The Commissioner of Income Tax vs Gove Investments and Finance Co. Ltd.

P.D. Dinakaran, J.—Against the order of the Appellate Tribunal in in ITA. Nos. 50/Mds/2000 and 40/Mds/2001, dated 27.9.2001, the

Revenue has preferred the appeal and raised the following substantial question of law:

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant''s transactions were hire purchase

transactions and consequently the financial charges and additional financial charges were not liable to be taxed under the Interest Tax Act?

The Revenue is the appellant. The assessment years involved are 1996-97 and 1998-99. The assessee was engaged in the business of hire

purchase financing, leasing and investment. The assessing officer assessed the hire purchase finance charges and interest on delayed payment

received as interest and held that the same is assessable to tax u/s 2(7) of the Interest Tax Act. On appeal at the instance of the assessee, the

Commissioner fo Income Tax (Appeals) held that the financial charges and additional financial charges were in the nature of interest liable to be

includible as chargeable interest. On further appeal, the Appellate Tribunal held that the financial charges and additional financial charges are not

liable to interest tax.

It is fairly submitted by learned counsel for the Revenue that the issue raised in the first question is covered against the Revenue by an

unreported decision of this Court in T.C. No. 73 of 2000 (between the Commissioner of Income Tax, Madras and M/s. Harita Finance Ltd.,

Madras) wherein a Division Bench of this Court, by judgment dated 1.2.2005, held as under:-

The point involved in the question is whether the agreement entered into between the parties was a hire purchase agreement or not. We find that

the Appellate Tribunal has examined the question in great detail and recorded a finding of fact that the agreement between the parties was a hire

purchase agreement. The Appellate Tribunal in paragraph-10 of its order has found that it is not the case of the Revenue that the hirer is the real

purchaser of the asset and the assessee is only a financier to help the purchaser and such things are not coming out from the agreement. We

therefore hold that the finding recorded by the Appellate Tribunal is a finding of fact and there is nothing to interfere with the said finding"".

In the instant case, the Appellate Tribunal found that the Commissioner (Appeals), in his order, had noted that the perusal of agreements

between the assessee and the customers, the nature of the transaction between the supplier of the asset and the assessee company and also the

end users of the assets indicates that the assessee company was only financing the customers to acquire the vehicle. Finding so, the Tribunal held

that the financial charges and additional financial charges are not liable to interest tax and accordingly, deleted the addition made.

We therefore hold that the Tribunal has recorded a finding of fact that the transactions of the assessee were hire purchase transactions and

hence, the financial charges and additional financial charges are not liable to interest tax. In this view of the matter, following the unreported

decision of this Court in T.C. No. 73 of 2000, dated 1.2.2005, we hold that the Appellate Tribunal was right in holding that hire purchase finance

charges are not subject to interest tax. The question is answered in the affirmative, against the Revenue and in favour of the assessee. The appeals

are dismissed. No costs.