- (1.) The subject matter of challenge in this appeal is a judgement and order dated 19th August, 2002 by which an appeal preferred by the revenue was allowed by the learned Tribunal. The assessee has come up in appeal.
(2.) The following question of law was formulated at the time of admission of the appeal. "Whether on a proper interpretation of the Hire Purchase Agreement in the case it is a financing transaction and the hire charges received thereunder is interest which is liable to tax under the provisions of Interest Tax Act, 1974?"
(3.) Mr. Khaitan, learned Senior Advocate appearing for the appellant/assessee drew our attention to the circular dated 23rd March, 1943 bearing Circular No. 9 of 1943 : , issued by the CBDT by which instruction was issued that the hire purchasers should be allowed depreciation, the relevant portion whereof reads as follows: "(i) In every case of payment purporting to be for hire purchase, production of the agreement under which the payment is made should be insisted on. (ii) Where the effect of an agreement is that the ownership of the subject is at once transferred to the lessee (e.g. where the lessor obtains a right to sue for arrear installments but no right to recovery of the asset), the transaction should be regarded as one of purchase by installments and no deduction in respect of 'hire' should be made. Depreciation should be allowed to the lessee on the entire purchase price as per the agreement. (iii) Where the terms of the agreement provide that the equipment shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipment, the transaction should be regarded as one of hire-purchase. In such cases the periodical payments made by the hirer should for tax purposes be regarded as made up of:- (i) consideration for hire, to be allowed as a deduction in the assessment, and (ii) payment on account of purchase, to be treated as capital outlay, depreciation being allowed to the lessee on the initial value (i.e. the amount for which the hired subject would have been sold for cash at the date of agreement).";