The Supreme Court bench comprising Justices Sanjiv Khanna and M.M. Sundresh was recently hearing an appeal and held that the Hire Purchase is not a simple transaction of giving a loan or advance on which interest is payable. The Hire Purchase transaction in the commercial and legal sense is far more complex with the corresponding rights of the parties.
The common question which arises for consideration in this batch of Civil Appeals is whether the appellants–assessees are liable to pay tax under the Interest-Tax Act, 1974 on the interest component included in the hire-purchase instalments paid under the hire purchase agreement.
A hire-purchase agreement has two elements – an element of bailment and the other element of the sale. The element of sale fructifies when the option to purchase is exercised by the intending purchaser after fulfilling the terms of the agreement. Till then, the goods are given on hire. One can argue that in a hire-purchase, an element of interest is inbuilt, but what is payable is the hire amount and not interest per se. The hirer has the option to return the vehicle or the goods taken on hire. It is not a simple transaction of giving a loan or advance on which interest is payable. The transaction(s) in the commercial and legal sense is far more complex with the corresponding rights of the parties. Even if the hirer is recorded as the owner of the vehicle under Section 51 of the MV Act, the name of the appellant–assessee is also recorded in the registration book, which is in recognition of the hire-purchase agreement. The registered owner under the MV Act may be liable in case of accidents/traffic challans, etc. But this, in no way, dilutes the right of the appellants – assessees in respect of the title of the property, that is, the vehicle. Any transfer or sale made by the hirer or any violation of the hire-purchase agreement can lead to civil as well as criminal consequences.
Findings of fact generally recorded by the ITAT are treated as conclusive. The High Court can interfere with the findings of fact while deciding a substantial question of law when the findings are not supported by the material on record, so as to be treated as perverse. For this, however, the High Court must frame a separate substantial question of law and only then interfere with the findings of fact by the ITAT, while applying the strict parameters. In the present case, the High Court did not frame a specific substantial question of law and thus, the interference with the findings of fact is unwarranted. This is not to say that the tax authorities are not entitled to examine the surrounding facts and circumstances to ascertain the true character and nature of the transaction, regardless of the nomenclature given by the parties.
The Supreme Court remanded back the matter to the assessing officer for fresh adjudication and to re-examine all the transactions in light of the aforesaid ratio and reasoning, keeping in mind the dictum laid in Sahara India Savings and Investment Corporation Limited and State Bank of Patiala Through General Manager to rule out cases where camouflage or subterfuge has been adopted to avoid payment of interest tax.