Tax on transfer of right to use machinery upheld where lease agreement, not letter of intent, created the taxable transfer.

Lease rent received on the transfer of the right to use machinery was held taxable under Section 3-F of the U.P. Trade Tax Act read with Article 366(29-A)(d), because the taxable event arose when the lease agreement transferred that right and the machinery was already in Uttar Pradesh and available for delivery. A prior letter of intent was treated only as a preliminary understanding and did not itself effect the transfer. The transaction was not shown to be an inter-State sale under Section 3 of the Central Sales Tax Act, so the State's taxing power was not excluded. The revisions were dismissed and the levy was upheld.

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Issues: Whether lease rent received on transfer of the right to use machinery was liable to tax under Section 3-F of the U.P. Trade Tax Act when the machinery had been purchased and dispatched pursuant to a prior understanding and the lease agreement was executed outside the State.

Analysis: The taxable incidence under Section 3-F of the U.P. Trade Tax Act read with Article 366(29-A)(d) of the Constitution of India depends upon the transfer of the right to use goods and the situs of that deemed sale. Where the goods are available and deliverable, the taxable event occurs when the contract transferring that right is executed; however, transactions constituting an inter-State sale remain outside the State's taxing power. The letter of intent showed only a preliminary understanding and did not by itself transfer the right to use the machinery. The right to use was transferred only under the lease agreement, by which time the machinery had already come into existence and were located in Uttar Pradesh. The movement of goods was not shown to have been occasioned by the lease agreement so as to bring the transaction within Section 3 of the Central Sales Tax Act, 1956.

Conclusion: The lease rent was validly brought to tax under Section 3-F of the U.P. Trade Tax Act, and the plea of lack of jurisdiction failed.

Final Conclusion: The revisions were dismissed and the levy of tax on the lease rent was upheld.

Ratio Decidendi: For a taxable transfer of the right to use goods, the goods must be available and the right must be transferred by a contract that fixes the situs of sale, while a mere prior letter of intent does not by itself create the taxable transfer or defeat State taxing power where the transaction is not shown to be an inter-State sale.

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