Hire-purchase instalments for an industrial unit: hire charges are deductible, while the purchase component remains capital outlay.

Under a hire-purchase arrangement for acquisition of an industrial unit, ownership passed only on fulfilment of the contractual terms and payment of the final amount, so the periodical instalments had to be bifurcated into revenue hire charges and a capital purchase component. The CBDT circular on hire-purchase applied, requiring the hire element to be allowed as deduction over the term of the agreement while the purchase element remained capital outlay. On the stated facts, the deductible hire portion was allowable in the relevant years and the revenue objection failed.

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Issues: Whether instalments paid under the hire-purchase arrangement for acquisition of the industrial unit were deductible as revenue expenditure or were capital expenditure.

Analysis: The agreement provided that the movable and immovable properties would become the assessee's property only after compliance with all terms and payment of the final sum. The ownership was therefore not transferred at once, and the arrangement fell within the hire-purchase category contemplated by the CBDT circular. Under that circular, the periodical payments had to be bifurcated into hire charges allowable as deduction and purchase component treated as capital outlay, with the deductible hire element spread evenly over the term of the agreement. The factual basis for the computation was not in dispute, and the circular was held applicable to the assessee's case.

Conclusion: The instalments were rightly allowed as deduction in the relevant years, and the revenue's objection was rejected.

Ratio Decidendi: Where ownership under a hire-purchase agreement passes only on fulfilment of the contractual terms and payment of the final amount, the recurring payments attributable to hire are revenue deductible and only the purchase component is capital in nature.

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