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Interest Tax Act,1974 – s.2(5-A) and s.2(5-B) – Hire-purchase agreements – Appellants-assessees are credit institutions within meaning of s.2(5-A) – Whether appellants-assessees liable to pay tax on interest component included in hire-purchase instalments paid under hire-purchase agreements – ITAT referred to CBDT Circular No. 760 dated 13th January 1998 and observed that hire-purchase agreement is a composite transaction, and has elements of bailment and sale and appellants-assessees are not liable to pay interest tax as hire instalments are not interest on loans and advances that is chargeable to interest tax – High Court reversed the finding of ITAT, observing that hire-purchase instalment includes “finance charges”, which is nothing but interest, and therefore, interest tax is leviable on the interest component – The transaction, though styled as a hire-purchase agreement, the High Court held, is in fact a finance agreement for purchase of a vehicle – Reliance placed by appellant-assessee on Circular No. 760 dated 13th January 1998 issued by CBDT was rejected by the High Court – On appeal, held: Given the dictum and ratio in the cases of Sahara India Savings and Investment Corporation Limited and State Bank of Patiala Through General Manager, the view taken by High Court is not correct – In Circular No. 760 dated 13th January 1998, the CBDT observed that they considered the issue and were advised that in 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 – In transactions which are, in substance, in the nature of financing transactions, the hire charges should be treated as interest, subject to interest tax – To determine the distinction between the two transactions, the assessing officers were required to consider the issue on merits taking, inter alia, into account – (i) the terms of the agreement; (ii) the nature of the arrangement between the supplier of the asset, the hire-purchase company and the end user of the asset; and (iii) the intention of the parties which manifests itself in the fixation of the initial payment, the method of determination of hire-purchase price etc – However, when hire-purchase company pays the price or a substantial part thereof on behalf of such hirer who is real purchaser but does not pay the full price, then such agreement is in nature of a security for re-payment of the loan and is essentially a loan transaction – High Court reversed finding of ITAT without framing a specific substantial question of law and thus, interference with findings of fact was unwarranted – Orders passed by ITAT deleting the additions made by assessing officer in case of appellant, set aside – Motor Vehicles Act 1988 – s. 51.Interest Tax Act,1974 – s. 2(7) – Interpretation & scope of – Interest recovered under hire-purchase agreement, if falls under s.2(7) – Held: s.2(7) has been interpreted in two decisions, that is, in the cases of Sahara India Savings and Investment Corporation Limited and State Bank of Patiala Through General Manager, which have given a very limited and restricted meaning to s. 2(7) of the Act as interest directly arising “on” loans and advances, and not any other interest, be it interest earned on investment or interest payable on delayed payment of the discounted bill of exchange. Hire-Purchase – Elements – Held: A hire-purchase agreement has two elements – an element of bailment and an element of sale – Any transfer or sale made by the hirer or any violation of the hire-purchase agreement can lead to civil as well as criminal consequences. Taxation – Taxation matters – Interference by High Court with findings of fact recorded by the ITAT – Scope – Held: Findings of fact generally recorded by the ITAT are treated as conclusive – The High Court can interfere with the findings of fact while deciding a substantial question of law when the findings are not supported by the material on record, so as to be treated as perverse – For this, the High Court must frame a separate substantial question of law and only then interfere with the findings of fact by the ITAT, while applying the strict parameters. Taxation matters – Precedents – Rule of caution when applying the ratio of judgments relating to one tax enactment as a precedent in a case relating to another tax enactment – This rule of caution is important and should not be overlooked, more so when the language of the enactment and the object and purpose of the enactment are different. Constitution of India – Art. 141 – SLP – Dismissal of – Held: If the dismissal is in limine and at the admission stage, it would not constitute a binding precedent u/Art. 141 of the Constitution. |
