Hire-purchase substance test: ownership retained until option exercise makes the arrangement a taxable sale, not mere financing.

In a genuine hire-purchase arrangement, the true substance of the written commercial terms determines tax character: where the dealer pays the distributor, the vehicle remains in the dealer's name, and ownership passes only on full repayment and exercise of the purchase option, the transaction is a sale on exercise of that option rather than a mere financing loan. The Court treated the promissory note and registration entries as insufficient to change that character, distinguished a loan secured on goods, and applied the earlier similar hire-purchase decision as controlling.

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Issues: Whether the transactions entered into by the dealer with its customers under the hire-purchase arrangement were sales of motor vehicles or merely financing transactions.

Analysis: The decisive test was the true substance of the written commercial arrangement. The agreement showed that the dealer paid the price to the distributor, the vehicle stood in the dealer's name, the customer was treated as hirer, and ownership remained with the dealer until repayment of the full amount and exercise of the contractual option to purchase. The Court distinguished a mere loan secured on goods from a hire-purchase arrangement involving a transfer of property on exercise of option. It held that the features relied upon by the dealer, including execution of a promissory note and registration entries, did not alter the character of the transaction. The earlier decision dealing with a different factual setting was treated as inapplicable, while the case concerning a similar hire-purchase arrangement was treated as controlling.

Conclusion: The transactions were sales and not mere financing transactions, and the Tribunal was not correct in law in holding otherwise.

Final Conclusion: The reference was answered against the dealer and the tax authorities' view that the transactions were taxable sales was upheld.

Ratio Decidendi: In a genuine hire-purchase arrangement, where ownership remains with the financer until the contractual option to purchase is exercised, the transaction is a sale on exercise of the option and not a mere loan transaction.

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