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2015 (3) TMI 1206
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.... exclusively, two or more classes of business referred to in subclauses (i) to (v) of Section 2(5B) of the Interest Tax Act ?" 2.1. In Tax Appeal Nos.1036 of 2006 to 1038 of 2006 in the case of M/s. Rajath Finance Limited, Rajkot the following substantial questions of law arise. "Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) deleting the hire purchase charges as not falling within the ambit of Interest Tax Act, 1974?" 3.0. At the outset, it is required to be noted that in Tax Appeal Nos. 1036 of 2006 to 1038 of 2006 while deciding the Tax Appeals and holding that the assesee Company is not "finance company" as defined under Section 2(5B) of the Interest Tax Act, 1974 (hereinafter referred to as the "Act") and consequently it is not a "credit institution" as envisaged in Section 2(5A) of the Act, the learned Tribunal has relied upon the decision which is the subject matter of Tax Appeal Nos. 120 of 2004 to 125 of 2004. Therefore, Tax Appeal No.120 of 2004 be treated as a lead matter and the facts in Tax Appeal No. 120 of 2004 are narrated and considered for the sake of convenience, while deciding the presen....
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....rental, (b) Finance charges on hire purchase & (c) Interest on loan. The AO observed that business of earning interest on loan clearly makes the assessee a Finance Company; earning finance charges on hire purchaser also makes the assessee a finance company within the meaning of Act. As regards as the lease rentals, the AO observed that even if it is taken that leasing business is not a finance business, the assessee would still be liable to interest tax of the quantum of business the assessee does and the objective in pursuance of which the business is being carried out. Therefore, on facts it was found that the object is clearly of finance, hire purchase and lease business and therefore, the assessee is clearly a finance company within the meaning of Interest Tax Act. Therefore, the AO levied the interest tax under the Interest Act for different years as under: "With the above remarks, chargeable Interest for various years are computed as under: (Hire purchase income: Interest Income: 1/6 of leas rental as per para 7) 199293 Chargeable Interest 3% interest tax thereon 69,55,946/- 2,08,678/- 199394 Chargeable Interest 3% interest tax thereon 68,3....
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....terest Tax Act, 1974 and therefore, not liable to pay the interest tax on the interest amount received by the assessee, leviable under the provision of Interest Tax Act. 4.1. It is submitted that while holding that the assessee is not a "financial institution" / company" as per the provision of Interest Tax Act, the learned Tribunal has misread and misinterpreted the transactions entered into by the assessee and has wrongly gave importance to the form over substance of the transactions. 4.2. It is further submitted that on true interpretation of the transactions / agreements entered into by the assessee, the learned Tribunal ought to have held that the transactions / agreements entered into by the assessee are in substance the financial agreement and not lease / operative agreement. 4.3. It is further submitted by Shri Desai, learned advocate for the Revenue that the learned Tribunal has materially erred in not considering the CBDT circular no. 738 and 760. It is submitted that in circular no.760 dated 13.1.1998, CBDT has clearly given parameters to decide whether the transaction is a true hire purchase transaction or a financing transaction in the form of a hire purchase ....
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....i, learned advocate for the revenue has relied upon the decision of the Hon'ble Supreme Court in the case of Asea Brown Boveri Limited vs. Industrial Finance Corporation of India reported in (2005) 126 Com.Cases 332. 4.7. Making above submissions, it is requested to allow the present Tax Appeal and answer the questions of law raised in the affirmative and in favour revenue. 4.8. In the alternative it is requested to remand the matter to AO to consider the issue fresh whether the transactions entered into by the assessee are financial transaction or lease / operating agreement and to consider whether the assessee can be said to be a financial company as per the provision of the Interest Tax Act, more particularly, as per Section 2(5B) of the Interest Tax Act or not on considering "principal business" of the assessee. 5.0. All these appeals are opposed by Shri B.S. Soparkar, learned advocate for the assessee. It is submitted that in the facts and circumstances of the case as such no error has been committed by the learned Tribunal in holding the assessee company not a "financial company" within the meaning of Section 2(5B) of the Act and thereby not liable to pay the int....
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....rental. Hence, present appeals are preferred by the revenue. 8.0. Before we delve into the moot question posed above, it would be apposite to scan through the relevant provisions of the Act. Section 4(2) of the Interest Tax Act is charging Section, which reads as under: "Section 4(2): Notwithstanding anything contained subsection( 1) but subject to the other provisions of this Act, there shall be charged on every credit institution for every assessment year commencing on and from the 1st day of April 1992, interest tax in respect of its chargeable interest of the previous year at the rate of three percent of such chargeable interest." Therefore, Section 4(2) stipulates that the interest tax is payable by every "credit institution". "Credit Institution" is defined in Section 2(5A) in the following manner. "Section 2(5A): "credit institution" means: (i) a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in Section 51 of that Act). (ii). A public financial institution as defined in Section 4 A of the Companies Act, 1956 (1 of 1956), (iii). a State fin....
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....ents or in any other manner; or] (vi) a miscellaneous finance company, that is to say, a company which carries on exclusively, or almost exclusively, two or more classes of business referred to in the preceding subclauses;]" 8.2. During the assessment year, the assessee company used to enter into different transactions / agreements titled as agreement of lease. According to clause III(a) of the Memorandum of Association of the assessee company, the main object of the company is to carry and undertake as its principal business, the business of finance and trading hire purchase, leasing and in finance lease operation of all kinds, purchasing, selling equipment that the Company may think fit...... AO found the income of the assessee arising under three heads (1) Lease rental (2) Finace charges on hire puchase & (3) Interest on loans. Admittedly, last two were the income in the nature of interest to that there is no dispute. However, the dispute is with respect to income as "lease rental". Both the AO as well as learned CIT(A) held the income from lease rental as interest income and subjected to tax under the Interest Tax Act. However on appeal, learned ITAT has reversed th....
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....uipment, undertakes indemnity and agrees to bear the risk of loss or damage, if any. He is the one who gets the property insured. He remains liable for payment of taxes and other charges and indemnity. He cannot recover from the lessor, any of the above mentioned expenses. The period of lease extends over and covers the entire life of the property for which it may remain useful divided either into one term or divided into two terms with clause for renewal. In either case, the lease is noncancellable. 7. Perusal of the above observations clearly reveals that in case of financial lease, it is the lessee who becomes the owner of the property. In view of this judgment, in case of finance lease, it is that the transaction is like a loan transaction where the lessor has only financed the asset and earns interest by way of lease rentals." 10. Thus, the true effect of transaction may be determined from the terms of the agreement considered in light of the surrounding circumstances. In each case, the Court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents. An owner of good....
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.... hire purchase finance company, which carries on, as its principal business, hire purchase transactions or the financing of such transactions and in that case can be said to be a "credit institution" as per Section 2(5A) (v)of the Interest Tax Act and is subjected to the provision of the Interest Tax Act. Therefore, it is necessary to establish that company carries on business of that nature specified in various sub clauses "as its principal business". Therefore, if the assessee had another business which is its principal business the provision of the Interest Tax Act would not apply. To judge as to whether the assessee is a Finace Company or not what is required to be considered is whether it was carrying on its principal business in either of sub clause (i) to (v) or a business as understood in sub clause (va) or exclusive or or almost exclusively in two or more business as required by sub clause (va) of Section 2(5B) of the Act. In the present case, the learned Tribunal has held that if the breakup of income under the various heads are examined, then in all the years under consideration, income from lease rentals constituted more than 50 percent of the total receipts and as the ....
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....er AO was right in taxing the lease rentals, are all questions which are required to be considered in detail considering the nature of the transactions, clauses mentioned in the agreement and in light of the various decisions of the Hon'ble Supreme Court as well as this Court and other High Courts. As observed herein above, main issue which was required to be considered by the learned Tribunal was whether the transactions / agreements entered into by the assessee company can be said to be a "financial lease or operating lease". The main question as required to be considered is whether a receipt as lease rental, on examining the nature of the transaction of agreement could be liable to tax under the Interest Tax Act or not. For this, matter will have to be remand back to the AO as it is the AO who can on the basis of material produced before him can come to the conclusion as to whether the lease agreement entered into by the assessee with the lessee are "financial lease or operational lease" or both and in that case how much charges are to be apportioned as income from financial lease and how much to be assigned as income from the operational lease. On the basis of evidence, the....