CA Sandeep Kanoi
It is undisputed that the vehicles were registered in the name of the respective customers. However, in the registration certificate a remark in terms of agreement was to be recorded to the effect that vehicle is held by the registered owner under a hire purchase agreement with the respondent assessee.
A “Sale Letter” was executed, reciting that the customer had on the date of the application for loan sold to the financier the motor vehicles. The ITAT completely ignored the discussion and findings of fact recorded by CIT (A) in paragraphs 8 and 11 to 15 which will show that despite some difference in the pattern of transactions in the two cases, the principle that emerges from the Supreme Court’s decision in the case of Sundaram Finance Ltd. are fully applicable to the facts of the case. It was pointed out by the Assessing Officer that sale of vehicles have not been shown by the respondent assessee in its profit and loss account and no sales tax return has been filed by it. In its audited account, filed with the income tax returns, the respondent assessee has shown the finance charges as revenue receipts. The auditor has certified that the respondent assessee is not a trading company. The auditor has also certified that the respondent assessee has followed the norms issued by the Reserve Bank of India for non-banking financial companies (NBFC).This shows that the respondent assessee is a finance company engaged in financing of vehicles. There is no evidence that respondent assessee is a trader dealing in purchase and sale of vehicles. Thus the hirer is the real purchaser of vehicles from the dealer. He selects the vehicle for purchase and also the dealer from whom it was to be purchased. At this stage the respondent assessee does not come into picture. After the hirer identified the vehicle and the dealer i.e. the seller then he approached the respondent assessee for finance due to his inability to purchase out of his own funds. At this stage the respondent assessee extended the facility of finance to hirer on willingness of the hirer to pay a price for this facility. The total amount of hire that hirer pays to the respondent assessee exceeds the price at which the vehicle was purchased from the dealer. This is more than that part of the purchase consideration which was paid by the respondent assessee to the dealer as finance to the hirer. The excess amount so paid by the hirer to the respondent assessee is nothing but interest on loan. The amount so invested by the respondent assessee in the purchase of vehicles is the amount of loan advanced by it to the hirer. As per Clause (10) of the agreement a promissory note was also executed by the hirer in favour of the assessee company for total hire payable for the motor vehicle as per “Schedule B” as co- lateral security and the assessee company was given the right to negotiate the said Demand Promissory Note in favour of their bankers or any other party for valuable consideration and also sue upon the same. All these facts supported by the findings of fact recorded by the CIT(A) in paragraphs 8, 11, 12, 13, 14 and 15 (as quoted in paragraph 11 above) when tested on the principles of law laid down by Hon’ble Supreme Court in paragraphs 23, 24 and 28 of the case of Sundaram Finance Ltd.(supra), the only conclusion that can be reached is that the transactins entered by the respondent assessee with the customer/hirer is a loan transaction and the finance charges were nothing but interest.