AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 56
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....s should be allowed depreciation, the relevant portion whereof reads as follows : "(i) In every case of payment purporting to be for hire purchase, production of the agreement under which the payment is made should be insisted on. (ii) Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee (e.g. where the lessor obtains a right to sue for arrear installments but no right to recovery of the asset), the transaction should be regarded as one of purchase by installments and no deduction in respect of 'hire' should be made. Depreciation should be allowed to the lessee on the entire purchase price as per the agreement. (iii)Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire-purchase. In such cases the periodical payments made by the hirer should for tax purposes be regarded as made up of :- (i) consideration for hire, to be allowed as a deduction in the assessment, and (ii) payment on account of purchase, to be treated as capital outlay, depreciation being ....
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....manifests itself in the fixation of the initial payment, the method of determination of the hire-purchase price, etc., when a hirer is the real purchaser of the asset but does not pay the full purchase price and the hire-purchase company pays the price or a substantial part thereof on behalf of such hirer, and a hire purchase agreement is entered into merely as an arrangement is a security for repayment of the loan and is essentially a loan transaction. 4. In this connection, the Assessing Officer should keep in mind the tests laid down by the Supreme Court in the case of Sundaram Finance Ltd. V. State of Kerala, AIR 1966 SC 1178 wherein it has been held as under :- "If there is a bonafide and completed sale of goods, evidenced by documents, anterior to and independent of a subsequent and distinct hiring to the vendor, of the transaction, may not be regarded as a loan transaction even though the reason for which it was entered into was to raise money "... .. the intention of the appellant in obtaining the hirepurchase and the allied agreements was to secure the return of loan advanced to their customers, and no real sale of the vehicle was intended by the customer to the appella....
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....ead "fixed assets ", which has been detailed in Schedule-"A", the assessee has shown the ownership of only those items in respect of assets which had been leased out and which had been owned by the assessee himself for his business use totaling Rs. 2,05,00,223/- as on 31st March, 1995. Thus the assessee by his conduct and entry in the books of accounts as well as the audited Balance Sheet himself has conceded that after hiring of the assets, it did not remain the owner of the assets and, therefore, the same has not been shown under the head "fixed assets ". Moreover, the assessee has shown the amount recoverable from the hirer under the head "installment receivable (secured against vehicles financed as per agreement) " of Rs. 1,46,70,993/-. This itself indicates that the assessee has shown the amount under the head "current assets" for the hire charges recoverable from the persons to whom he has financed the assets. Thus not claiming of the depreciation as business expenditure and not showing the assets financed, as owned assets in the Balance sheet establishes the fact that immediately at the time of entering into hire purchase agreement, the assessee did not remain the owner of t....
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....he vendor, the transaction between the customer and the lender will unquestionably be a loan transaction. The real character of the transaction would not be altered if the lender himself is the owner of the goods and the owner accepts the promise of the purchaser to pay the price or the balance remaining due against delivery of goods. But a hirepurchase agreement is a more complex transaction. The owner under the hire-purchase agreement enters into a transaction of hiring out goods on the terms and conditions set out in the agreement, and the option to purchase exercisable by the customer on payment of all the installments of hire arises when the installments are paid and not before. In such a hire-purchase agreement there is no agreement to buy goods; the hirer being under no legal obligation to buy, has an option either to return the goods or to become its owner by payment in full of the stipulated hire and the price for exercising the option. This class of hire-purchase agreements must be distinguished from transactions in which the customer is the owner of the goods and with a view to finance his purchase he enters into an arrangement which is in the form of a hire-purchase agr....
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....s not exercised, and the essence of a hire-purchase agreement properly so called is that the property in the goods does not pass at the time of the agreement but remains in the intending seller, and only passes later when the option is exercised by the intending purchaser. The distinguishing feature of a typical hire-purchase agreement therefore is that the property does not pass when the agreement is made but only passes when the option is finally exercised after complying with all the terms of the agreement. The next question that arises is whether a hire purchase agreement ever ripens into a sale and if so when. We have already pointed out that a hire purchase agreement has two elements: (1) element of bailment, and (2) element of sale, in the sense that it contemplates an eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. When all the terms of the agreement are satisfied and the option is exercised a sale takes place of the goods which till then had been hired. When this sale takes place it will be liable to sales tax under the Act for the taxable event under the Act is the taking p....
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....t was really a loan transaction. The vehicle was purchased by the hirer and all that the assessee did was to finance purchase. Therefore, it was nothing more or nothing less than a transaction of loans and advances. We have not been impressed by this submission. The invoice goes to show that the assessee is the purchaser. The assessee may have purchased for the purpose of hiring it out to the named hirer on terms and conditions contained in the hire purchase agreement. In the present case there shall be two transactions of sale if the terms of hire purchase agreement are fully performed. The first sale is by Agro Service Centre to the assessee and the second sale is by the assessee to Gopal Chandra Singh. Mr. Chowdhury and Mr. Nizamuddin appearing in other two matters involving the same question of law drew our attention to a judgment in the case of CIT Vs. Muthoot Leasing & Finance Ltd. reported in (2008) 3 KLT 340. We have perused the judgment but are unable to agree with the views contained therein. The judgement in the case of CIT Vs. Muthoot Leasing & Finance Ltd., with respect, is over simplification of the mater. The view that "option given to the borrower to purchase vehi....
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....eement. (5) Where the person whose name has been specified in the certificate of registration as the person with whom the registered owner has entered into the said agreement, satisfies the registering authority that he has taken possession of the vehicle [from the registered owner] owing to the default of the registered owner under the provisions of the said agreement and that the registered owner refuses to deliver the certificate of registration or has absconded, such authority may, after giving the registered owner an opportunity to make such representation as he may wish to make (by sending to him a notice by registered post acknowledgement due at his address entered in the certificate of registration) and notwithstanding that the certificate of registration is not produced before it, cancel the certificate and issue a fresh certificate of registration in the name of the person with whom the registered owner has entered into the said agreement: Provided that a fresh certificate of registration shall not be issued in respect of a motor vehicle, unless such person pays the prescribed fee: Provided further that a fresh certificate of registration issued in respect of a motor v....
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....that subsection, or, as the case may be, a declaration that he has not received any communication from the financier within the period of seven days specified in that sub-section. (9) On receipt of an application for the renewal of any permit or for the issue of duplicate certificate of registration or for assignment of a new registration mark in respect of a vehicle which is held under the said agreement, the appropriate authority may, subject to the other provisions of this Act,- (a) in a case where the financier has refused to issue the certificate applied for, after giving the applicant an opportunity of being heard, either- (i) renew or refuse to renew the permit, or (ii) issue or refuse to issue the duplicate certificate of registration, or (iii)assign or refuse to assign a new registration mark; (b) in any other case,- (i) renew the permit, or (ii) issue duplicate certificate of registration, or (iii)assign a new registration mark. (10) A registering authority making an entry in the certificate of registration regarding- (a) hire-purchase, lease or hypothecation agreement of a motor vehicle, or (b) the cancellation under sub-section (3) of an entry, or (c) recor....
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....red into a hire purchase agreement. The hirer is a bailee as already indicated. In a bailment the bailor does not divest himself of ownership. He merely curtails his right of enjoyment of the thing bailed in favour of the bailee. Further, the rights which the bailee being a hirer acquires may be enjoyed by him in terms of the hire purchase agreement and not otherwise. The nomenclature given by the assessee is not decisive. It is the substance of the matter which has to be looked into. Mere fact that the assessee has treated the vehicle for the purpose of accounting as its current assets does not derogate from the concept of hire purchase. The provisions of Interest Tax Act were considered by the Bombay High Court in the case of Discount and Finance House of India Ltd., reported in [2003] 259 ITR 295. In a very instructive judgment delivered by His Lordship Kapadia, J. [ as His Lordship then was], the object of the Interest Tax Act was examined and His Lordship held as follows:- "This has been discussed in the judgment of the Division Bench of this court to which one of us (S.H.KAPADIA,J.) is a party in the case of Unit Trust of India v. P.K. Unny [2001] 249 ITR 612 (Bom). There....