Commissioner of Income Tax-II vs. Smt.P.Sitharamam

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY ,THE 01ST DAY OF NOVEMBER 2018 / 10TH KARTHIKA, 1940 ITA.No. 122 of 2008 AGAINST THE ORDER/JUDGMENT IN TA 3/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 23-12-2005 APPELLANT/S: THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) RESPONDENT/S: M/S.MULAMOOTTIL CONSUMER CREDITS LTD. THIRUVANANTHAPURAM. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR SRI.P.BENNY THOMAS OTHER PRESENT: SRI RAJA KANNAN FOR RESPONDENT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 01.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.122/2008 2 J U D G M E N T Vinod Chandran, J The assessee respondent is a firm involved in financing, purchase of vehicles. Hire purchase agreements are entered into with the intending purchasers and the vehicles are purchased in the name of the purchasers. The finance amounts are recovered in installments along with finance charges which actually is the interest due on the amount financed. This was termed as finance charge and hence the contention of the assessee that the same would not form part of interest income assessable under the Interest Tax Act, 1974. The issue has already been considered by a Division Bench in CIT v. Kerala State Financial Corporation Ltd. [(2008) 220 CTR Reports 286]. Therein the Division Bench found that though the agreements are termed as hire purchase agreements the purchase is made in the name of the intending purchaser with only an

ITA No.122/2008 3 option to possess the vehicle on default committed. There is also an option given to the purchasers to re- purchase the vehicle after the entire finance amounts are paid along with the finance charges for Re.1/-. This was found to be an eye wash insofar as attempting to term the agreement as a hire purchase plan. The Division Bench found that it is actually a loan agreement and the amount calculated at flat rate of interest over the period of agreement, loaded to the amount financed and recovered in installments over the period of agreement is chargeable interest under Section 2(7) of the Interest Tax Act, 1974. We hence answer the question of law in favour of the Revenue and against the assessee and allow the appeal restoring the order of the Assessing Officer. No order as to costs. Sd/- K. Vinod Chandran, Judge Sd/- Ashok Menon, jma

Judge

ITA No.122/2008 4 APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER DATED 4/2/2004. ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 3/11/2004. ANNEXURE-C CERTIFIED COPY OF THE ORDER OF APPELLATE TRIBUNAL DATED 22/12/2005. ANNEXURE-D TRUE COPY OF THE CBDT'S CIRCULAR NO. 760 DATED 13/1/1998.