(1) The Income tax Appellate Tribunal, Hyderabad Bench has referred the following question under S. 66(1) of the Indian Income-tax Act :
'Whether in view of the terms of the agreement dated 20-3-1957 , the assessee was entitled to development rebate under S. 10(2)(vi-b) of the Act ?'
(2) The assessee runs a bus service. For the assessment year 1958-59, he claimed development rebate in respect of a new bus on the road during the accounting year therefore. The Income-tax Officer refused to grant such relief on the ground that the bus could not be said to have been installed within the meaning of s. 10(2)(vi-b) of the Act. So did the appellate Assistant Commissioner on appeal but on a different ground namely that the assessee was not the owner of the bus to be entitled to such relief. The Appellate Tribunal agreed with the Appellate Assistant Commissioner on the agreement relied on. This has given occasion to the present reference.
(3) It is common ground that the assessee had actually purchased the bus from a Bezwada from but as he had no money to pay the price he borrowed the amount from a Madras party and executed the agreement dated 20-3-1957. The owner of the bus and was therefore entitled to development relief for the year in question. whether he was still owner of the bus or not is a question which ought to be decided on a consideration of facts and circumstances of the case and the terms of the agreement dated 20-3-1957.
The agreement in question having regard to its various terms is essentially a hire purchase agreement. The Madras party therein is described as the owner of the vehicle and the assessee as the hirer under an obligation to pay the monthly rents specified in B schedule. it was specifically provided that the hirer shall register the vehicle in the name of the owner and shall not represent or hold himself out as or do or suffer from anything whereby he may be reputed to be the owner of the said vehicle. He shall pay all taxes, licence fees, duties fines and registration charges insurance premia etc. and will further indemify the owner against the claims of third parties, if any. He shall make repairs deemed necessary by the owner, replace the damaged parts and make addition and alterations with the previous permission of the owner in writing and they shall become the part and parcel of the vehicle for the purposes of the agreement. The agreement further provides that the vehicle being the property of the owner shall not be subject to any lien. charge or claim in respect of any rent due by the hirer to the landlord or in respect of the premises where the hirer is residing or where he is carrying on business or in respect of the premises where the vehicle is garaged o placed at any time. It further provides for the right of the owner to resume the vehicle in case of default in payment of rental or failure to observe the conditions in the agreement It is significant to note that the agreement provides for the right of purchase of the vehicle by payment Re. 1/- at the termination of the hiring. This right may be exercised even earlier on payment of the entire hire amounts specified plus one rupee. Clause 21 in this behalf reads thus :
'The hirer may at any time determine the hiring and became purchaser of the vehicle by paying to the owner such a sum as together with the sums previously paid will amount to the total sum payable by way of rent hereunder together with all sums, if any payable by him to the owner under the provisions of this agreement and in addition a sum of re. 1/-
Paragraph 23, however read thus;
'Until the vehicle shall have become the property of the hirer under the provisions of this agreement it shall remain the absolute property of the owner and the hirer shall have no right or interest in the same other than the hirer under this agreement.'
These are the material clauses of the agreement. If the nature of the transaction of the agreement was to be determined wholly and solely on the terms of his agreement, itself there is little doubt that this agreement is a hire purchase agreement. If then there be conditions in what appears to be a hire purchase agreement as in this case that with the last instalment paid in addition to a nominal sum of Re. 1/- the assessee becomes the owner there is little difficulty in holding that the agreement as entered into between the parties must be deemed to be agreement to sell or even sale itself with an extended period of payment in instalments. So then the assess must be held to be the owner for the relevant period. Even under the provisions of the Motor Vehicles Act the possessor of a vehicle under a hire purchase agreement is the owner.
The Tribunal has, however considered terms of the agreement on the facts and circumstances of the case. There it was represented on behalf of the assessee that the assessee had actually purchased the bus from a Bezwada firm but not having the money to pay the purchase price he had borrowed the amount from a Madras party under the agreement dated 20-3-1957. In this situation it held that the agreement if properly constructed only means that having purchased the bus the assessee transferred the ownership to the madras party in lieu of the finance that was given to him by the Madras party which was to be repaid in easy instalments as stipulated under the said agreements.
One significant fact which must needs be mentioned in this connection is that the vehicle stands as never registered in the name of the assessee and the permit of the vehicle which was standing in his name was effective till 1-6-1960 (i. e) the date of nationalisation. The registration certificate produced bears testimony to this fact. If there was any dispute with regard to this certainly we would have sent the case to the Tribunal for a further statement under S. 66(4) but now it is common ground that the ownership in fact did not pass to the Madras party. So then if we have to bear in mind the original purchase made by the assessee while considering the terms of the agreements we have also to take into account the fact that he still continues to be owner as ever, though for the money he borrowed be executed the agreement which in popularly known as a hire purchase agreement. of course for the purpose of such an agreement one has to be shown as the owner and the other as a hirer till the date of payment of what should be stated as hire amount. The madras party was therefore shown as the owner and the assessee as hirer even though the latter who was in the fact the owner did not sell or execute a sale-deed in favour of the former. He did not even register or insure the vehicle in his name in furtherance of the terms of this agreement. he fact nothing substantial was done in that behalf. The terms so that effect in the agreement were not intended therefore continued to be owner.
All that was practically required of him then was that he should pay the instalments regularly and the vehicle should stand as a security for the amount. If the assessee paid all the instalments regularly, or the entire amount is paid before time, on payment of a further sum of Re. 1/- which was but a nominal sum fixed to give a colour of reality to the agreement actually reduced to writing the assessee was to all intents and purposes, even under the terms ofd the agreement to be the owner. Evidently the sum so payable is not a hire amount for he assessee shall be liable to pay the whole amount. even though hirer transactions put an end to earlier. It is manifestly the amount borrowed which ought to be paid back in instalments or if the assessee so chose in a lump sum. In case the made regular payments or he paid the entire amount even earlier than the fixed date, together with re. 1/- the amount borrowed shall be deemed to have been paid off and the security offered stood released.
Thus the agreement dated 20-3-1957 Judged on the facts and circumstances of the case is in substance and reality a transaction in the nature of a loan with security of the vehicle though as a matter of abundant precaution it is given the form of hire purchase agreement. Hire purchaser agreement, in fact it was not as the Madras party shown as owner was not in fact already the owner, nor was he made so even subsequently thereto. Wheat the assessee wanted was to obtain the loan and offer the bus virtually as security for the amounts that have been paid by the Madras party. The transaction thus was indeed one of loan to be repaid in certain instalments and the hire purchase agreement reduced to writing as such really amounted only to giving of security of the bus with a power to seize it in order to enforce to enforce the debt. In that premises though the transaction took the form of hire purchase agreement, it is virtually nothing more than a loan on the security of the bus. the assessee in that case indisputably was the owner of the bus during the period in question. that is the true nature of the transaction if sought to be determined on the facts and Circumstances of the case read with the terms of the agreement.
But if the terms of the agreement alone as reduced to writing de hors the facts and circumstances of the case to which a reference has already been made have to determine the nature of the transaction the agreement dated 20-3-1957 is a hire purchase agreement whereunder the so called hirer automatically assumes the status of a full fledged owner on payment of the amounts due plus a nominal sum of Re. 1/- Even so the so called hire purchase agreement will be an agreement of sale rather sale itself with facility of paying the purchase amount in instalments on the security of the bus. In either, case, the assessee must be deemed to be the owner and he is entitled to the development rebate under S. 10(2)(vi-b) The question referred to therefore is answered in the affirmative. The assessee shall get his costs. Advocates fee is fixed at Rs. 200/-.
(4) Answer in affirmative.