAUSE THE CUSTOMERS AFTER PURCHASING THE VEHICLE HAVE GOT THE M FINANCED BY A FINANCIER AND THE ROLE OF FINANCIER IN THIS CASE HAS BEEN PLAYED BY T HE ASSESSEE (APPELLANT) COMPANY. THEREFORE, IN THE PRESENT CASE, THE ASSESSEE (APPEL LANT) COMPANY IS ONLY RECOVERING ITS LOAN AMOUNT ALONG WITH THE INTEREST GIVEN TO ITS CU STOMERS (HIRERS) FOR PURCHASE OF VEHICLES BY ENTERING INTO A HIRE-PURCHASE AGREEMENT AND THES E FACTS OF THE CASE ARE VERY MUCH SIMILAR TO THE FACTS OF M/S SUNDARAM FINANCE LTD. V S. STATE OF KERALA (SUPRA) AS WELL AS THE FACTS OF THE CASE OF M/S S.E. INVESTMENT LTD. (SUPR A) IN WHICH ALSO, THE ABOVE CASE LAW OF HONBLE SUPREME COURT WAS ALLOWED HOLDING THAT SUCH TYPE OF TRANSACTIONS ARE FINANCE TRANSACTION AND THE AMOUNT RECEIVED BY THE ASSESSEE OVER AND ABOVE THE PRINCIPAL AMOUNT OF FINANCING IS IN FORM OF INTEREST. ANOTHER PECULIAR FEATURE FOUND IN THE PRESENT CASE UNDER APPEAL IS THAT ALL THE VEHICLES CLAIMED TO HAVE BEEN GIVEN ON HIRE ARE OLD USED VEH ICLES PERTAINING TO THE YEAR 1987 TO 1993 AND EVEN THE REGISTRATION OF MOST OF THESE VEH ICLES HAVE BEEN FOUND TO BE MADE IN THE YEAR 1987 TO 1993. SINCE NO PURCHASE BILLS WERE PRODUCED, IT COULD NOT BE EXAMINED AS TO WHEN THESE VEHICLES WERE PURCHASED, HOWEVER, THE LD. AR HAS FAIRLY ADMITTED THAT THESE VEHICLES WERE PURCHASED BY THE HIRERS. SINCE THESE VEHICLES WERE PURCHASED BY THE HIRERS AND ALSO THEY WERE FOUND TO BE REGISTERED IN THE NAME OF HIRERS PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IT IS QUITE CL EAR THAT THE VEHICLES HAD ALREADY BEEN PURCHASED AND REGISTERED IN THE NAME OF SO CALLED H IRERS AND THE SALE INVOICES HAD ALSO BEEN ISSUED IN THE NAME OF THE HIRERS BEFORE THEY E NTERED IN THE SO CALLED HIRE-PURCHASE AGREEMENTS WITH THE ASSESSEE (APPELLANT) AND HENCE, THE SO CALLED HIRE-PURCHASE AGREEMENTS PRODUCED BY THE LD. AR ARE NOTHING BUT A DEVICE CREATED FOR ENSURING THE RECOVERY OF LOAN/ADVANCES GIVEN TO CUSTOMERS ON THE SECURITY OF THESE VEHICLES ALONG WITH INTEREST THEREON. EXACTLY SIMILAR FACTS WERE FOUND IN CASE OF M/S S.E. INVESTMENT LTD. AND AFTER EXAMINING THESE FACTS, THE HONBLE ITAT, AGRA HAS HELD THE TRANSACTION AS BEING FINANCE TRANSACTION AND HIRE CHARGES SHOWN BY THE A SSESSEE HAS BEEN TAXED UNDER THE INTEREST TAX ACT. IN THE CASE OF M/S S.E. INVESTMEN TS LTD., DESPITE THAT COMPANY GETTING REGISTERED WITH RESERVE BANK OF INDIA AS A HIRE PUR CHASE COMPANY, THE HONBLE ITAT AGRA AFTER CONSIDERING THE FACTS OF THAT CASE AND EXAMIN ING THE REAL INTENTION BEHIND EXECUTING THE HIRE-PURCHASE AGREEMENTS, HELD THAT IT IS NOTED THAT MERELY BECAUSE IT IS REGISTERED SO WITH RBI, THE NATURE OF TRANSACTION WOULD NOT ALTER . IN THE PRESENT CASE UNDER APPEAL, THE ASSESSEE (APPELLANT) COMPANY IS NOT EVEN REGISTERED AS HIRE-PURCHASE COMPANY BUT IT IS REGISTERED AS NON-BANKING FINANCE INSTITUTION WITH RBI WITHOUT GETTING PERMISSION TO ACCEPT PUBLIC DEPOSITS. THEREFORE, EVEN LEGALLY, THE ASSES SEE (COMPANY) WAS NOT PERMITTED TO CARRY ON THE HIRE PURCHASE BUSINESS. IT IS ALSO NOT DEALER IN VEHICLES AND IN THE BALANCE SHEET UNDER HEAD HIRE PURCHASE STOCK, SIMILAR TO THE CASE OF M/S S.E. INVESTMENTS LTD, THE AMOUNT SHOWN IS AN ADVANCE / LOAN TO THE CUSTOM ERS, WHICH ONLY IS AFFECTING THE ASSET SIDE OF THE BALANCE SHEET BY REDUCING CASH / BANK A ND INCREASING ADVANCE / LOAN TO THE CUSTOMERS AND THE ONLY AMOUNT OF ADVANCE HAS BEEN T AKEN IN THIS STOCK AND NOT THE TOTAL VALUE OF MOTOR VEHICLES FINANCED. IN REALTY, THERE IS NO STOCK DETAILS OF VEHICLES GIVING THE QUANTITATIVE AND VALUE WISE DETAILS BUT ONLY MENTIO NING THE AMOUNT OF LOAN/ADVANCES GIVEN TO THE CUSTOMERS AND KEEP ON REDUCING IT BY T HE AMOUNT OF REPAYMENT OF THE PRINCIPLE AMOUNTS AND CREDITING THE HIRE-PURCHASE C HARGES IN THE PROFIT & LOSS ACCOUNT FROM YEAR TO YEAR. THEREFORE, SUCH HIRE-PURCHASE CH ARGES CREDITED IN PROFIT & LOSS ACCOUNT IS NOTHING BUT THE INTEREST PAID BY THE CUSTOMERS O N LOAN/ADVANCES TAKEN BY THEM ON THE 4 SECURITY OF THE VEHICLES. THEREFORE, THE HIRE-PURCH ASE AGREEMENTS PRODUCED BY THE LD. AR BEFORE ME TO JUSTIFY THE HIRE-PURCHASE CHARGES CRED ITED IN THE PROFIT & LOSS ACCOUNT ARE IN FACT JUST AN INSTRUMENT FOR ENSURING THE RECOVERY O F LOANS / ADVANCES GIVEN TO CUSTOMERS ON THE SECURITY OF THE VEHICLES AND SUCH AGREEMENTS IN SUBSTANCE ARE NOT REAL HIRE-PURCHASE AGREEMENTS BECAUSE ASSESSEE IS NOT OWNER OF THE VEH ICLES SHOWN UNDER THESE AGREEMENTS. 8.2 KEEPING IN VIEW THE FACTS OF THE CASE UNDER APP EAL SO FAR DISCUSSED IN THIS PARA AND FINDING THEM SIMILAR TO THE FACTS OF THE CASE O F M/S S.E. INVESTMENTS LTD. AND THEREFORE, FOLLOWING THIS DECISION OF HONBLE ITAT AGRA, I HOL D THAT THE AO HAS CORRECTLY TAXED THE HIRE PURCHASE CHARGES OF RS. 11,84,420/- AND RS. 19,95,9 60/- AS CHARGEABLE INTEREST U/S 2(7) OF THE INTEREST TAX ACT FOR A.Y. 1997-98 AND 1998-99 R ESPECTIVELY AND HENCE, I CONFIRM THE ORDER PASSED U/S 8(2) OF THE INTEREST TAX ACT FOR B OTH ASSESSMENT YEARS I.E. A.Y. 1997-98 AND 1998-99 AND ACCORDINGLY, THE APPEAL OF THE ASSESSEE (APPELLANT) AGAINST THE ABOVE MENTIONED ORDER CHALLENGING THE CHARGING OF HIRE PU RCHASE CHARGES TO INTEREST TAX ACT HAS BEEN DISMISSED. 4. AGGRIEVED BY THE SAME THE ASSESSEE PREFERRED THE PRESENT APPEAL BEFORE US. 5. THE ONLY ISSUE TO BE DECIDED IN THE PRESENT APPE ALS IS WHETHER THE ASSESSEE IS LIABLE TO PAY INTEREST TAX AS PER THE I NTEREST TAX ACT. ALTERNATIVELY THE ISSUE TO BE DECIDED IS WHETHER THE TRANSACTION ENTE RED INTO BY THE ASSESSEE IS IN THE NATURE OF A HIRE PURCHASE TRANSACTION NOT AMENA BLE TO INTEREST TAX OR A FINANCING TRANSACTION, WHICH IS AMENABLE TO INTERES T TAX. FOR DETERMINING THE NATURE OF THE TRANSACTION WHETH ER HIRE PURCHASE & FINANCING GUIDELINES HAVE BEEN PRESCRIBED BY THE CBDT IN ITS CIRCULAR NO. 760 DATED 13.01.1998 WHICH IS REPRODUCED HEREINUNDER: 2. THE BOARD HAVE SINCE CONSIDERED THE ISSUE AND ARE ADVISED THAT IN THE CASE OF TRANSACTIONS WHICH ARE, IN SUBSTANCE, IN THE NATURE OF HIRE PURCHASE, THE RECEIPTS OF HIRE CHARGES WOULD NOT BE IN THE NATURE OF INTEREST. ON THE OTHER HAND, IF THE TRANSACTIONS ARE IN SUBSTANCE IN THE NATURE OF FINANCING TRANSACTIONS, THE HIRE CHARGES SHOULD BE TREATED AS INTEREST SUBJECT TO INTEREST-TAX. 3. AS TO WHAT CONSTITUTES A TRANSACTION IN THE NATU RE OF HIRE-PURCHASE, THE ASSESSING OFFICER SHOULD CONSIDER THE ISSUE ON MERITS TAKING INTO ACCOUNT, INTERPRETED ALIA, THE FOLLOWING FACTS AND CIRCUMSTANCES:- (I) THE TERMS OF THE AGREEMENT. (II) THE NATURE OF THE ARRANGEMENT BETWEEN THE SUPP LIER 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 HIRE PURCHA SE 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 SUBST ANTIAL PART THEREOF ON BEHALF OF SUCH HIRER, AND A HIRER PURCHASE AGREEMENT IS ENTERED IN TO MERELY AS AN ARRANGEMENT, THEN SUCH AGREEMENT IS A SECURITY FOR REPAYMENT OF THE L OAN 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 L TD. VS. STATE OF KERALA AIR 1966 SC 1178, WHEREIN IT HAS BEEN HELD AS UNDER:- 5 IF THERE IS A BONA FIDE AND COMPLETED SALE OF GOO DS EVIDENCED BY DOCUMENTS, ANTERIOR TO AND INDEPENDENT OF SUBSEQUENT AND DISTINCT HIRIN G TO THE VENDOR, THE TRANSACTION, MAY NOT BE REGARDED AS A LOAN TRANSACTION EVEN THOUGH T HE REASON FOR WHICH IT WAS ENTERED INTO WAS TO RAISE MONEY THE INTENTION OF THE APPELLANT IN OBTAINING THE H IRE PURCHASE AND THE ALLIED AGREEMENTS WAS TO SECURE THE RETURN OF LOAN ADVANCED TO THEIR CUSTOMERS AND NO REAL SALE OF THE VEHICLE WAS INTENDED BY THE CUSTOMER TO THE APPELLA NT. THE TRANSACTIONS WERE MERELY FINANCING TRANSACTIONS 5. ACCORDINGLY, INSTEAD OF ROUTINELY TREATING ALL H IRE PURCHASE TRANSACTIONS AS MERE FINANCING TRANSACTIONS, THE ASSESSING OFFICER MAY B E ADVISED TO EXAMINE EACH TRANSACTION IN THE ABOVE LIGHT AND CHARGE INTEREST TAX IN SUCH OF THOSE TRANSACTIONS WHICH ARE NOT IN THE NATURE OF HIRE PURCHASE. THE HONBLE SUPREME COURT HAS ALSO LAID DOWN TESTS TO DECIDE THIS ISSUE IN THE CASE OF SUNDARAM FINANCE LTD. VS. STATE OF KERA LA AIR 1996 SC 1178. THE RELEVANT PORTION OF THE DECISION IS REPRODUCED HEREUNDER: A HIRE-PURCHASE AGREEMENT IS NORMALLY ONE UNDER WH ICH AN OWNER HIRES GOODS TO ANOTHER PARTY CALLED THE HIRER AND FURTHER AGREE S THAT THE HIRER SHALL HAVE AN OPTION TO PURCHASE THE CHATTEL WHEN HE HAS PAID A C ERTAIN SUM, OR WHEN THE HIRE- RENTAL PAYMENTS HAVE REACHED THE HIRE-PURCHASE PRIC E STIPULATED IN THE AGREEMENT. BUT THERE ARE VARIATIONS WHEN A FINANCIE R 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 RECO VER THE BALANCE OF THE PRICE, AND THE FINANCIER WHO PAYS THE BALANCE UNDERTAKES T HE RECOVERY. IN THIS FORM, GOODS ARE PURCHASED BY THE FINANCIER FROM THE DEALE R, AND THE FINANCIER OBTAINS A HIRE-PURCHASE AGREEMENT FROM THE CUSTOMER UNDER W HICH THE LATTER BECOMES THE OWNER OF THE GOODS ON PAYMENT OF ALL THE INSTAL MENTS OF THE STIPULATED HIRE AND EXERCISING HIS OPTION TO PURCHASE THE GOODS ON PAYMENT OF A NOMINAL PRICE. THE DECISION OF THIS COURT IN K. L. JOHAR & COMPANY V. DEPUTY COMMERCIAL TAX OFFICER (1) DEALT WITH A TRANSACTION OF THIS CHARACTER. (2) IN THE OTHER FORM OF TRANSACTIONS, GOODS ARE PURCHASED BY THE CUSTOMER, WHO IN CONSIDERATION OF EXECUTING A HIREPURCHASE AGREEMENT AND ALLIED DOCUM ENTS REMAINS IN POSSESSION OF THE GOODS, SUBJECT TO LIABILITY TO PAY THE AMOUN T PAID BY THE FINANCIER ON HIS BEHALF TO THE OWNER OR DEALER, AND THE FINANCIER OB TAINS A HIRE-PURCHASE AGREEMENT WHICH GIVES HIM A LICENCE TO SEIZE THE GO ODS IN THE EVENT OF FAILURE BY THE CUSTOMER TO ABIDE BY THE CONDITIONS OF THE HIRE -PURCHASE AGREEMENT. THE TRUE EFFECT OF A TRANSACTION MAY BE DETERMINED FROM THE TERMS OF THE AGREEMENT CONSIDERED IN THE LIGHT OF THE SURROUNDING CIRCUMST ANCES. IN EACH CASE, THE COURT HAS, UNLESS PROHIBITED BY STATUTE, POWER TO GO BEHI ND THE DOCUMENTS AND TO DETERMINE THE NATURE OF THE TRANSACTION, WHATEVER M AY BE THE FORM OF THE DOCUMENTS. AN OWNER OF GOODS WHO PURPORTS ABSOLUTEL Y TO CONVEY OR ACKNOWLEDGES TO HAVE CONVEYED GOODS AND SUBSEQUENTL Y PURPORTS TO HIRE THEM UNDER A HIRE-PURCHASE AGREEMENT IS NOT ESTOPPED FRO M PROVING THAT THE REAL BARGAIN WAS A LOAN ON THE SECURITY OF THE GOODS. IF THERE IS A BONA FIDE AND COMPLETED SALE OF GOODS, EVIDENCED BY DOCUMENTS, AN TERIOR TO AND INDEPENDENT OF A SUBSEQUENT AND DISTINCT HIRING TO THE VENDOR, THE TRANSACTION MAY NOT BE REGARDED AS A LOAN TRANSACTION, EVEN THO UGH THE REASON FOR WHICH IT WAS ENTERED INTO WAS TO RAISE MONEY. IF THE REAL TR ANSACTION IS A LOAN OF MONEY SECURED BY A RIGHT OF SEIZURE OF THE GOODS, THE PRO PERTY OSTENSIBLY PASSES UNDER THE DOCUMENTS EM. BODYING, THE TRANSACTION, BUT SUB JECT 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 THIR D PERSON AND PAYS IT OVER TO THE VENDOR, THE TRANSACTION BETWEEN THE CUSTOMER AND THE LENDER WILL UNQUESTIONABLY BE A LOAN TRANSACTION. THE REAL CHAR ACTER OF THE TRANSACTION WOULD NOT BE ALTERED IF THE LENDER HIMSELF IS THE O WNER OF THE GOODS AND THE OWNER ACCEPTS THE PROMISE OF THE PURCHASER TO PAY T HE PRICE OR THE BALANCE REMAINING DUE AGAINST DELIVERY OF GOODS. BUT A HIRE -PURCHASE AGREEMENT IS A MORE, COMPLEX TRANSACTION. THE OWNER UNDER THE HIRE -PURCHASE AGREEMENT ENTERS 6 INTO A TRANSACTION OF HIRING OUT GOODS ON THE TERMS AND CONDITIONS SET OUT IN THE AGREEMENT, AND THE OPTION TO PURCHASE EXERCISABLE B Y THE CUSTOMER ON PAYMENT OF ALL THE INSTALMENTS OF HIRE ARISES WHEN THE INSTALMENTS ARE PAID AND NOT BEFORE. IN 'SUCH A HIREPURCHASE 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 HIM-PURCHASE AGREEMENTS MUST BE DISTINGUISHED FROM TRANSACTIONS IN WHICH TH E CUSTOMER IS THE OWNER OF THE GOODS AND WITH A VIEW TO FINANCE HIS PURCHASE HE EN TERS INTO AN ARRANGEMENT WHICH IS IN THE FORM OF A HIRE PURCHASE AGREEMENT W ITH THE FINANCIER, BUT IN SUBSTANCE EVIDENCES A LOAN TRANSACTION, SUBJECT TO A HIRING AGREEMENT UNDER WHICH THE LENDER IS GIVEN THE LICENSE TO SEIZE THE GOODS. THE HIRE PURCHASE ACT, 1972 DEFINES HIRE PURCHASE A GREEMENT AS UNDER : HIRE-PURCHASE AGREEMENT MEANS AN AGREEMENT UNDER WHICH GOODS ARE LET ON HIRE AND UNDER WHICH THE HIRER HAS AN OPTION TO PUR CHASE THEM IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AND INCLUDES AN AGR EEMENT UNDER WHICH POSSESSION OF GOODS IS DELIVERED BY THE OWNER THERE OF TO A PERSON ON CONDITION THAT SUCH PERSON PAYS THE AGREED AMOUNT IN PERIODIC AL INSTALMENTS, AND THE PROPERTY IN THE GOODS IS TO PASS TO SUCH PERSON ON THE PAYMENT OF THE LAST OF SUCH INSTALMENTS, AND , SUCH PERSON HAS A RIGHT TO TERMINATE THE AGREEMENT AT ANY TIME BEFORE THE PROPERTY SO PASSES. WHAT DERIVES FROM THE ABOVE IS THAT THE DISTINGUISH ING FEATURES OF A HIRE PURCHASE TRANSACTIONS ARE: 1) THE REAL OWNER OF THE GOODS IS THE FINANCIER WHO PURCHASES THE GOODS IN THE FIRST PLACE. 2) THE FINANCIER THEREAFTER ENTERS INTO AN AGREEME NT WITH CUSTOMERS TO HIRE GOODS TO THEM ON TERMS AND CONDITIONS SET OUT IN THE HIRE PURCHASE AGREEMENTS. 3) THERE IS AN ELEMENT OF BAILMENT IN HIRE PURCHASE CONTRACTS WHEN THE GOODS ARE GIVEN ON HIRE TO THE CUSTOMERS WHO HOLD T HEM AS TRUSTEES FOR THE OWNER. 4) THERE IS ALSO AN ELEMENT OF SALE IN THE SENSE TH AT IT CONTEMPLATES AN EVENTUAL SALE TO THE HIRER ON PAYMENT OF ALL INSTAL LMENTS AS STIPULATED IN THE AGREEMENT AND ON EXERCISING THE O PTION TO PURCHASE THE GOODS ON PAYMENT OF A NOMINAL PRICE. 5) THERE IS NO AGREEMENT TO BUY GOODS BETWEEN THE F INANCIER AND THE HIRER AND THE HIRER IS UNDER NO LEGAL OBLIGATION TO BUY, BUT HAS AN OPTION EITHER TO RETURN THE GOODS OR TO BECOME ITS OWNER BY PAYMENT IN FULL OF THE STIPULATED HERE AND THE PRIC E FOR EXERCISING THE OPTION. THE HIRER ALSO HAS THE RIGHT TO TERMINA TE THE AGREEMENT AT ANY TIME BEFORE THE PROPERTY SO PASSES. AS A COROLLARY THE DISTINGUISHING FEATURES OF A FIN ANCING TRANSACTION ARE 1. HIRER IS THE REAL PURCHASER OF THE ASSET. 7 2. HIRER DOES NOT PAY THE FULL PURCHASE PRICE BUT G ETS IT FINANCED THROUGH AN ARRANGEMENT WITH A FINANCIER. 3. HIRER REMAINS IN POSSESSION OF THE GOODS IN CONS IDERATION OF EXECUTING AN AGREEMENT AND ALLIED DOCUMENTS. 4. FINANCER OBTAINS A LICENSE UNDER THE HIRE PURCHA SE AGREEMENT TO SEIZE THE GOODS IN THE EVENT OF FAILURE BY THE CUST OMER TO ABIDE BY THE CONDITIONS OF THE AGREEMENT. 5. REAL TRANSACTION IS LOAN OF MONEY SECURED BY A R IGHT OF SEIZURE OF GOODS. HAVING DEALT WITH THE PRINCIPLES DETERMINING THE NA TURE OF THE TRANSACTION WE SHALL NOW PROCEED TO STATE THE FACTS OF THE CASE . 6. A PERUSAL OF THE HIRE PURCHASE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH VARIOUS PARTIES REVEALS THAT THE MOTO R VEHICLE / ASSET GIVEN ON HIRE HAS BEEN STATED TO BE THE SOLE PROPERTY OF THE ASSESSEE. THE HIRER IS REQUIRED TO PAY SPECIFIED HIRE CHARGES FOR A FIXED PERIOD. AND ON PAYMENT OF THE COMPLETE HIRE CHARGES THE HIRER HAS THE OPTI ON OF PURCHASING THE PROPERTY. CLAUSE 18 OF THE AGREEMENTS DEALS WITH TH E SAME AS FOLLOWS. 18. IN THE EVENT OF EVERY PAYMENT OF THE STIPULATED HIRE BEING DULY AND PUNCTUALLY MADE AT THE TIME STATED AND UPON DUE OBS ERVANCE AND PERFORMANCE BY THE HIRER OF THE TERMS AND CONDITION S CONTAINED HEREIN AND THE PAYMENT OF THE TOTAL HIRE AS SHOWN IN THE SCHEDULE A AS ALSO OF ALL OTHER SUMS OF MONEY WHICH MAY BECOME PAYABLE TO THE OWNERS BY THE HIRER UNDER THIS AGREEMENT, BUT NOT BEFORE, THE HIRING SHLL COME TO AN END AND THE VEHICLE SHALL AT THE OPTION OF THE HIRER BECOME HIS ABSOLUTE PROP ERTY. BUT THE HIRER SHALL HAVE THE OPTION OF PURCHASING THE VEHICLE AT ANY EARLIER TIME DURING THE CURRENCY OF THIS AGREEMENT BY PAYING IN ONE LUMP SUM THE BALANC E OF THE TOTAL H IRE THEN REMAINING UNPAID WITH ALL OTHER SUMS THEN DUE BY TH E HIRER TO THE OWNERS UNDER THIS AGREEMENT. UPON SUCH PREPAYMENT THE HIRER SHAL L BE ALLOWED SUCH REBATE AS THE OWNERS, MAY JUDGE TO BE FAIR AND REASONABLE. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, THE HIRE R SHALL NOT BE BOUND TO EXERCISE THE OPTION TO PURCHASE. BUT IF HE SO EXERC ISE THE OPTION, HE SHALL DO IT EITHER AT ANY TIME DURING THE CURRENCY OF THIS AGRE EMENT OR AS STIPULATED AFTER FULL PAYMENT OF ALL THE DUES. THE AGREEMENTS ALSO STATES AT POINT NO. 9 & 20 THAT THE HIRER HOLDS THE VEHICLE AS A TRUSTEE AND BAILEE OF THE OWNERS AS FOLLOWS: 9. THE HIRER FURTHER AGREES AND AFFIRMS THAT FOR TH E PURPOSES OF THIS CONTRACT THE WORD OWNER USED IN THE REGISTRATION CERTIFICATION OF THE VEHICLE MEANS ONLY A TEMPORARY POSSESSOR OF THE VEHICLE AND THAT THE HIR ER POSSESSES THE VEHICLE IN TRUST FOR THE OWNERS AS THE BAILEE OF THE OWNERS ON LY AND NOT IN ANY SENSE OF HIS BEING THE RIGHTFUL OWNER OF THE PROPERTY IN THE VEH ICLE WHICH PROPERTY INDISPUTABLY BELONGS TO THE OWNERS AND THE HIRER HE RE BY AGREES AND AFFIRMS THAT IF AT ANY TIME THE HIRER SHOULD CLAIM ANY SUCH RIGH T OF OWNERSHIP CONTRARY TO THE AFORESAID PROVISIONS, THE OWNERS SHALL BE ENTITLED NOT ONLY TO PROCEED CRIMINALLY 8 AGAINST THE HIRER FOR BREACH OF TRUST BUT ALSO TO C LAIM DAMAGES FROM THE HIRERS AND THE HIRER AGREES TO PAY ALL SUCH DAMAGES TO THE OWN ERS. 20. THE HIRER DURING THE HIRE PERIOD SHALL HOLD THE VEHICLE AS TRUSTEE IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT ON BEHALF OF OWNERS. THE BREACH OF ANY TERM OR CONDITION WILL AUTOMATICALLY AMOUNT TO TERMINATION OF TRUST AND HIRER IN SUCH CONDITION SHALL IMMEDIATELY SURRENDER THE VEHICLE TO THE OWNERS AT THEIR OFFICE. HOLDING THE VEHICLE AFTER THE TERMINA TION OF TRUST SHALL AMOUNT TO CRIMINAL BREACH OF TRUST AS DEFINED IN INDIAN PENAL CODE. FURTHER THE COPY OF THE REGISTRATION CERTIFICATE OF THE VEHICLES REVEALS THAT THE HIRERS ARE THE OWNERS SUBJECT TO HIRE PURCHASE AGRE EMENT WITH THE ASSESSEE I.E. RAGHUBIR AUTOMOBILES AND GENERAL FINANCE CO. PVT. L TD. WE FIND THAT THE HIRE PURCHASE AGREEMENT SPECIFICALLY STATES AT PT. NO. 8 THAT IF THE OWNER MENTIONED IN REGISTRATION CERTIFICATE IS OTHER THAN THE ASSES SEE, IT SHALL NOT GIVE THE HIRER ANY RIGHT TO CLAIM OWNERSHIP OF THE VEHICLE AND THAT IT WOULD IMPLY ONLY TEMPORARY OWNERSHIP OF THE VEHICLE. 8. IF DUE TO ANY GOVT. REGULATIONS OR OTHERWISE THE NAME OF THE OWNERS HAS NOT BEEN OR COULD NOT BE ENTERED IN THE REGISTRATION CE RTIFICATE OF A NEW OR USED VEHICLE (SHOWING TITLE OF THE OWNERS TO THE VEHICLE ), AND CONSEQUENTLY UPON APPLICATION OF THE OWNERS OR OTHERWISE THE NAME OF THE HIRER ONLY IS ENTERED IN THE REGISTRATION CERTIFICATE, THE HIRER HEREBY AFFIRMS AND AGREES THAT NON-ENTRY OR ABSENCE OF THE NAME OF THE OWNERS OR ENTRY OF THE N AME OF THE HIRER ALONE AS REGISTERED OWNER IN THE REGISTRATION CERTIFICATE SH ALL NEITHER GIVE THE HIRER ANY RIGHT TO CLAIM ANY PROPERTY IN THE VEHICLE NOR TO E NTITLE HIM TO THE OWNERSHIP OF THE VEHICLE. 7. APPLYING THE PRINCIPLES FOR DETERMINING THE NATU RE OF THE TRANSACTION ENUNCIATED ABOVE TO THE FACTS OF THE CASE, WE UNHES ITATINGLY HOLD THAT THE TRANSACTION ENTERED INTO BY THE ASSESSEE CONSTITUTE D A HIRE PURCHASE TRANSACTION WHEREIN THE ASSESSEE BEING THE OWNER OF GOODS HAD H IRED THE SAME TO THE CUSTOMERS/ HIRERS FOR SPECIFIED HIRE CHARGES, AND G AVE THE RIGHT TO EXERCISE THE OPTION OF PURCHASING THE ASSET ON PAYMENT OF THE EN TIRE HIRE CHARGES. THE REGISTRATION CERTIFICATE OF THE VEHICLE ALSO LEND C REDENCE TO THIS VIEW WHEREIN THE HIRERS HAVE BEEN SHOWN AS OWNERS UNDER HIRE PUR CHASE AGREEMENT ENTERED INTO WITH THE ASSESSEE. THE REVENUES CASE WE FIND, RESTS ENTIRELY ON THE P REMISE THAT THE OWNER OF THE VEHICLES ARE THE HIRERS AND HENCE THE TRANSACTION I S A FINANCING TRANSACTION. WE 9 FIND NO MERIT IN THIS ARGUMENT OF THE LD. DR AS THE RE IS NO BASIS FOR THE SAME WHICH IS IS EVIDENT FROM THE ORDER OF THE LD. CIT(A ) WHEREIN HE HAS CATEGORICALLY STATED THAT NO PURCHASE BILLS OF THE VEHICLE WERE P RODUCED. THE ARGUMENT OF THE LD. DR THAT THE AR OF THE ASSESSEE HAD ADMITTED THA T THE VEHICLE WERE PURCHASED BY THE HIRER IS REBUTTED BY THE HIRE PURC HASE AGREEMENT, WHICH CLEARLY STATES THE ASSESSEE TO BE THE OWNER OF THE GOODS. IN THE ABSENCE OF ANY PURCHASE BILLS TO ESTABLISH THE OWNERSHIP OF THE VE HICLE, THE HIRE PURCHASE AGREEMENT WILL OVERRIDE THE ORAL STATEMENT OF THE C OUNSEL OF THE ASSESSEE. LD. DR HAS ALSO STATED THAT THE VEHICLE WERE REGISTERED IN THE NAME OF THE HIRER WHICH PROVE THAT THE HIRER WERE THE OWNER OF THE VE HICLE. WE FIND THAT THIS ARGUMENT ALSO HAS NO SUBSTANCE SINCE THE REGISTRATI ON CERTIFICATE CLEARLY MENTIONS THE HIRERS AS OWNERS UNDER HIRE PURCHASE A GREEMENT WITH THE ASSESSEE. THUS THERE IS NO BASIS TO HOLD THAT THE ASSESSEE WA S THE OWNER OF THE ASSETS. 8. IN VIEW OF THE ABOVE WE THEREFORE HOLD THAT THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE HIRE PURCHASE TRANSACTIONS AND WERE NOT AMENABLE TO INTEREST TAX. THE ORDER OF THE LD. CIT(A) IS THEREF ORE SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED DELETING THE LEVY OF INTERE ST TAX AMOUNTING TO RS. 1,29,912/- & 2,01,129/- IN A.Y. 1997-98 & 1998-99 R ESPECTIVELY. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12/04/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR