Difference between Finance Lease & Operational Lease – Delhi HC

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HIGH COURT OF DELHI

INCOME TAX APPEAL NO. 442/2007

Date of Decision: 17th April, 2012

COMMISSIONER OF INCOME TAX DELHI-VI

VERSUS

THE INSTALMENT SUPPLY LIMITED

The appellants are carrying on the business of financiers: they are not dealing in motor-vehicles. The motor-vehicle purchased by the customer is registered in the name of the customer and remains at all material times so registered in his name. In the letter taken from the customer under which the latter agrees to keep the vehicle insured, it is expressly recited that the vehicle has been given as security for the loan advanced by the appellants. As a security for repayment of the loan, the customer executes a promissory-note for the amount paid by the appellants to the dealer of the vehicle. The so-called “sale letter” is a formal document which is not made effective by registering the vehicle in the name of the appellants and even the insurance of the vehicle has to be effected as if the customer is the owner. Their right to seize the vehicle is merely a licence to ensure compliance with the terms of the hire-purchase agreement. The customer remains qua the world at large the owner and remains in possession, and on condition of performing the covenants has a right to continue to remain in possession. The right of the appellants may be extinguished by payment of the amount due to them under the terms of the hire-purchase agreement even before the dates fixed for payment. The agreement undoubtedly contains several onerous covenants, but they are all intended to secure to the appellants recovery of the amount advanced. We are accordingly of the view that the intention of the appellants in obtaining the hire-purchase and the allied agreements was to secure the return of loans advanced to their customers, and no real sale of the vehicle was intended by the customer to the appellants. The transactions were merely financing transactions.

In view of the aforesaid position, we feel that the matter has not been examined and considered by the tribunal from the right perspective, the real issue and controversy has not been examined. The tribunal has not considered the legal position to reach its conclusion. In these circumstances, we answer this substantial question of law mentioned above in negative, i.e., in favour of the Revenue and against the assessee. An order of remand is passed directing the tribunal to examine the controversy a fresh in the light of what has been stated above and without being influenced by the earlier order. The appeal is disposed of. In the facts of the case, there will be no order as to costs.