Jurisprudence Stands In A Very Peculiar Situation v. The

THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. Nos. 43, 44, 45, 50 of 2007 And761 of 2006 DATED:5.12.2013 I.T.T.A. No. 43 of 2007 Between:The Commissioner of Income Tax-III,Hyderabad. … Appellant And M/s. M.G. Brothers Finance Ltd.,Yemmiganur,Kurnool District. ….Respondent THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA AND THE HON’BLE SRI JUSTICE SANJAY KUMAR Common Judgment:(per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) All these matters were admitted by this Court by orders dated22.2.2007 and 5.2.2007. However, no substantial question of lawwas formulated at the time of admission. Since all these mattershave come up for final hearing, the Court in order to discharge thestatutory obligation, ventures to formulate the following substantialquestion of law. “Whether the learned Tribunal on the facts andcircumstances of this case, was justified in not applying theprovisions of the Interest Tax Act, 1974 ? We have heard Mr.B. Narasimha Sharma, learned counselfor the appellant and we have gone through the judgment and orderof the learned Tribunal. The moot question is whether the transaction entered intoby the assessee with third party is in the nature of loantransaction, which requires payment of interest or otherwise. The learned Tribunal has found on fact that it is a hirepurchase agreement. Hire purchase agreement under the jurisprudence stands in a very peculiar situation. The owner of the goods, which are usable movable goodslet out to the hirer on payment of certain amount either on monthlyor quarterly or yearly basis and after payment of the entire amountas claimed by the owner being the price of the goods, it is optionalfor the hirer to buy up to become owner or not. In the event, heexercises his option to buy them, then, the owner of the goods isbound to convey the same by transferring title in favour of thehirer. On the other hand, if the hirer does not exercise his option,then the goods in question must be returned and the payments sofar made are treated to be rentals. Therefore, the whole concept is with regard to payment ofconsideration money or rental not repayment of loan amount infinancial transaction. Unless there is involvement of loantransaction, the question of payment of interest does not arise. The aforesaid peculiar situation with regard to the hire purchaseagreement has been explained by the Supreme Court quite longtime back in the case of Sundaram Finance Limited. Vs. The State of Kerala[[1]]. In paragraph-24 of the said judgment, theirLordships have explained the position stating thus: ‘’But a hire purchase agreement….. ….. …. is a morecomplex transaction. The owner under the hire purchaseagreement enters into a transaction of hiring out goods on theterms and conditions set out in the agreement, and the option topurchase exercisable by the customer on payment of all theinstalments of hire arises when the instalments are paid and notbefore. In such a hire purchase agreement there is noagreement to buy goods; the hirer being under no legal obligationto buy, has an option either to return the goods or to become itsowner by payment in full of the stipulated hire and the price forexercising the option. This class of hire purchase agreementmust be distinguished from transaction in which the customer isthe owner of the goofs and with a view to finance his purchasehe enters into an arrangement which is in the form of a hirepurchase agreement.” In this case, the learned Tribunal had admittedly held thatthere is a hire purchase agreement factually. Therefore, we affirmthe judgment and order of the learned Tribunal. The appeals failand they are accordingly dismissed. _____________________ K.J. SENGUPTA,CJ _________________ SANJAY KUMAR, J 5.12.2013 PNB [1]AIR 1966 SC 1178