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1961 Supreme(SC) 232
SUPREME COURT OF INDIA
2nd May, 1961
B.P. SINHA, C.J.I., S.K. DAS, A.K. SARKAR, N. RAJAGOPALA AYYANGAR AND J.R. MUDHOLKAR, JJ.
Instalment Supply (Private) Ltd. and another, Petitioners
Versus
Union of India and others Respondents.
Petn. No. 146 of 1958.
Advocates appeared
Mr. Veda Vyasa, Senior Advocate (M/s. S. K. Kapur and Ganpat Rai, Advocates, with him), for Petitioners; Mr. C. K. Daphtary, Solicitor-General of India (M/s. R. Gopalakrishnan and D. Gupta, Advocates, with him), for Respondents.
C.K.DAFTARY, D.GUTPA, GANPAT RAI, R.GOPAL KRISHNAN, S.K.KAPOOR, Veda Vyasa
Hire-purchase agreements, combining bailment with an option to purchase, are deemed 'sales' for tax purposes under statutory legal fictions, regardless of title retention. Additionally, the principle of res judicata does not apply to annual tax assessments.
Headnote:(A) Tax Law - Definition of 'Sale' - Hire-purchase agreements - A transfer of goods on hire-purchase, where the hirer has an option to purchase the goods upon payment of a premium and installments, is deemed to be a sale under the statutory legal fiction, notwithstanding that the seller retains title to the goods as security for payment of the price. Such transactions combine elements of bailment and sale. (Paras 5, 7, 9)
(B) Constitution of India - Article 14 - Discrimination - An extended definition of 'sale' to include hire-purchase transactions does not constitute hostile discrimination or violate Article 14 if similar definitions are adopted in central legislation applicable throughout the country. (Para 12)
(C) Tax Law - Res Judicata - The principle of res judicata does not apply to matters of taxation because each year's assessment is final only for that particular year and does not govern subsequent years. (Para 14)
Facts of the case:
A company engaged in financing the purchase of motor vehicles utilized agreements where the hirer paid an initial deposit and monthly installments. Upon completion of payments, the hirer had the option to purchase the vehicle for a nominal sum. Until the option was exercised, the title remained with the company. The tax authorities sought to levy sales tax on these transactions, treating the installments as sale-price. The company challenged this, arguing the agreements were mere hiring contracts and not sales.
Findings of Court:
The agreements in question are hire-purchase transactions because they provide an option to purchase in addition to a contract of hiring. Under the relevant tax statute, such transactions are specifically deemed to be sales through a legal fiction, regardless of whether the owner retains title until the final payment.
Issues: Whether hire-purchase agreements fall within the extended definition of 'sale' under the tax act; whether such an extension is unconstitutional or discriminatory under Article 14; and whether previous judicial decisions or departmental circulars create a binding estoppel or res judicata in tax assessments.
Ratio Decidendi: The legislature is competent to extend the concept of 'sale' to include hire-purchase agreements via a legal fiction. The retention of title by the owner does not exclude the transaction from being a 'sale' under the statutory explanation. Furthermore, tax assessments are annual and independent, meaning a decision for one period does not operate as res judicata for another.
Result: Petition dismissed with costs.
SINHA, C.J.I. : The petitioners have moved this Court under Art. 32 of the Constitution for a writ or order in the nature of mandamus and/or prohibition and/or other suitable writ, order or direction to the respondents not to levy, charge or collect any sales tax on transactions of what the petitioners characterised as hire-purchase agreements, a typical example which is contained in Annexure A to the petition, to be hereinafter examined in detail.
2. The first petitioner is a private limited company incorporated under the Companies Act, with its registered office at Janpath, New Delhi. The second petitioner is the Managing Director and share-holder of that company and is directly interested in the result if this application, because it is claimed that his rights and property are directly involved. The company has been carrying on in Delhi the business of financing the purchase of new as well as second-hand motor cars and other kinds of motor vehicles. The system adopted by the Company for financing a purchase such as aforesaid is as follows. A person desiring to purchase a motor vehicle fixes a bargain with the owner and the petitioner Company would then advance the necessary finance on the terms and conditions appearing in a printed copy of the agreement, marked Annexure A to the petition. According to that agreement, the Company charges the Hirer an initial deposit by way of premium as a consideration for granting the lease of the vehicle, which deposit becomes the absolute property of the Company; the premium charged as aforesaid is a substantial amount, being usually 25% of the price in respect of new vehicles. The Hirer undertakes to pay instalments and when all the instalments are paid, the vehicle becomes the property of the Hirer at his option; on payment of rupee one to the Company, as a consideration for the option ; until all the stipulated instalments have been paid and the option exercised as aforesaid, the vehicle remains the property of the Company as owners. The Hirer is delivered possession of the vehicle and, he remains responsible to the Company for damage or destruction or loss. The Hirer has to pay interest at the rate of one per cent. per mensem on all sums overdue. Until the option of purchase is exercised by the Hirer , he is at liberty to return the vehicle and to put an end to the Hiring Agreement, on certain terms. Thus, under the agreement, the Hirer has the use of the vehicle, which is entrusted to him as the property of the Company, and it is open to the Hirer to become the purchaser of the vehicle as aforesaid, but he is not bound to do so. The hire-money received by the Company, it is contended , is not a part of the price of the goods sold and is thus not liable to he taxed as sale-price. The Bengal Finance (Sales Tax) Act, 1941 (Bengal Act. VI of 1941) was extended to the State of Delhi, which is now the Union Territory of Delhi. In pursuance of the provisions of that Act, the Sales Tax authorities started demanding and levying sales tax on all transactions of the nature aforesaid on the ground that the instalments paid by the hirers to the Company were sales-price and, therefore, liable to Sales Tax. The Company challenged the right of the Sales Tax authorities to levy any such tax on the ground that the law was beyond the competence of the legislature. Ultimately, the Company moved the Punjab High Court (Circuit Bench at Delhi) under Arts. 226 and 227 of the Constitution. In the Writ Petition, which was registered as Civil Writ Application No. 289-D of 1954, the Company prayed for a writ in the nature of prohibition and/or mandamus restraining the respondent from realising or levying any sales tax under the provisions of the Bengal Act, extended to Delhi. There was also a prayer for a writ of certiorari quashing certain orders passed by the Sales Tax authorities in 1953-54. The said application was heard by a Division Bench, which allowed the petition and issued a mandamus to the S
