Commissioner of Interest Tax vs G.E. Capital Transportation

The revenue is aggrieved by an order dated 24-2-2006 passed by the income tax Appellate Tribunal, Delhi Bench "B" in ITA Nos. 38, 39/Del./01 and 19/Del./2002 relevant for the assessment years 1996-97, 1997-98 and 1998-99. The controversy in this case is whether the assessee is liable to pay interest-tax under the Interest-tax Act, 1974 on the amount earned by it in respect of the transactions relating to hire-purchase of vehicles.

It appears that the assessee purchased vehicles from manufacturers by paying their full price and then handed them over to its customers under Hire Purchase Agreements. The assessee then collects agreed amounts from its customers on a regular basis, towards hire charges, and in the event of default in payment, the assessee being the owner of the vehicle is entitled to repossess it. In the event the entire amount is paid by the customer as per the agreement, the assessee sells the vehicles to the customer at the pre-determined price.

According to the revenue, this is really in the nature of a financing agreement and is covered by section 5 of the Interest-tax Act, 1974. The relevant portion of this provision reads as follows :

Scope of chargeable interest.--Subject to the provisions of this Act, the chargeable interest of any previous year of a credit institution shall be the total amount of interest (other than interest on loans and advances made to other credit institutions or to any co-operative society engaged in carrying on the business of banking, accruing or arising to the credit institution in that previous year."

[Emphasis supplied]

"Chargeable interest" is defined in section 2(5) to mean "the total amount of interest referred to in section 5, computed in the manner laid down in section 6." "Interest" is defined in section 2(7) to mean :

... interest on loans and advances made in India and includes--

(a) commitment charges on unutilised portion of any credit sanctioned for being availed of in India; and

(b) discount on promissory notes and bills of exchange drawn or made in India,

but does not include--

(i) interest referred to in sub-section (1B) of section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);

(ii) discount on treasury bills;

There is no dispute about the fact that the assessee is a credit institution. However, from the facts on record, it is quite clear that assessee does not give any loan or advance to its customers and has not earned any interest on any such alleged loan or advance. The vehicles are directly purchased by the assessee in its own name from the manufacturer and the customer is not a party to that transaction. It is only thereafter that the assessee, under an agreement hires out the vehicle to the customer for a charge under a hire-purchase agreement. The finding of the Commissioner of income tax (Appeals) as well as the Tribunal is that the transaction is really in the nature of hire-purchase agreement and is not in the nature of a financing agreement particularly since the vehicle is not owned by the customers and the assessee is entitled to repossess the vehicle in default of payment. We do not find any mistake in the view taken both by the CIT(A) as well as by the Tribunal. Therefore, we are of the opinion that no substantial question of law arises in this case for our consideration.

Dismissed.