In Brief
Non-banking finance and leasing companies engaged in hire-purchase transactions sought relief from interest-tax liability on amounts embedded in hire-purchase instalments. The Supreme Court held that the definition of 'interest' under the Interest-Tax Act, 1974 is narrow and applies only to interest arising directly on loans and advances. Hire-purchase agreements are composite transactions combining bailment and sale elements, fundamentally different from simple loans. The interest component in hire-purchase instalments does not constitute taxable interest unless the transaction is in substance a camouflaged loan. The Court also held that High Courts cannot interfere with factual findings of the Income Tax Appellate Tribunal without framing a specific substantial question of law. The Court allowed the appeals and upheld the ITAT's deletion of the tax additions.
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