JUDGMENT
M.L. Gusia, Accountant Member
1. The appeals of the assessee for A.Y. 94-95, 95-96, 96-97, 97-98 and 99-2000 are directed against the consolidated order passed by CIT(A)-II, Agra on 30.09.2002. The appeal of the Department pertains to A.Y. 1998-99 is directed against the order passed by CIT(A)-I, Agra dated 20.12.2001.
2. Since the sum and substance of grounds of appeals are similar and pertain to assessee M/s. S.E. Investment Limited, therefore, all the appeals are disposed of by this composite order.
3. First we take up the appeals filed by the assessee company for A.Ys. 1994-95 to 1999-2000 except for the A.Y. 1998-99.
4. In all the appeals ground No. 4 has not been pressed during course of hearing before us and ground No. 5 and 6 are general in nature, therefore, the same are rejected and dismissed.
5. Ground No. 1, 2, & 3 for all the A.Ys. from A.Y. 1994-95 to 99-2000 except for A.Y. 1998-99 are as under:
ITA Nos. 15, 16, 17, 18, & 19 – Asstt. Years: 1994-95, 95-96, 96-97, 97-98, & 99-2000
“1. Because the authorities below have grossly erred on facts and in law in equating ‘hire charges’ with ‘interest’ ignoring the submissions of the appellant and statutory definition of ‘hire charges’ under the Hire Purchase Act, 1972. The addition made under the Interest Tax Act, 1974 being unjustified and un-warranted is liable to be deleted.
2. Because the authorities below ought to have appreciated that ‘interest’ on loans and advances as envisaged to be liable to Interest Tax under the Interest Tax Act and ‘hire charges’ on hire-purchase transactions are two distinct and separate phenomena with a clear line of demarcation between the two.
3. Because the impugned orders under appeal are full of conjectures and surmises in complete disregard of the fact that the appellant on one hand and the hirer on the other have distinct civil right in the peculiar of business carried by the appellant.”
6. The facts of the case are that the appellant company has claimed to be engaged in business of hire purchased of vehicles and disclosed hire charges on the hire purchase transaction entered into by it. In the returns of Interest Tax, the appellant had claimed these “hire charges” as exempt from tax under the Interest Tax Act. However, the A.O. did not accept the assessee’s claim. According to the A.O., the transactions made by the company were in the nature of loan and hence the hire charges represented the interest, received on such loans. In the opinion of the A.O. such interest fell under Section 2(7) of the Interest TAX Act, 1974 and thus was chargeable to Interest Tax. He did not accept the assessee’s contention that the amount paid by it to the hirers of the vehicles were not loan or advance. He also did not accept the assessee’s contention that the company was the owner of the articles which had been given on hire as per Hire Purchase Agreement. The A.O. was of the view that the appellant was not the owner of the vehicles and these vehicles are registered in the names of the hirers. The A.O. also found that the purchase bills of the vehicles were in the names of the “purchasers/hirers”. The amount paid by the company in the A.O.’s view, was nothing but to finance the transaction and hence was in the nature of loan/advance. The A.O. also referred to the amended definition of “Credit Institution” inserted by the Finance Act, 1991 w.e.f. 01.10.1991 in Section 2(5B)(I) of the Act. The A.O. further held that the assessee’s case fell within the tests laid down in the Board’s Circular No. 760 dated 13.01.1998. After referring to the Board’s circular and the decision of the Hon’ble Supreme court in the case of Sundaram Finance Limited v. State of Kerala and Ors. AIR 1966 (SC) 1178 he concluded that in substance the company was only a financer without being the real owner of the goods. He was also of the view that the large number of documents got signed by the appellant from the so-called hirers including the hire purchase agreement only to protect its money. After referring the clauses of the Hire Purchase Agreement and other facts of the case, the A.O. came to the conclusion that the transactions were in the nature of loan/advance and the “hire charges” received on such transactions were in the nature of interest which was chargeable to tax under the Act.
7. The CIT(A)-II, Agra in his order has discussed in detail the nature of transaction involved by the assessee company and he distinguished the assessee company’s case with the cases relied upon by the learned Counsel for the assessee and after detailed discussion he arrived at the conclusion that the hire purchase agreement and other documents executed by the assessee company were merely an arrangement for the security of loan given by it and the A.O. was justified in treating the hire charges as the interest which are chargeable to Interest Tax Act. It is against the aforesaid action of CIT(A)-II, Agra, the assessee company has come up before us in appeal.
8. The grounds of appeal challenging the findings of the CIT(A)-II that the transaction entered into between the assessee company and the hirers are in reality loan transaction and hire purchase agreement made by the assessee company with the hirers only for security for repayment of loan. It is also challenged that the charges collected by the company were nothing but interest charged on the loan transaction and such interest was chargeable to tax under the Interest Tax Act. The learned Counsel for the assessee reiterated the arguments raised by the assessee before the CIT(A)-II and elaborately discussed and distinguished the case of the assessee and thereafter held that the assessee’s case covered by the Interest Tax Act. In his order in para 6 to 7 of page 5 to 13 of the order, the CIT(A)-II has discussed in detail various judgments of Hon’ble Supreme Court and High Courts, Tribunal and Circular issued by the CBDT from time to time in this regard. However, during course of proceedings before us the learned Counsel for the assessee argued that the assessee company is a Non-banking Financial Company registered with Reserve Bank of India as Hire Purchase Company category and has been regularly filing returns with Reserve Bank of India in the status of Hire Purchase Company disclosing the business of hire purchase in compliance of the directions of the Reserve Bank of India. Further the assessee has been granted open cash credit limit against stock of vehicles given on hire purchase basis to the hirers from a Nationalised Bank, Central Bank of India to the extent of Rs. 1 Crore and has been regularly furnishing stock statement to the said Bank with regard to business of hire purchase. The disclosed stocks have been accepted as belonging and owned by the assessee company by the bankers. Further the definition of interest under Section 2(7) of the Interest Tax Act is chargeable on interest on loans and the advance includes commitment charges and discount of promissory notes and bills of exchange drawn. However, the C.I.T.(A)-II has not considered the meaning of word interest while upholding the assessment order which levied Interest Tax on hire charges earned by the assessee company. It is also pleaded that the assessee company has entered into the transaction of hire purchase and all the ingredients of hire purchases are fulfilled. It is further pleaded that the A.O. has wrongly interpreted and applied the judgment of Hon’ble Supreme Court in the case of Sundaram Finance Limited v. State of Kerala (cited supra) while he failed in not considering the judgment of Hon’ble High Court of Bombay in the case of CST v. Pashupati Trading Co. 80 STC (Bom.) wherein it is held that:-
“Undoubtedly substance and not the form is the deciding factor. But now does one find out substance of a transaction in a commercial world where persons knew the ways of the world. If the transaction is reduced into writing in all material details, substance has to be ultimately found in the description and the various terms in the agreement which necessarily have mutual bearing upon each other. After all finance can be obtained in various ways including execution of hypothecation bond. In this background the terms agreed upon with open eyes would normally be the deciding factor specially when no fraud, undue influence or camouflage exists”. The Hon’ble High Court further held that “Is there any conflict of view between Johar & Co. (1965) 16 STC 213 (Supreme Court) and Sundaram Finance Limited (1996) 17 STC 489 Supreme Court ? We do not think So. Both decisions are rendered in different backgrounds. But even if there is any, it is the former decision which is binding on us since it is unanimously rendered by a five judges Bench and the latter by a majority of two judges in a three Judge Bench.”
9. The learned Counsel for the assessee has also placed reliance on the decision of Muthoot Leasing and Finance Limited v. Jt. Commissioner of Income Tax of ITAT Cochin Bench reported in (2003) 79 TTJ (Coch.) 773.
10. On the other hand the learned D.R. has relied on CBDT’s circular No. 760 dated 13.01.1998, which has been issued with reference to Hon’ble Supreme Court’s judgment in the case of Sundaram Finance v. State of Kerala AIR (1996) S.C.-1178. The learned Sr. D.R. has also argued that almost all the decisions referred to by the ld. counsel for the assessee have been dealt with by the CIT (A)-II in detail in his impugned order and are found not applicable in the instant case. According to her, the finance charges relating to the so called hire purchase transactions are, in fact, interest on loans and advances and the same have been rightly held to be chargeable under the Interest Tax Act.
11. We noted from the Asstt. order that the assessee Company is charging hire money, payable in equal monthly instalments which comprises of hire purchase charges and repayment of principal amount. The hire purchase charges are credited to the P & L Account as revenue income.
12. The question in dispute in all the grounds of appeal is “whether the hire purchases charges on account of transactions entered into between the assessee Company and the hirers are to be treated as interest charges, chargeable to Interest Tax Act or not” The CBDT issued a circular No. 738 dated 25th March 1996, and clarified that the finance charges accruing or arising to hire purchases finance company are in the nature of interest as defined in Section 2(7) of the Interest Tax Act, and, therefore, chargeable to Interest-Tax Act.
13. However, in another circular No. 760 dated 13.01.1998 the CBDT has again clarified as under:-
“In Board’s Circular No. 738 dated 25.3.1996, it was stated that hire purchase transactions entered into by the hire-purchase companies and other credit institutions are generally in the nature of financing transactions and hence the hire chargers earned in the transactions would be in the nature of interest chargeable to tax under the interest-tax-Act, 1974. Acting under these instructions, the Assessing officers have been treating all the hire-purchase transactions as mere financing transactions without distinguishing between a true hire-purchase transaction and a financing transaction in the form of a hire-purchase transaction.
2. The Board have since considered the issue and are advised that in the case of transactions which are, in substance, in the nature of hire-purchase, the receipts of the hire charges would not be in the nature of interest. On the other hand, if the transactions are in substance in the nature of financing transactions, the hire charges should be treated as interest subject to interest-tax.
3. As to what constitutes a transaction in the nature of hire-purchase, the Assessing Officer should consider the issue on merits taking into account, inter alia, the following facts and circumstances:
(i) The terms of the agreement;
(ii) The nature of the arrangement between the supplier of the asset, the hire-purchase company and the end-user of the asset.
(iii) The intention of the parties, which 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, then such agreement 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 Sundarm Finance Ltd. v. State of Kerala, AIR 1996 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, 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 hire-purchase and 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 appellants. The transactions, were merely financing transactions…”
5. Accordingly, instead of routinely treating all hire-purchase transaction as mere financing transactions, the Assessing Officers may be advised to examine each transaction in the above light and charge interest-tax in such of those transactions, which are not in the nature of hire-purchase.”
14. Keeping in view the above clarification, it has to be seen as to whether the transactions are, in substance, in the nature of hire purchase or in the nature of financing transactions. If on examination of relevant material, the transaction is found to be in the nature of finance transaction, then interest on such financing transactions shall be chargeable to Interest-Tax Act.
15. We have carefully considered the facts and circumstances relating to the issue involved, the material to which our attention was invited, the case Laws referred by both the sides and the rival submission. We also noted factual position from the order of CIT (A)-II, Agra at page-7 to 9 of his order dated 30.9.2002 as under:-
“It is an admitted fact that the vehicles, in respect of which the transactions have been entered into, are registered with the RTO in the names of the so-called ‘hirers’. Similarly, the purchases bills are in the names of the ‘hirers’. In these bills, the hirers have been shown as the buyers. In most of the cases, vehicles have been delivered by the dealers to the hirers directly. With the Insurance Company also, the hirers have been shown as the owners of these vehicles. In most of the case, margin money has been paid by the appellant company but it was admitted that this margin money was recovered from the purchasers mostly in the first installment itself. Thus, in effect, the margin money was paid by the ‘hirers/purchasers. The road tax, insurance premia and other payments in respect of such vehicles have also been paid by the ‘hirers/purchasers’. Though, initially the road-tax insurance premium are paid by the appellant company but the same are recovered immediately from the ‘purchasers/hirers’. This being the case, it is difficult to accept that the appellant company was the owner of these vehicles. The appellant’s contention that its name was mentioned in the registration book of the vehicles, purchase bills, insurance police etc. which proved that the appellant was their owner, cannot be accepted. Merely because the appellant company’s name appears on these documents it cannot be said that the company was the owner of the vehicles. The prime objective behind mentioning the name of the company in these documents is to safeguard the amount advanced by it. The objective is to make all other concerned persons aware of the fact that the appellant company financed those vehicles and hence, has charged interest therein, to that extent. If the company was the real owner of the vehicles then it could have easily obtained the purchase bills in its name. Similarly, there would have been no difficulty in registering these vehicles with RTO in the name of the appellant company. The appellant’s contention that the vehicles were not registered in its name because of huge risk involved therein, cannot be accepted. Firstly, whatever be the amount of risk involved, no person would allow ‘hirer’ or any other person to register the goods’ vehicle in their names it really belonged to him. If the company was the real owner then these vehicles would have been definitely registered in its name. Secondly, it is not understood as to how by registering the vehicles in the purchaser’s name, the risk would be minimized. If the company is the real owner, it would still run the risk of whatever nature. In fact the vehicles are registered in the names of the ‘hirers/purchasers’ only because they are the real, owners of these vehicles. Since the appellant is merely a financer it was not in a position to get the vehicle registered in its name. It may be mentioned that though registration with RTO is not a conclusive proof of ownership but is a very important factor for determining the same’.
During the course of appellate proceedings reference was made to the Allahabad High Court’s decision in the case of Uma Shanker Tewari and Anr. AIR 1950(All) 231. In view of the aforesaid decision, it has been stated that inspite of registration the ownership is to be taken as it is ordinarily understood and that ownership implies title with the incidental right of transfer. In my opinion this decision is of no help to the appellant. The same was given in a different context and on altogether different facts. In the aforesaid case the manager of the Limited Company was sought to be prosecuted on account of certain default committed under the Motor Vehicle Act. The Court held that the manager of the company was not the owner of things vesting in company. It was in this context, it was held that the word ‘owner’ must be taken to mean what it ordinarily means, namely a person in whom the property title vests. In my opinion, the aforesaid decision rather supports the view of the A.O. as not only the vehicles remained in possession of the purchasers but even the property titles also vested in them. ….. these persons are the owners of the vehicles. By their conduct the act as the owners of the vehicles. In fact the purchasers/hirers who maintain the books of account show these vehicles as assets in their balance sheets. For instance, one of the ‘hirer’ namely Sri Ved Prakash, whose statement was recorded by the A.O. during the course of remand proceedings accepted that the vehicle was shown as asset in the balance sheet. So is the position in the case of M/s. Lal Chand Shobha Raj Sons Jewellers Pvt. Ltd., Agra. The Hon’ble court in the aforesaid decision has held that guardian of a minor and the ‘hirer’ in case of hire purchase agreement could be treated as owner even though they may not be the real owners of the vehicles. These observations, in my view, does not help the case of the appellant. These two exceptions only extend the meaning of owner in so far as the Motor Vehicle Act is concerned. These two exceptions do not debar the hire purchase company to register the vehicles in its name”.
16. In view of the above background, we have to see the intention of the assessee company and so called hire purchasers with reference to the test laid down in circular No. 760 dated 13.01.98 and we noted that –
(i) The sale invoices in all the cases have been issued by the dealers of vehicle in the name of the so-called hirers.
(ii) The purchasers/hirers of the vehicle were the owners of the vehicle as the vehicles were registered in their names.
(iii) The hire purchase Agreement and other papers/declarations entered into between the assessee company and the hirer are concerned, on a careful and close examination of various clauses of declaration made by hirer, we find that the intention of the parties in executing the agreement is to advance or take loan and all the formalities/documents are made to ensure the recovery of loans/advances and to give the colour of hire purchase. It can be seen from Clause-4 of the declaration made as under (English Translation):-
“That the hire purchase agreement has been made on may requested and as per agreement, ownership of the vehicle vests in M/s. S.E. Investments Ltd. (assessee Company) and I have only right to ply the vehicle on hire. Under Motor Vehicle Act the registration made in my name does not prove my ownership in the vehicle but only to provide facility to ply the vehicle on hire. Under the hire purchase agreement, my ownership on the vehicle will be only when I shall pay full installments and on fulfilment of all other conditions.”
17. From the above, it is seen that the vehicle has already been registered in the name of the so-called hirer and even the sale invoice has been issued in the name of the hirer, however, in declaration form given in the so called hire purchase agreement is just to ensure the recovery of the loan/advance along with interest thereon.
18. As per the Hire Purchase Act, 1972, hire purchase agreement is defined as under:-
“Hire-purchase agreement’ means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which-
Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical installments, and,
the property in the goods is to pass to such person on the payment of the last of such installments, and
such person has a right to terminate the agreement at any time before the property so passes”.
19. However, in the instant case there is no question of option because the vehicle has already been owned or registered under the Motor Vehicle Act in the name of the so-called hirer. The delivery of the possession of the vehicle is not given by the assessee company, but it has been delivered directly by the dealers of the vehicle to the so called hirers. The possession of vehicles has already been passed to the so-called hirer without payment of any installment. Therefore, as per the definition of hire purchase agreement, discussed above, it can only be said that this is only an act of advancing money or loan and not a transaction of hire purchase. This issue also came for the consideration of the Hon’ble Supreme Court of India though in different context in the case of K.L. Johar & Company v. Deputy Commercial Tax officer Coimbatore (1965) AIR (SC)-1082. In that case, the Hon’ble Supreme Court of India has made the following observations:-
“Hire-purchase agreements are not conditions sales. A hire-purchase agreement has two elements: (1) element of bailment, and (2) element of sale, in the sense that it contemplates as eventual sale. The element of sale fructifies when the option is exercised by the intending purchaser after fulfilling the terms of the agreement. The taxable event under the act is the sale of goods and until that taxable event takes place there can be no liability to pay tax. Therefore, though eventually most cases of hire-purchase may result sales by the exercise of the option and the fulfillment of the terms of the agreement, tax is not exigible at the time when the hire purchase agreement is made, for at that time the taxable event has not taken place; it can only be regular when the option has been exercised and all the terms of the agreement fulfilled and the sale actually takes place”.
20. In the instant case, question of exercising of the option by the customers does not arise as the sale has directly been effected through the dealer to the customer and the sale invoice is issued in his name and further the vehicle has already been registered in the name of the customer under the Motor Vehicle Act and all these sales effected before repayment of any installment to the assessee company. The situation of bailment does not arise because vehicle has already possession by the customer and thus neither the assessee company is bailer nor the customer is bailee.
21. The learned Sr. D.R. filed a paper book containing 34 pages, which is placed on record. In the said paper book at page-8 to 11, there are invoices issued by the dealers directly in the name of the customers and it further proves that the name of Assessee Company has been entered in the invoice as financer. The ld. counsel for the assessee also filed a paper book containing total 125 pages, which is also placed on record. At page 8 and 13 of the paper book, there is sample of insurance policy. From that, it is noted that the customer is the policy holder. However, the assessee company has been mentioned as the vehicle hypothecated to it.
22. It is further noted from page 11 and 12 that the registration has been made in the name of the customers.
23. The ld. Sr. D.R. has also filed statement recorded by the Assessing Officer of Sri Neeraj Kumar Jain, Suresh Chand Gupta and Ved Prakash Thekedar, wherein these customers have deposed that the assessee company has advanced loan on interest. It is also confirmed that they have paid road tax, insurance premises etc. The Assessing Officer also noted from some of the returns of Income filed by the hirers that they have declared the vehicle as their assets in their balance sheet. In their Profit and Loss Account, they have declared income from the vehicle owned by them.
24. It is also noted by the CIT (A) that at the time of payment of final installment, no sale letter or any other document evidencing the sale of the vehicle to the purchaser/hirer was executed. However, only a letter to the effect that no dues were pending from the purchaser/hirer was issued. These facts clearly go to show that it was only to obtain loan/advance. The intention of both the parties was to raise and give loan so as to meet the total purchase price of the vehicle.
25. On the above facts and circumstances, it may be seen that if the test laid down by the decision of the Hon’ble Supreme Court in the case of Sundaram Finance Ltd. (supra) is applied in this case, then the conclusion would be the same that the assessee company is only a financer advancing loan to the customers.
26. The assessee Company was never the owner of the vehicles. It does not deal in motor vehicles. Though it has been stated by the assessee Company that with the RTO, they were registered as a dealer within the meaning of Motor Vehicle Act 1988. We further noted from the order of the CIT(A)-II at Para 6.11 as under:-
“Similarly, if the tests laid down in the decision of the Hon’ble Supreme Court in the case of Sundaram Finance Ltd. (supra) are applied in this case the conclusion would the same as mentioned above. The Board have also desired in the aforesaid circular that the tests laid down by the Hon’ble Supreme Court in this case should be kept in view while determining the nature of the transaction. The facts of Sundaram Finance’s case are almost identical to the facts of this case. In that case also the vehicles were registered in the names of the ‘hirers’. The vehicles were directly purchased by them from the dealers. The hire purchase company was not dealing in motor vehicles. It is the hirers who had paid the insurance premia, the road tax etc. The documents like hire purchase agreement, promissory note etc. were executed between the hire purchase company and the hirers. The hire purchase company had the right to seize the vehicles in case of default. In the registration book the name of the hire purchase company was mentioned indicating that the vehicle was financed by it. The vehicles were all along in possession of the hirers. The right of hire purchase company got extinguished at the time of full payment, which could be pre-mature payment also. In view of these facts, the Court held that the transactions were in the nature of loan and not hire purchase. The court further held that the intention of the parties was to obtain loan and all the documents including hire purchase agreement, promissory note etc. were executed only to secure the return of loans advanced to the hirers. It was also held that the right to seize the vehicle was merely a license to ensure compliance with the terms of hire purchase agreement. The hirers ….. at large remained owners of the vehicles. The Court held that when a person desiring to purchase goods and not having sufficient money borrows the amount from a third person and pays to the vendor the transaction between the customer and the lender will unquestionably be a loan transaction. The court further held that in all cases, where the customer was the owner of the goods and with a view to finance its purchase, he entered into an agreement which is in the form of hire purchase agreement with the financer but in substance evidenced a loan transaction, subject of hire agreement under which the lender is given the license to seize the goods, was basically a financing transaction. While holding so the Court also found that the intention of the parties was not to transfer any interest in the vehicle by the hirer to the hire purchase company. All the documents executed were to safeguard the loan given by the hire purchase company. The Court further concurred with the views expressed in English case laws that for ascertaining the true nature of transaction one must not look merely at the documents executed by the parties. it must be discovered as to what the true transaction was. For ascertaining the reality the Court is to look behind the documents. The Hon’ble Supreme Court also held that if there was a bonafide and completed sale of goods evidenced by documents, anterior to and independent of subsequent and instinct hiring to the vendor, the transaction may not be regarded as a loan transaction even though the reason for which it was entered into was to raise money. However, if the intentions of the parties were to secure the return of loan and no real sale of vehicle was intended the transaction would be financing”.
27. During the course of hearing, the ld. counsel for the assessee has placed reliance on the decision of ITAT Cochin Bench in the case of Muthoot Leasing and Finance Ltd. v. Joint Commissioner, Income Tax (79 ITJ-773). We have gone through the above decision and with due respect, we are not in agreement with the said decision for the reason that in that decision, the intention of the appellant has not been judged by way of hire purchase agreement. The Tribunal did not give any finding regarding what the true transaction was for ascertaining the reality. However, we noted that the ITAT Lucknow Bench in the combined order of Commercial Motor Finance Ltd. v. ACIT and Ors., Kailash Motor Finance Limited and Kailash Auto Finance Limited (2003) 175 Taxation 16), the intention of the appellant has been judged not only from the hire purchase agreement but through the other evidence/documents. We have already mentioned that hire purchase agreement is not in fact hire purchase agreement but a colour has been given to it as hire purchase transaction. In fact, it is a transaction of loan advanced by the assessee Company to its customers. The test laid down by ITAT, Lucknow Bench clearly indicates that in the instant case it is a finance Company advancing loan. In the case dealt with by ITAT, Lucknow Bench, referred above, the facts are different than the instant case as in that case the sale invoices were issued in the name of the assessee company and the vehicle was also registered in the name of assessee company while in the instant case, the facts are entirely different as discussed above.
28. During the course of hearing, our attention was drawn to para 18 of page-5 of the assessment order for the assessment year 1998-99, wherein the Assessing Officer given the finding that the closing stock shown in the balance sheet is running stock in the amounts financed to the hirers, which clearly indicates that the stock is a capital stock and not the revenue stock and the same has not been disclosed in the trading and profit and loss Account. It nowhere affects the trading result. The assessee company has only given the name of the stock to create confusion; rather it is an advance/loan to the customers, which only is affecting the asset side of the balance sheet by reducing cash /bank and increasing advance/loan to the customers. Further, the only amount of advance has been taken in this stock and not the total value of motor vehicles financed which further proves that the assessee is not dealing in hire purchase but it is finance company giving advance on which interest is charged by the assessee company and such interest income has been declared as revenue receipts in the profit and loss account.
29. The ld. counsel for the assessee emphasized that in assessment year 1998-99, the CIT (A)-I, Agra in his order has rightly appreciated the facts of the case and has allowed the appeal of the assessee. We have gone through the said order of the CIT (A)-I, Agra and noted at para-I of page-6 of his order, he has given more emphasis that the A.O. has been greatly influenced by the Appellate order passed by CIT (A)-II, Kanpur and further observed that the Assessing Officer has lifted certain portion of the order of CIT(A)-II, Kanpur verbatim reproducing the same in the assessment order.In this regard, the CIT (A)-I, Agra has compared para 8 of the order of CIT (A)-II, Kanpur dated 02.02.1999 and para-6 of the assessment order, where it is held by the CIT(A)-I, Agra that certain sentences have been fully lifted and substituted in the assessment order. It is further mentioned by the CIT(A)-I, Agra that the said order of CIT(A)-II, Kanpur has been reversed by ITAT Lucknow Bench in the case of Commercial Finance Ltd. v. ACIT circle 2(1), Kanpur and Kailash Motor Finance Ltd. v. JCIT Circle-1(1) Kanpur. In this regard, we are of the view that Assessing Officer has not committed any wrong in considering the above order of First Appellate Authority and in taking the assistance for understanding the provisions of the Interest Tax Act. In fact, no authority can arrive at a definite conclusion without considering the views of the other Authorities. Regarding the observation made by CIT(A)-I, Agra that the order of the CIT(A)-II, Kanpur has been reversed by ITAT, Lucknow Bench, we noted that the facts of the case dealt with ITAT, Lucknow are entirely different from the facts of the instant case. In the case referred by CIT(A)-II Kanpur, the ownership of the vehicle was established of the assessee companies involved in the decision of ITAT, Lucknow Bench. In those cases, the vehicle was first purchased from the dealer directly by the assessee companies and thereafter agreements were made with the customer to run the vehicle and to pay monthly installment, which includes principal and hire charges. After payment of full installments, the vehicle was transferred second time in the name of the customer. Therefore, the Hon’ble ITAT Lucknow Bench has decided the issue in favour of the assessee companies, but in the instant case, the first sale itself is directly made to the customers and they remained the owners of the vehicle. Therefore, the inference drawn from the decision of ITAT, Lucknow Bench by CIT(A)-I, Agra is erroneous as he has decided the issue of the assessee company, under consideration on the facts entirely different from the instant case. Therefore, we do not agree with the CIT(A)-I, Agra in allowing the appeal of the assessee company.
30. It is also noted that the assessee company used to obtain from the customers blank signed documents. Even terms and conditions for so-called hirer are also signed blank. On those documents, except the signatures of the hirers/purchasers, all other columns are blank. These factual position show that various documents were executed by the assessee company just to safe guard the amount given on advance to the purchasers.
31. In regard to claim of Assessee Company that it is registered with Reserve Bank of India as a hire purchase Company. It is noted that merely because it is registered so with RBI, the nature of transaction would not alter. As mentioned in the Board’s circular and in the Supreme Court decision in Sundaram Finance Ltd. (supra), it is only the intention and the substance of the transaction, which are relevant for deciding the issue. Thus, the fact that is registered with R.B.I. as a hire purchase company would not make any difference. Further, we also noted from the order of CIT(A)-II, Agra that the assessee company had obtained loan from bank and for this purpose, the vehicles were shown as its stock. Even if it is so, the nature of transaction would not change. It is an internal matter between the bank and the assessee company. Merely because the bank accepted the vehicle as stock of the company, the real nature of the transaction would not change Despite this, it will be open to scrutiny as to what was the real nature of the transaction. Moreover, the bank is merely interested in security of loan given by it. From the letter dated 09.01.1997 issued by Central Bank of India granting finance limit of cash credit besides stock collateral security of substantial amount in the form of movable or immovable properties were also obtained by the bank. It has also been desired by the bank that before release of enhanced facilities, fresh equitable mortgage of these properties had to be recorded and formalities regarding creation of bank charge with ROC had to be completed. It was also desired that shares/debentures should be transferred in the bank’s name. Besides these, guarantees from three guarantors of more than Rs. 95,00,000/- were also obtained. It is also noted that undertaking from the purchaser of vehicle was also obtained by the bank. In view of all these facts, since the bank had already secured its advance against a number of securities, it was not very much concerned to ascertain as to whether the vehicles were actually the stock of the company or not.
32. We further noted that several decisions were cited before CIT(A)-II, Agra and each and every decision has been discussed in length in the order of the CIT(A)-II, Agra and we noted that the judgment relied upon by the assessee company are on different contexts and the Supreme Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. 198 ITR – 297 has held that it is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the court. It was further held that the judgment must be read as a whole and the observations from the judgment have to be considered in the light of the question which were before the court. Similar view has also been expressed by the Constitutional Bench of Hon’ble Supreme Court in the case of Padma Sundra Rao v. State of Tamilnadu 255-ITR-147, wherein it is held that the court should not place reliance on the decisions without discussing as to how the factual situation fitted in with the fact situation of the decision on which reliance is placed. They concurred with the view that there was always a peril in treating the words of a speech or judgments though they were words in a legislative enactment, and it was to be remembered that judicial utterances are made in the light of the facts of a particular case. In view of the above, no help can be drawn by the assessee company in its case.
33. Keeping in view that facts, circumstances and the legal position, we are of the view that the assessee company is engaged in financing business and only, advancing loan on interest and by no stretch of imagination it can be considered as a Hire Purchase Company. Thus, we dismiss all the three grounds of appeal of the assessee company and uphold the order of CIT(A)-II, Agra for the A.Y. 1994-95, 95-96, 96-97, 97-98 and 99-2000.
Revenue’s Appeal No. 01/Agra/2002 – A.Y. 1998-99
34. Now we take up the Revenue’s appeal No. 01.
35. The ground taken by Revenue is that the Commissioner of Income-tax (Appeals)-I, Agra has erred in law and on facts in allowing relief by holding that hire charges are not in the nature of financing transaction ignoring the facts mentioned in the Assessment Order and also the facts that the A.O.’s decision is based on Board’s Circular No. 760 dated 13.01.1998 and decision of the Hon’ble Supreme Court in the case of Sundaram Finance Limited v. State of Kerala – AIR 1966 SC 1178.
36. The grounds taken by the Revenue has already been dealt with in foregoing paragraphs and we noted therein that none of the ingredients for being owner of an asset being present in the case of the assessee company. Further in the light of Board’s Circular and the ratio laid down by the Hon’ble Supreme Court in the case of Sundaram Finance Limited and in view of the various decisions discussed therein, it would be evident that the transactions of the assessee company were in the nature of loan and not hire purchase.
37. Thus, the appeal of the Revenue is allowed.
38. Consequently all the appeals preferred by the assessee company are dismissed and the Revenue’s appeal is allowed.