Real substance over form in hire-purchase arrangements keeps ownership with the assessee for tax relief.

For tax purposes, the real substance of a transaction prevails over its form. A bus transaction described as hire-purchase was examined against the surrounding facts, and because the vehicle remained in the assessee's name, with registration and permit continuing with him and no effective transfer of ownership to the financier, the arrangement was treated as a loan secured on the bus rather than a true sale. The clause providing for title to pass only on final instalment payment and a nominal Re. 1 was viewed as a security device. The assessee was therefore regarded as owner during the relevant period and entitled to development rebate.

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Issues: Whether the assessee was entitled to development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922, on the footing that he remained the owner of the bus notwithstanding the agreement executed with the financier.

Analysis: The agreement, though cast in the form of a hire-purchase arrangement, was examined in the light of the surrounding facts and the parties' true relationship. The vehicle continued to stand in the assessee's name, the registration and permit remained with him, and no effective transfer of ownership to the financier took place. The stipulation that title would pass only on payment of instalments and a nominal Re. 1 was treated as a security device rather than evidence of a real sale to the financier. On the substance of the transaction, the arrangement was held to be a loan advanced on the security of the bus, with the assessee continuing as owner during the relevant period.

Conclusion: The assessee was the owner of the bus and was entitled to development rebate under section 10(2)(vib) of the Indian Income-tax Act, 1922.

Final Conclusion: The reference was answered in favour of the assessee, and the claimed development rebate was held allowable.

Ratio Decidendi: For tax purposes, a transaction must be construed according to its real substance and surrounding circumstances, and where a purported hire-purchase agreement is in reality only a loan secured by the asset, ownership remains with the assessee for the relevant statutory relief.

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