P L D 1957 (W. P.

) Lahore 873

Before Shabir Ahmad and J. Ortcheson, JJ

THE AZAD TRANSPORT COMPANY LTD

-Plaintiff-Appellant

Versus

MUHAMMAD SHARIF-Defendant-Respondent

Regular First Appeal No. 31 of 1957, decided on 10th September 1957, from the decree
of Court of Nur Muhammad, Senior Civil Judge, Jhang, dated 21st February 1957.

(a) Hire-purchase-----

-----Main feature of transaction-Option of hirer to terminate contract and return article.

One of the main features of a transaction of hire-purchase is that the hirer has the option
to terminate the contract and return the article which he has been using and of which he
might otherwise have become an owner.

Where the document evidencing the transaction did not even hint that the hirer could
return the hired goods, the transaction was not held to be one of hire-purchase.

(b) Usurious Loans Act (X of 1918)----

----S. 2 (1) (2)- "Loan"-Transaction which is substantially a loan-Powers of Court not

circumscribed by apparent terms of document.

Subsection (2) of section 2 of Act X of 1918 gives the Court vast powers to examine a
transaction and to hold it to be a loan even though the parties had called it by some other
name.

This power is not circumscribed by the fact that the deed evidencing the transaction did
not on the face of it appear to be one relating to a loan.

By describing as profit, the return a creditor took on a loan in cash or kind, the nature of
the return was not changed the return that a creditor takes is nothing but interest under the
provisions of subsection (1) of section 2 of the Usurious Loans Act, 1918, and the fact
that it is not described as interest does not change its character.

Where the terms of a transaction were :-

One A had bought two motor buses for a sum of Rs. 35,000 and was entrusting them to B
on the condition that A will be paid Rs. 2,700 per month for sixteen months. The sum of
Rs. 2,700 was made up of Rs. 1,500 as part of the principal and Rs. 1,200 as profits. After
sixteen instalments of Rs. 2,700 per month had been paid, B had to pay the balance due
on the principal, that is, Rs. 11,000, by a certain date and if that were not done, B would
be .liable to pay Rs. 1,800 as monthly instalments, of which Rs. 1,500 would represent
the principal and Rs. 300 the interest. and this will go on till the amount had been paid off
and that it was only when the entire amount had been realised by A that B would become
owner of the two buses. It was also provided in the deed that if the entire price of the two
buses i.e., Rs. 35,000, or the balance due out of that, was paid in a lump sum at any time
A would still be entitled to receive profit for twelve months, i.e., Rs.14,400.

Held, that the transaction was nothing but a loan.

(c) Usurious Loans Act (X of 1918)----

----[as amended by Punjab Relief of Indebtedness Act (VII of 1934) and Punjab Relief of
Indebtedness (Amendment) Act (XII of 1940)], S. 2 (3) (c)-Act applies to suit of a debtor
seeking redemption of motor vehicles pledged as security with defendant.

The suit brought by the plaintiff was in substance one for the redemption of two motor
vehicles which had been pledged as security with the defendant.

Held, that the Usurious Loans Act applied to the plaintiff's suit.

(d) Usurious Loans Act (X of 1918)------

------ [as amended by Punjab Relief of Indebtedness Act (VII of 1934), and Punjab Relief
of Indebtedness (Amendment) Act (X11 of 1940)], S. 3 (2) (e).

Held, that where interest for one year at 7½ per cent. would have come to only Rs. 2,625
but the creditor was to receive according to terms of the transaction Rs. 14,400 for that
period, which came to about 50 per cent per annum. the interest was excessive and the
transaction as between the parties was unfair.

Sardar Muhammad Iqbal, and Aftab Hussain for Appellant

Sh. Bashir Ahmad and Ghias Muhammad for Respondent:

Pates of hearing : 21st and .25th June 1957.

JUDGMENT

SHABIR AHMAD, J.------Its suit for a declaration that it had become owner of two
motor buses, a Dodge manufactured in 1.952 and a Bedford manufactured in that year,
whose registration numbers are P B V-363 and P B V-367, respectively, and for
consequential reliefs to the effect that Muhammad Sharif, the sole defendant in the suit,
be restrained from interfering with the use of the vehicles by the company and to have
them transferred in official documents to the company and be directed to pay Rs. 7,204 to
the company, having been dismissed in its entirety by Sheikh Nur Muhammad, Senior
Civil Judge, Jhang, the Azad Transport Company Limited. Shorkot, has presented the
present appeal with a view to having its suit decreed in its entirety.

The plaint averred, inter alia, that the defendant had given the plaintiff company the two
motor buses and had agreed to take their price by instalments, that the transaction
between the parties was a loan and as the interest charged, by the defendant was usurious
he was not entitled to get all that the plaintiff company had agreed to pay him, and had
already realised from the company Rs. 7,204, more than the law allowed him to do. The
suit was resisted by the defendant who pleaded inter alia, that the transaction between the
parties was not a loan, that the buses had not been sold to the plaintiff company and that
the intention of the parties, as evidenced by a registered document dated the 11th of July
1953, which was to become operative on the 1st of August 1953, was that the plaintiff
company could not become the owner of the vehicles till the terms embodied in the
document had been fully complied with. On the pleadings of the parties, the learned trial
judge framed seven issues, the first three of which were of a preliminary nature and need
not be mentioned: The issues on merits were these:---

(4) Whether the defendant had sold the two lorries in question to the plaintiff company
for Rs.35,000 on the conditions specified in para 2 of the plaint and if so with what
effect ?

(5) Whether the plaintiff had paid Rs.47,400 to the defendant ? If so, with what effect ?

(6) Whether the plaintiff is entitled to recover Rs. 7,204 from the defendant for the
reasons stated in para. No. 4 of the plaint ?

(7) Relief.

The learned trial judge found issue No. 5 in favour of the plaintiffs and issues Nos. 4 and
6 against them, with the result that, as already mentioned, the suit was dismissed.

At the hearing of the appeal, the finding of the learned trial Judge that the defendant had
received a sum of Rs. 47,400 from the plaintiff company was not questioned by the
learned counsel for the respondent and the main question that requires determination in
the present appeal is whether or not the transaction between the parties was one of loan as
claimed by the plaintiff. At one stage of the arguments in the appeal it was contended that
the transaction was one of hire-purchase but this contention cannot succeed. One of the
main features of a transaction of hire-purchase is that the hirer has the option to terminate
the contract and return the article which he has been using and might ultimately become
owner of. In the present case the document did not even hint that the plaintiff company
could return the vehicles to the defendant and it is, therefore, beyond dispute that
transaction was not one of hire-purchase.
In order to determine the real nature of the transaction, some of its main features have to
be considered. The registered document, which lays down the conditions between the
parties and which is Exh. P. 1 on the record, recites, inter alia, that Muhammad Sharif, the
sole defendant and the sole respondent in the appeal, had bought two motor buses for a
sum of Rs. 35,000 and was entrusting them to the plaintiff company on the condition that
he will be paid Rs. 2,700 per month for sixteen months, from the 1st of August 1953, to
the 30th of November 1954. The sum of Rs. 2,700 was made up by Rs.1,500 as part of
the principal and Rs. 1,200 as profits. After sixteen instalments of Rs. 2,700 per month
had been paid, the plaintiffs had to pay the balance due on the principal, that is, Rs.
11,000, by the 15th of December 1954, and if that were not done, they would be liable to
pay Rs. 1,800 as monthly instalments, of which Rs. 1,500 would represent the principal
and Rs. 300 the interest, and this will go on till the amount had been paid off and that it
was only when the entire amount had been realised by the respondent that the plaintiff
company would become owner of the two buses. It was also provided in the deed that if
the entire price of the two buses, i.e., Rs. 35,000, or the balance due out of that, is paid in
a lump sum at any time the defendant would still be entitled to receive profit for twelve
months, i.e.. Rs.14,400.

Sardar Muhammad Iqbal, the learned counsel for, the appellant, contended that if all the
terms of the document, Exh. P. 1. which evidenced the transaction between the parties be
considered together, it becomes apparent that the title in the two buses mentioned in the
plaint had passed to the plaintiff company on the date when the document was executed
and only the price of the vehicles, was to be realised by the defendant in the manner
mentioned in the deed. He proceeded to urge that if the relevant provisions of the
Usurious Loans Act (Act X of 1918) be applied to the document, it becomes crystal clear
that the transaction between the parties with regard to the money involved was nothing
but a loan and the money the defendant was to get over and above the sum of Rs. 35,000,
mentioned in the deed as the price of the two vehicles, was nothing but interest. In this
connection, he made a reference to section 2 of Act X of 1918 which runs as under :-

"2. In this Act, unless there is anything repugnant in the subject or context,-

(1) "Interest" means rate of interest and includes the return to be made over and above
what was actually lent whether the same is charged or sought to be recovered specifically
by way of interest or otherwise.

(2) "Loan" means a loan whether of money or in kind and includes any transaction which
is, in the opinion of the Court, in substance a loan."

The learned counsel for the appellant contended that notwithstanding the fact that the
deed regarding a transaction may have been so cleverly worded as not to make the
transaction appear a loan it was open to the Court under the above-mentioned provisions
of law to look at the pith and substance of the transaction and to hold it to be a loan if it
was in fact a transaction of that nature. This contention is un-assailable because
subsection (2) of section 2 of Act X of 1918 gives the Court vast powers to examine a
transaction and to hold it to be a loan even though the parties had called it. by some other
name. The learned counsel for the respondents contended in reply that though in this
respect the Court had wide powers yet it could not altogether ignore the intention of the
parties as expressed by the words used in the deed, but I cannot accept the contention of
the learned counsel for the respondent that though section 2 of Act X of 1918, gave the
Court unfettered powers to determine that a transaction was in fact a loan, it could not
hold the transaction to be a loan if the deed evidencing it did not on the face of it appear
to be a transaction of loan.

It was also contended by the learned counsel for the respondent that even if the Court had
unlimited powers to determine the nature of the document in question, yet the document,
Exh, P. 1, could not be held to be a loan because it was obvious from the terms that the
ownership of the vehicles did not pass to the plaintiff company on the date on which the
transaction became complete and that the ownership remained with the defendant and
would pass to the plaintiff company only when every term of the deed had been carried
out. I am prepared to concede that the document is very cleverly worded, and it is
obvious that the intention was to evade the application of all laws which aimed at
preventing creditors from charging unduly high rate of interest, but the powers of the
Court to hold a transaction to be a loan are very wide under Act X of 1918 and the fact
that on the face of it the document executed by it does not purport to be evidencing a
transaction of a loan cannot disentitle the plaintiff company to relief if it is found to be
entitled to it.

I have carefully gone through the document, Exh. P-1, and have arrived at the conclusion
that it evidenced a loan to the plaintiff company though it contained a number of compli-
cated conditions which appear to have been inserted in. the document in order to give the
defendant an opportunity to urge that the transaction lacked some of the peculiar features
of a loan. As I read the document, it appears to be one aimed at realising the maximum of
interest from the plaintiff company and the conscience of the defendant appears to have
been sought to be palliated by the return on the loan being described as profit and not as
interest, It may be that by describing as profit the return he took the defendant felt that he
was not offending against any law or moral code, but the return that a creditor takes is
nothing but interest under the provisions of subsection (1) of section 2 of the Usurious
Loans Act, 1918, a and the fact that it is not described as interest does not change its
character. The object of the terms of the deed was to enable the defendant to realise
within the space of less than a year and a half no less than Rs. 43,200 from the plaintiff
company by giving it two vehicles which had cost him Rs. 35,000 and be in a position to
claim at least Rs. 11,000 more. It was contended by Sheikh Bashir Ahmad, the learned
counsel for the respondent, that no law prevented a person from making a profit and,
therefore, the mere fact that if the money had been paid to the defendant on the very next
day he would have realised no less than Rs. 14,400 over and above the price of the two
vehicles could not make the transaction one of loan. In support of his contention, Sheikh
Bashir Ahmad relied on a Single Bench decision of Tek Chand, J. in A I R 1939 Lah. 104
wherein it was held that a sale on credit is not an advance in cash or kind at interest and
is, therefore not a "loan" as defined in the Punjab Regulation of Accounts Act (Punjab Act
I of 1930). It is not necessary to examine that decision critically because the transaction
dealt with by it was different in material respects from the one in the present case. Had
the present transaction been one of an above board sale it is possible that this contention
of the learned counsel for the respondent may have succeeded, but, when all the terms of
the' deed, Exh. P-1, are considered together, it becomes clear that it is one of "loan" and
cannot be considered to be anything else. It is not without significance that the price of
the two vehicles has been described in the document, Exh. P-1, as the principal money
due and though this description can be used against the respondent it is not merely the
fact that the money the company had to pay was described as the principal money which
impels me to hold that the buses had been sold and their price was owed by the plaintiffs
to the defendant.

Having held that the transaction between the parties was in reality a loan, I proceed to
consider whether or not the plaintiffs are entitled to any relief. It was contended by Sardar
Muhammad Iqbal that as the rate of interest was much more than was allowed by the
Usurious Loans Act, 1918, as amended by the Punjab Relief of Indebtedness Act, 1934,
the plaintiffs were entitled to the refund of the money paid by them over and above what
the defendant could have realised and that the plaintiffs were entitled to all the reliefs
claimed by them in the plaint as otherwise the provisions of the Usurious Loans Act,
1918, would be violated. The relevant provisions of the Usurious Loans Act are contained
in sections 2 and 3, the latter of which, as amended by section 3 of the Punjab Relief of
Indebtedness Act (Punjab Act VII of 1934) and Punjab .Relief of Indebtedness
Amendment Act (Punjab Act XII of 1940), is reproduced for facility and reference-

"3. (1) Notwithstanding anything in the Usury Laws Repeal Act, 1855, where, in any suit
to which this Act applies, whether heard ex-parte or otherwise, the Court has reason to
believe,-

(a) that the interest is excessive ; or

(b) that the transaction was, as between the parties thereto, substantially unfair the Court
shall exercise all or any of the following powers, namely, shall,-

(i) re-open the transaction, take an account between the parties, and relieve the debtor of
all liability in respect of any excessive interest ;

(ii) notwithstanding any agreement, purporting to close previous dealings and to create a
new obligation, re-open any account already taken between them and relieve the debtor
of all liability in respect of any excessive interest, and if anything has been paid or
allowed in account in respect of such liability, order the creditor to repay any sum which
it considers to be repayable in respect thereof;

(iii) set aside either wholly or in part or revise or alter any security given or agreement
made in respect of any loan, and if the creditor has parted with the security, order him to
indemnify the debtor in such manner and to such extent as it may deem just

Provided that, in the exercise of these powers, the Court shall not- .
(i) re-open any agreement purporting to close previous dealings and to create a new
obligation. which has been entered into by the parties or any persons from whom they
claim at a date more than twelve years from the date of the transaction ;

(ii) do anything which affects any decree of a Court.

Explanation.-In the case of a suit brought on a series of transactions the expression 'the
transaction' means, for the purposes of proviso (i), the first of such transactions.

(2) (a) In this section 'excessive' means in excess of that which the Court deems to be
reasonable having regard to the risk incurred as it appeared or must be taken to have
appeared, to the creditor at the date of the loan.

(b) In considering whether interest is excessive under this section, the Court shall take
into account any amounts charged or paid, whether in money or in kind, for expenses,
inquiries, fines, bonuses, premia, renewals, or any other charges, and if compound
interest is charged, the periods at which it is calculated and the total advantage which
may reasonably be taken to have been expected from the transaction.

(c) In considering the question of risk, the Court shall take into account the presence or
absence of security and the value thereof, the financial condition of the debtor and the
result of any previous transactions of the debtor, by way of loan, so far as the same were
known, or must be taken to have been known, to the creditor.

(d) In considering whether a transaction was substantially unfair, the Court shall take into
account all circumstances materially affecting the relations of the parties at the time of
the loan or tending to show that the transaction was unfair, including the necessities or
supposed necessities of the debtor at the time of the loan so far as the same were known,
or must be taken to have been known, to the creditor.

(e) The Court shall deem interest to be excessive if it exceeds seven and-a-half per
centum per annum simple interest or is more than two per centum over the bank rate,
whichever is higher at the time of taking the loan, in the case of secured loans, or twelve
and-a-half per centum per annum simple interest in the case of unsecured loans Provided
that the Court shall not deem interest in excess of the above rates to be excessive if the
loan has been advanced by the Imperial Bank of India or any bank included in the Second
Schedule to the Reserve Bank of India Act, 1934, or any banking company registered
under the Indian Companies Act, 1913, prior to the first day of April 1937, or any
co-operative society registered under the Co-operative Societies Act, 1912.

Explanation.-Interest may of itself be sufficient evidence that the transaction was

substantially unfair.

(3) This section shall apply to any suit, whatever its form may be, if such suit is
substantially one for the recovery of a loan or for the enforcement of any agreement or
security in respect of a loan or for the redemption of any such security.
(4) Nothing in this section shall affect the rights of any transferee for value who satisfies
the Court that the transfer to him was bona fide, and that he had at the time of such
transfer no notice of any fact which would have entitled the debtor as against the lender
to relief under this section. For the purposes of this subsection, the word 'notice' shall
have the same meaning as is ascribed to it in section 4 of the Transfer of Property Act,
1882.

(5) Nothing in this section shall be construed as derogating from the existing powers or
jurisdiction of any Court."

Subsection (3) of section 2 defines the expression "suit to which this Act applies" as
follows :-

"(a) for the recovery of a loan made after the commencement of this Act ; or

(b) for the enforcement of any security taken or any agreement, whether by way of
settlement of account or otherwise, made. after the commencement of this Act, in respect
of any loan made either before or after the commencement of this Act; or

(c) for the redemption of any security given after the commencement of this Act in
respect of any loan made either before or after the commencement of this Act."

Sheikh Bashir Ahmad, the learned counsel for the respondent, urged that the suit brought
by the plaintiffs did not fall within subsection (3) of section 2 of the Usurious Loans Act,
1918, and, therefore, section 3 of that Act could not be applicable. He contended that the
suit was not one for the recovery of a loan because it was not a suit by a creditor but one
by a debtor and, therefore, clause (a) of subsection (3) of section 2 of the Usurious Loans
Act could not be invoked; that it was not a suit for the enforcement of any security taken
on agreement and, therefore, clause (b) had no application and that it was not a suit for
the redemption of any security in respect, of any loan and, therefore, clause (c) of
subsection (3) of section 2 of the Usurious Loans Act had no application either. It is
obvious that clauses (a) and (b) of subsection (3) of section 2 of the Usurious Loans Act,
1918, have no application, but the same cannot. be said of clause (c) of that subsection.
The suit brought by the plaintiff company was in substance one for the redemption of the
two motor vehicles which had been pledged as security with the defendant and seeing no
bar to the application of clause (c) of subsection (3) of section 2 of the Usurious Loans
Act, 1918, to the facts of the case, I hold that the Usurious Loans Act, 1918 had
application.

The Usurious Loans Act, 1918, being applicable to the transaction between the parties,
the question to consider is whether or not the interest is excessive or the transaction was
as between the parties substantially unfair, because if either of those things is established
the Court has by virtue of section 3 of that Act, wide powers to do substantial justice.
between the parties. I have held already that the transaction was a loan and I have no
hesitation in adding that the interest was excessive because it was at a higher rate than
that allowed by section 3 of the Usurious Loans Act, 1918, as amended by the Punjab
Relief of Indebtedness Amendment Act (Punjab Act XII of 1940). In reality, the two
vehicles became the property of the plaintiff company on the 11th of July 1953. when the
document, Exh. P-1, was executed and were to be a sort of security for the payment of the
loan and, therefore, by virtue of section 3 of the Usurious Loans Act, 1918, as amended,
the respondent could not charge interest at a rate higher than seven and-a-half per cent.
per annum. If nothing had been paid by the appellant to the respondent for full one year,
the interest due on the whole amount of the loan would have come to Rs. 2,625 for the
year at the rate of seven and a half per cent. per annum, but the respondent was to take
Rs. 14,400 as interest for one year which would come to about fifty per cent, per annum
if the fact that the principal amount H was diminishing every month is not lost sight of
Moreover, it can hardly be doubted that the transaction was as between the parties unfair
to the appellant company because for, in substance, borrowing a sum of Rs 35,000 it had
to pay interest at an exorbitant rate simply because at the time when the transaction was
entered into its circumstances were straitened As already mentioned, it was admitted by
the learned counsel for the respondent at the hearing of the appeal that the respondent ha„
realised no less than Rs. 47,400 from the appellant at the time of the institution of the suit
which meals that he had taken Rs. 12, 400 as interest, whereas he was entitled to no more
than about one-court of that sum. Oil a correct computation, much more than Rs. 7,404
had been overcharged by the respondent, but as the appellant has claimed only Rs. 7,204,
it cannot be granted anything more than that. Consequently, I would accept the appeal.
reverse the decree of the learned trial judge and decree the plaintiff's suit in its entirety
with costs in both .the Courts. I need hardly add that if the respondent has realised any
money from the appellant company after the institution of this suit, the company is
entitled to the refund of that money.

ORTCHESON, J.--------------I agree.

A. H. Appeal accepted.
 1988 P T D (Trib.) 428

[Income-tax Appellate Tribunal Pakistan]

Before Farhat Ali Khan, Chairman, Sikandar Hayat Khan and Manzur-ul-Haque,
Accountant Members

I.T.A. No. 233/ KB of 1985-86, decided on 9th April, 1988.

(a) Income-tax Ordinance (XXXI of 1979)--

--S. 23(1)(v) & Third Sched., R. 1(1)--Central Board of Revenue Circular No.9 of 1943,
dated 23-3-1943--Claim of depreciation regarding a car which was allegedly obtained by
assessee under hire-purchase agreement--Purchaser does not become the owner. of the
goods in his purchase agreement and thus cannot claim depreciation on the property
obtained on hire-purchase.--[(1979) 39 -Tax 47 (Trib.) overruled

(1979) 39 Tax 47 (Trib.) overruled.

Shewram Das Agarwala v. Arobinda Podder P L D 1961 SC 321; Shamsher Ali Abdul
Hassan v. C.P. & U.P. (1945) 13 1 T R 240; Sardar Tara Singh v. C.I.T. (M.P.) (1963) 47 I
T R 756; Lee v. Buttler (1893) 2 QB 318; Helley v. Mathews (1895) AC 471; Bhimji and
Dalal v. Bombay Trust Corporation A 1 R 1930 Bom. 306; Mahabali Prashad v. H.N.
Palmer A I R 1932 All. 607; Instalment Supply (P) v. Chairman of India A I R 1962 SC
53 and Jogta Coal Co. Ltd. v. C.I.T. (1959) 36 I T R 521 ref.

Shewram Das Agarwala v. Arobinda Podder P L D 1961 SC 321 and Instalment Supply
(P) v. Chairman of India A I R 1962 SC 53 distinguished.

(b) Hire-purchase--

---Agreements of hire-purchase and other agreem.ents--Difference.

Lee v. Buttler (1893) 2 QB 318; Helley v. Mathews (1895) AC 471; Bhimji and Dalal v.
Bombay Trust Corporation A I R 1930 Bom. 306 and Mahabali Prashacl v. H.N. Palmer
A I It (1932) All. 607 ref.

Rehan Hassan Naqvi for Appellant.

Muhammad Farid, D.R. for Respondent.

Date of hearing: 4th April, 1988.

ORDER
FARHAT ALI KHAN (CHAIRMAN).--This appeal has been placed before the Full
Bench to consider the issue as to whether a decision of a Division Bench of this Tribunal
reported as (1979) 39-Tax-47 required re-consideration regarding depreciation allowance
in hire-purchase cases.

The brief facts involved are that the appellant, a Private Limited Co., claimed
depreciation allowance amounting to Rs.14,400 on a car which was allegedly owned by
the appellant. It appears that vide his letter, dated 3rd March, 1983 the I.-T.O. called upon
the appellant to furnish necessary details regarding its claim and the appellant by its
letter, dated 3rd March, 1983 addressed to the I.-T.O. by Mr. Rehan Hassan Naqvi, its
Advocate, offered the following reply:--

"That the car purchased by the assessee-company was in the name of Mr. Gul
Sarwar who sold it to Mr. Muhammad Riaz Khan and he through Mr. Faiz
Muhammad sold the said car on hire-purchase basis to M/s. Amber Motel Ltd., for
a sum of Rs.72,000. The first payment of Rs.2,000 on account of instalments was
paid on 7th June, . 1979. The second payment of Rs.2,000 was made on 5th
August, 1979, and the third payment of Rs.3,000 was made on 8th November,
1979, thus leaving a balance of Rs.65,000 as on 31st December, 1979."

Together with aforesaid explanation, a photostat copy of the ledger account in the name
of aforesaid Faiz Muhammad was also enclosed. It also appears that aforesaid amount of
Rs.65,000 was also reflected in the balance sheet as liability of the appellant. The?.-7.0.,
however, disallowed aforesaid claim with the following observation:--

"Depreciation disallowed on the car as the same does not stand in the name of the
company."

It further appears that on appeal the order of the I.-T.O. has been confirmed by the
learned C.I.T. (A) with the following observation:--

"Depreciation on car is disallowed by the I.-T.O. as the same does not stand in the
name of the company. It is contended by the learned counsel that the company
had purchased the car on instalments basis. In the hire-purchase system the
ownership is transferred only when the instalments are fully paid. The
depreciation was claimed on the car because factually the car was used by the
company. The contention is considered and is found to be untenable. Depreciation
as per law is admissible only to the owner. There is no provision in law to allow
depreciation to any person other than the owner of the asset."

The appellant, however, still feels aggrieved and came up in second appeal.

Mr. Rehan Hasan Naqvi, the learned counsel for the appellant, relying upon Circular
No.9 of 1943, dated 23rd March, 1943, firstly argued that both the officers below erred in
ignoring it altogether. According to him had aforesaid circular been perused by both the
officers below they might have allowed the depreciation allowance to the appellant. The
learned counsel then also relied upon the following cases:--

(1) (1979) 39-Tax-47 (Trib.)

(2) P L D 1961 SC 321, Shewram Das Agarwala v. Arobinda Podder.

(3) (1945) 13 I T R 240, Shamsher Ali Abdul Hassan v. C.P. & U.P.

Mr. Rehan Hassan Naqvi, the learned counsel for the appellant, alternatively argued that
if the depreciation allowance was found inadmissible Rs.7,000 which were paid by the
appellant as instalments within the relevant assessment year, should be allowed as
business expenditure incurred wholly and, exclusively for the purposes of the business.

Mr. Muhammad Farid, the learned D.R. firstly argued that in spite of the direction of the
I.T.O., the appellant failed to produce any hire-purchase agreement. The learned D.R.,
therefore, contended that aforesaid Circular 9 of 1943 did not apply in the case of the
appellant. Mr. Muhammad Farid also relied upon a case reported from Madhya Paradesh
High Court reported as (1963) 47 I T R 756 Sardar Tara Singh v. C.I.T. (M.P.). Turning to
the alternative submission of Mr. Rehan Hassan Naqvi, the learned D.R. vehemently
argued that it should not be entertained as it was not taken earlier before any Forum and
also because it required investigation on facts.

We have heard both the learned counsel for the appellant as well as learned D.R. at length
and we think that we should firstly examine the relevant provisions of the Income-tax
Ordinance under which depreciation allowance is admissible. From perusal of the
Income-tax Ordinance, 1979, hereinafter referred to as the Ordinance it appears that the
depreciation allowance is admissible as deduction under clause' (v) of subsection (1) of
section 23 which reads as under:--

"23. Deductions-- (1) In computing the income under the head 'Income from
business or profession', the following allowances and deductions shall be made,
namely:--

(i) .............................................................

(ii) .............................................................

(iii) .............................................................

(iv) .............................................................

(v) in respect of depreciation of any such building, machinery, plant, furniture or

fittings, being the property of the assessee, the allowance admissible under the
Third Schedule;
Since aforesaid clause refers to Third Schedule of the Ordinance, we should, therefore,
turn to it.

From perusal of the sub-rule (1) of Rule 1 of aforesaid Schedule it appears that the
depreciation allowance is admissible to the owner of a building, machinery, plant or
furniture. Aforesaid sub-rule reads as under:--

"Allowance for depreciation.-- (1) Where, in any income year, any building,
machinery, plant or furniture owned by an assessee is used for purposes of any
business or profession carried on by him, or in any income year commencing on
or after the first day of July, 1982, any machinery or plant is given on lease by the
assessee being a scheduled bank, a financial institution or a leasing company
approved by the Central Board of Revenue for purposes of this Schedule, on such
conditions as may be specified an allowance for depreciation shall be made in
computing the profits and gains of the business or profession of the assessee in the
manner hereinafter provided.

It is thus clear that depreciation allowance could be allowed to the appellant if it is held
that the appellant was owner of the car. However, we are concerned in this appeal with
the claim of depreciation regarding a car, which was allegedly obtained under Hire-
Purchase agreement. Mr. Rehan Hassan Naqvi, the learned counsel for the appellant has
claimed that the appellant was entitled to it as it was its owner and in order to fortify his
submission he firstly relied upon a decision of this Tribunal reported as (1979) 39 Tax 47
(Trib.). From its perusal it appears that a Division Bench of this Tribunal while
interpreting Shivram's case (supra) has made the following observation:

"The learned Authorised Representative for the assessee drew our attention to the
finding of the learned Judges of the Supreme Court of Pakistan in Shewram Das
Agarwala reported as P L D 1961 S C 321 wherein it was held that if the property
in the goods continued to vest in the owner there could be no question of the hire-
purchaser having a right to any part of the sale proceeds. It was insisted by the
Authorised Representative that in the present case the property in the machinery
had passed on to the purchaser hence they become entitled to depreciation also.
Having considered the facts and circumstances of the case, we are of the view that
in hire-Purchase agreement the Purchaser becomes the owner of the goods and the
amount of deferred instalments has the character of outstanding liability (or debt).
Therefore, the claim for depreciation cannot be refused."

(Emphasis added by us)

Thus, it is clear from the observation reproduced above that the learned Members of this
Tribunal came to the conclusion that in hire-purchase agreement the purchaser becomes
the owner of the goods and the amount of deferred instalments assumes the character of
outstanding liability or debt and it is on this observation that Mr Rehan Naqvi, the learned
counsel for the appellant, has placed his full reliance. However, with profound respect for
the learned member we do not think that the learned Bench of this Tribunal has correct
stated the law on this point. We also feel very much constrained observe, with due
respect, that the case of Shivram (supra) was wrongly cited and relied upon.

It appears that in aforesaid case their Lordships of our own Supreme Court were called
upon to decide as to whether the agreement involved in that case was a hire-purchase
agreement entered into between Shivram, who was the owner of certain machinery
collectively described as 'Cinema Talkie Machine' and Arobinda Podder, described as
hire-purchaser. Their Lordships after examining the contents of the agreement in dispute
came to the conclusion that it was not, either in fact or in law, an agreement of hire-
purchase. Elaborating the reasons for the conclusions their Lordships observed at page
327 of the report as under:--

In our opinion, the conclusion that the agreement was not to be construed as a hire-
purchase agreement can be supported on other grounds besides that mentioned by the
learned Judges of the High Court, viz. that it contains no provision enabling the "hire-
purchaser" to return the apparatus. Firstly, as has been pointed out above, there is a
specific provision in the first paragraph of the agreement that the 'hire-purchaser' would
have 'the right to keep and use' the apparatus 'till the payment of the full value of the price
settled' subject only to the other terms and conditions, of which the relevant condition is
that contained in Article 2 relating to the right of distraint to be vested in the owner upon
default of payment of three consecutive instalments. The conferment of a 'right' in these
terms is highly unusual. Its duration was to be determined by the performance of an
obligation by the 'hire--purchaser' himself. Moreover, upon fulfilment of this obligation,
the right was not to terminate, but was to continue. The purpose behind the use of these
words is thus not wholly clear, but it is certainly opposed to any suggestion that the 'hire-
purchaser' was entitled to return the property, in the manner of a true hire-purchaser at
law. Further indications to the contrary are found in the two provisions regarding the right
of the 'hire-purchaser' to receive any balance over the amount due to the owner, which
might be left upon a forced sale by the owner under the terms of the agreement. If
property in the goods continued to vest in the owner, there could be no question of the
'hire-purchaser' having a right to any part of the sale proceeds."

Their Lordships then dealt with the question of passing of the property in the following
words:--

"Moreover, the apparatus in question being movable property, the ordinary

presumption would be that property in the apparatus passed to the alleged 'hire-
purchaser' when the contract was made, it being immaterial whether the time of
payment of the price was postponed beyond the date of the contract."

Now from perusal of Shewram's case (supra) and the decision of this tribunal mentioned
above, it appears that in both the cases the concept of hire-purchase agreement was
involved. It, therefore, could profitably be discussed at this juncture. It, however, could
better be appreciated in context of and with reference to the nature of other types of
transfer agreements.
To begin with let us point out that the first transaction in which ownership and possession
stand transferred in return for payment of whole consideration is called an outright sale.
In such case the entire bundle of rights are transferred together with possession from
vendor to vendee and the latter becomes owner with immediate effect. However, there
could be second type of transaction also in which the possession and ownership are
transferred by the vendor to the vendee with all bundle of rights in lieu of either partly
paid or wholly unpaid consideration. In such case the vendor may retain seller's lien on
the property in transfer regarding unpaid consideration. Thus here also the ownership
passes to the vendee like the case of an outright sale.

Now there could be 3rd type of sale also. In such case the vendor may pass on the
possession but retain the ownership with the, agreement that the vendee would go on
paying the consideration in instalments and after the receipt of the entire consideration
the vendor would transfer the ownership in favour of the vendee. In such case the vendee
has no right to return the possession of the goods though he enjoys the possession thereof
but exercises no ownership rights thereon.

The fourth category could be of that type of transfer of possession of goods where the
vendee has to pay the consideration in instalments but at the same time it is stipulated
between the' parties that if the vendee pays off all the instalments, he would have a right
to get the ownership transferred to himself. Furthermore it is also agreed between the
parties that the vendee at his option would have right to terminate the agreement and
return back the goods to the vendor. As far as the vendor is concerned, he is generally
given the right of getting the' possession back on default of payment of instalments. It is
this type of transfer under an agreement, which is known as hire-purchase agreement, and
as is obvious from this discussion, the ownership remains with the vendor till it is finally
transferred to the vendee on payment of all instalments of consideration. Let us
specifically observe here that in hire-purchase agreement the vendee has the right to
return the goods at his option to the vendor during the subsistence of this agreement
whereas in other type of transaction he is left with no such option. In order to better
appreciate the difference between an agreement of hire-purchase on one hand and the
other type of agreements as discussed above, reference may be made to the following
authorities:--

(1) (1893) 2 QB 318, Lee v. Buttler

(2) (1895) A C 471 Helley v. Mathews.

(3) A I R (1930) Bombay '306 Bhimji a Dalai v. Bombay Trust Corporation.

(4) A I R (1932) All. 607 Mahabali Prashad v. H. N. Palmer.

Nevertheless let us reproduce hereinbelow an observation of Allahabad High Court made

in Mahabali's case (supra), Their Lordships observed:--
 "The difference between a contract of sale at a price payable by instalments and a
contract of hire-purchase is that in the former the purchaser has no option to
terminate the contract and return the chattel whereas in the latter the hirer has. In
the former there is an agreement to purchase, whereas in the latter there is none.
In each case the substance of the transaction or the agreement must be looked at
and not mere words."

Thus in view of discussion made above we are left in no doubt that the observation of the
learned Division Bench of this Tribunal that in hire-purchase agreement the purchaser
becomes the owner of the goods is not laying down the correct statement of law.
Similarly it is also clear that Shewram's case (supra) does not support the Tribunal at all
in its aforesaid finding. Let us also mention here that a ease reported from no less an
authority than the Indian Supreme Court as A I R 1962 S C 53, Instalment Supply (P) v.
Chairman of India could not be taken as an authority for the proposition that in a hire-
purchase agreement the hirer becomes the owner of the property immediately after
execution of the agreement. This case actually deals with the concept of deemed sale,
which was introduced by Explanation-I to section (2)(g) of the Bengal Finance (Sales-
tax) Act, 1941 for the purposes of levying tax on a transaction carried out under a hire--
purchase agreement. In the aforesaid explanation the Hire-purchase agreement was given
the status of deemed sale for the purposes of levying tax under that Act. It, therefore, is
very much restricted to its own peculiar facts.

Mr. Rehan Hasan Naqvi, the learned counsel for the appellant, has also relied upon a case
of Shamsher Ali (supra). From perusal of the case it appears that a Division Bench of the
Nagpur High Court has supported the learned counsel for the appellant when it observed
as under:--

It is clear that whatever the terms which are imposed according to the particular
contract on the default of any instalment (and we have not been shown the
contracts in any case) the hire-purchase system is nothing but a sale or an
agreement to sell with an extended period of instalments."

However, we feel that if aforesaid observation is taken in isolation of the facts of that
case the observation does support Mr. Rehan Hassan Naqvi. But when the entire ruling is
perused, it appears that their Lordships of Nagpur High Court treated the transaction
involved in that case as an outright sale though the consideration was made payable by
the instalments. This, conclusion is borne out from the following observation:--

"The contention is that the property in these vehicles remained with the assessee
and that what he received was purely hire in the vehicles and consequently it is
machinery let on hire and that he is entitled to depreciation allowance on it ..........

Thus it is certainly not an authority for the proposition that lessee is entitled to claim
depreciation allowance and that the lessor would not be competent to do so. Let us also
point out here that aforesaid Nagpur's case has been understood in the same sense by a
Division Bench of Madhya Pradesh High Court also in a case reported as (1963) 47 I T R
756 Sardar Tara Singh v. C I T. Their Lordships have observed as under:-

"The hire-purchase in Shamsher Ali Abdul Hasan v. C I T was regarded as one of

sale in itself giving to the purchaser the facility of paying the price by
instalments."

Thus Shamsher Ali's case (supra) also does not come to the rescue of Mr. Rehan Hasan
Naqvi.

Mr. Muhammad Farid, the learned D.R. on the other hand, has relied upon a case of
Sardar Tara Singh (supra). In this case the assessee carried on the business of motor
transport and maintained a fleet of buses for that purpose. During the year of account, he
claimed depreciation allowance under section 10(2)(vi) of the repealed Income-tax Act in
respect of all the buses which were in his possession under a hire-purchase agreement.
The I.T.O. disallowed the claim on the ground that the said buses were not the property of
the assessee at the material time and his finding was confirmed on appeal by the learned
A.A.C. On further appeal it was not disputed before the Tribunal that the assessee did not
become the owner of the bus in the year of account. The Tribunal, therefore, held that
since the bus was not the property of the assessee, he was not entitled to depreciation
under section 10(2)(vi) of the repealed Income-tax Act, Let us mention here that under
section 10(2)(vi) an assessee could claim the depreciation allowance if the property was
his as the words used were "being the property of the assessee" in clause (vi) of aforesaid
section. However, under sub-rule (1) of Rule 1 of the third Schedule of the Ordinance
such property must not only be E owned by 'an assessee' but should have also been "used
for the purposes of any business or profession carried on by him'. However, we do not
find any difficulty in reconciling this position as their Lordships of Indian Supreme Court
in a case reported as (1959) 36 1 T R 521, Jogta Coal Co. Ltd. v. C I T have held that the
word 'an assessee' as used under section 10(2)(vi) covers the person who owns the
property in question for the purposes of claiming depreciation. Thus, the difference in the
use of expressions in the repealed Income-tax Act and the Ordinance does not make any
difference and the case of Tara Singh (supra) as relied upon by the learned D.R. supports
him on all fours.

Nevertheless we feel that if the provisions of sub-rule (1) of Rule 1 of the third Schedule
of the Ordinance are strictly applied to hire-purchase agreement, neither the owner nor
the hirer would be entitled to depreciation allowance. The owner would not be allowed it
because he never used the vehicle for the purposes of his business or profession.
Similarly, the hirer would not be entitled to it for the simple reason that he was not the
owner of the vehicle. Thus, the provision of depreciation allowance made by the
legislature would stand defeated in case of hire-purchase transaction. Keeping this
anamoly in mind the C.B.R. issued Circular 9 which reads as under:--

"The following instructions are issued for dealing with cases in which an asset is being
acquired under, what is known as, a hire-purchase agreement:--
(i) In every case of payment purporting to be for hire-purchase, production of the
agreement under which the payment is made should be insisted on.

(ii) Where the effect of an agreement is that the-ownership of the subject is at once
transferred to the lessee (e.g. where the lessor obtains a right to sue for arrear
instalments but no right to recovery of the asset), the transaction should be
regarded as one of purchase by instalments and no deduction in respect of 'hire'
should be made.' Depreciation should be allowed to the lessee on the entire
purchase price as per agreement.

(iii) Where the terms of the agreement provide that the equipment shall eventually
become the property of the hirer or confer on the hirer an option to purchase the
equipment, the transaction should be regarded as one of hire-purchase. In such
cases the periodical payments made by the hirer should for tax purposes be
regarded as made up of:--

(1) consideration for hire, to be allowed as a deduction in the assessment; and

(2) payment on account of purchase, to be treated as capital outlay, depreciation

allowed to the lessee on the initial value (i.e. the amount for which it would have
been sold for cash at the date of agreement).

The allowance to be made in respect of hire should be the difference between the
aggregate amount of the periodical payment under the agreement and the initial
value (as described above), the amount of this allowance being spread evenly over
the term of the agreement. If, however, the agreement were terminated either by
the outright purchase of the equipment or its return to the owner the deduction
should cease as from the date of the termination.

An assessee claiming this deduction should be asked to furnish a certificate from

the vendor or other satisfactory evidence, of the initial value (as described above).
Where no certificate or satisfactory evidence is forthcoming the initial value
should be arrived at by computing the present value of the amount payable under
the agreement at an appropriate rate per centum, in doubtful cases the facts should
be reported to the Board."

Mr. Rehan Hassan Naqvi, the learned counsel for the appellant, has' based his alternative
arguments on clause (iii) of aforesaid Circular. Exercising his right of reply to the
submissions of the learned D.R., the learned counsel also submitted that no written
agreement was executed to witness a hire-purchase agreement. Referring to the balance
sheet, the learned counsel submitted that the case of the appellant should be given
treatment under clause (11) of aforesaid H Circular. In other words the learned counsel
submitted that in the case of the appellant where no hire-purchase agreement was ever
executed, it should' be taken that the ownership in the car stood transferred at once to the
appellant with the right of recovery of the unpaid consideration vested in the owner of the
car hence the appellant was entitled to depreciation allowance. Mr. Muhammad Farid, the
learned D.R., however, has contested both these submissions. In our judgment the
alternative submission of the learned counsel for the appellant is untenable firstly because
he never raised this plea at any Forum earlier. It is not even taken in his grounds of
appeal. Similarly it needs further enquiry on facts. However, as far as the other
submission of the learned counsel for the appellant is concerned.' we find considerable
force in it. Since admittedly no hire-purchase agreement was either executed or produced
before the I.-T.O., it could be taken that the parties agreed to immediate transfer of
ownership with the right of the vendor to recover the balance of unpaid price and the
right of the vendor to pay the price in agreed instalments. This conclusion is very much
supported by the fact that the unpaid price has been shown as a liability in the balance-
sheet and the I.-T.O. has not disputed either the payment of instalments or the use of the
car by the appellant for the purposes of its business. Let us also point out that this
transaction is called as hire-purchase agreement by both the appellant as well as the I.-
T.O. and for that matter by the learned C.I.T. (A) without appreciating that in law only
that agreement could be designated as hire-purchase agreement which is not only in
writing but also in which it is agreed that the hirer would have the right to return the
property to the owner at any time during the subsistence of the aforesaid agreement.

Thus, we conclude that firstly our decision reported as (1979) 39 Tax 47 (Trib.) did not
state the law of hire-purchase correctly and secondly that in the facts and circumstances
of this appeal both the officers erred in not allowing the depreciation allowance to the
appellant. Let the appeal go back to the Single Member for disposal of the point
regarding depreciation in the light of discussion made by us and also for decision on
other points involved. The reference to the Full Bench stands answered accordingly.

M.B.A./509/T Order accordingly.

 P L D 1961 Supreme Court 321

Present: A. R. Cornelius C. J., S. A. Rahman, B. Z. Kaikaus and Hamoodur

Rahman, JJ

SHEWRAM DAS AGARWALA-Appellant

versus

AROBINDA PODDER--Respondent

Civil Appeal No. 20-D of 1960, decided on 20th April 1961.

(On appeal from the, judgment and order of the High Court of East Pakistan, Dacca,
dated the 27th April 1959, in Appellate Decree No. 130 of 1957).

(a) Special leave to appeal to Supreme Court-----

--Granted to examine question of law "of general and substantial importance" regarding
application of appropriate Article of Limitation Act (IX of 1908)-Constitution of Pakistan
(1956), Art. 160.

(b) Hire-purchase------

---Essential term of contract-Hirer's right to terminate contract at pleasure and not being
bound to pay value of goods-Contract giving hirer "right to keep and use" certain
apparatus "till payment of full value of price settled", subject to other conditions of
contract-Conferment of such "right" on hirer, held, "highly unusual"-Contract, held, not
one of hire-purchase Sale of Goods Act (III of 1930), S. 20 -Property in goods passing to
vendee upon sale though payment of price postponed-Principle applied to contract having
terms retaining ownership in vendor.

Where an alleged contract of hire-purchase did not, provide for the distinguishing feature
of such a contract, viz. that the hirer has a right to terminate the contract for hire at his
pleasure, and is not bound to pay the value of the goods, but, on the other hand provided
that hirer would have the right to keep arid use certain apparatus till the payment of the
fall value of the price settled subject only to certain other terms and conditions:

Held, that the conferment of such a right in these terms was highly unusual.

The purpose behind the use of these words was not wholly clear, but it was certainly
opposed to any suggestion that the "hire-purchaser" was entitled to return the property, in
the manner of a true hire-purchaser at law.
Further indications to the contrary were found in the two provisions regarding the right of
the "hire-purchaser" to receive any balance over the amount due to the owner which
might be left upon a forced sale by the owner under the terms of the agreement. If
property in goods continued to vest in the owner, there could be no question of the
"hire-purchaser" having a right to any part of the sale proceeds.

Moreover, the apparatus in question being movable property, the ordinary presumption
would be that property in the apparatus passed to the alleged "hire-purchaser" when the
contract was made it being immaterial whether the time of payment of the price was
postponed beyond the date of the contract. Reference in this connection was made to
section 20 of the Sale of Goods Act, 1930, which is relatable to "an unconditional
contract for the sale of specific goods", but embodies a principle which may be- extended
to cover a case where there are terms in the contract which purport to retain ownership in
the vendor until the fulfilment of a certain condition relating to the price, alongside with
other conditions from which an equally clear conclusion may be drawn that ownership in
the goods became vested in the vendee upon the making of the contract.

The contract was not one of hire purchaser.

For a resume of the terms see.

(c) Limitation Act (IX of 1908)-----

------ Art. 49 read with Art. 116--Contract provided -that A would have right to keep and
use opparatus owned by S till payment of "full value of price settled" which was to be
paid by instalments-A defaulting in payment -S had right under contract to seize
apparatus and bring it to sale upon default in payment of three consecutive
instalments-Held breach of contract took place when S attempted to exercise his right of
seizure and. was resisted by A and not at time of single default in payment of instalments
Art. 49 applied and not Art. 116.

A contract of sale and purchase of apparatus gave a right to the vendor (S) to seize the
property and bring it to sale upon default in payment of three consecutive instalments, but
this was subject to the condition (1) that until the full price was paid, the other party (A)
would be entitled to retain possession of the apparatus sold, in other words that by mere
default in payment of the instalments, the possession of (A) did not become unlawful.
That position only developed (in 1954) when a notice of demand was sent and was not
complied with. Breach of the contract did not take place in June 941 when the default in
payment of instalments took place. In fact, the default in terms of condition (2) of the
agreement did not become valid until there was a default of 'three consecutive'
instalments, but that did not immediately entitle the vendor to treat the possession of (A)
as if it were unlawful. (A) was expressly empowered to keep possession of the apparatus
until the full price had been paid by himself, subject to the right of the vendor to' retake
possession and sell the apparatus to recover his dues. It was only when the vendor (S)
purported to exercise that tight, and (A) resisted that exercise, that there was a breach of
the contract on the part of the latter, and from that date; his possession would be deemed
to be unlawful.

Held, that Art. 49, Limitation Act, 1908 was applicable and not Art. 116.

A. F. M Mesbahuddin Advocate Supreme Court instructed by Abdul Matin Khan

Chowdhury Attorney for Appellant.

S. C. Basu Advocate Supreme Court instructed by Nandalal Das Attorney for

Respondent.

Date of hearing : 7th April, 1961.

JUDGMENT

CORNELIUS C. J.-This appeal by special leave involves the interpretation of an

agreement executed between the appellant Shewram Das Agarwala, who was the owner
of certain machinery collectively described as "cinema talkie machines", of the one part,
and Arobinda Podder, described in the agreement as the "hire-purchaser", of the second
part. The agreement, executed on the 14th March 1939, was expressed to be an
"agreement of hire-purchase". The principal question for decision in the case is whether
this agreement, in the eye of law, was not an agreement for the sale of the apparatus in
question, supported by conditions as to the rights of the two parties in relation thereto.

The apparatus was installed in his cinema hall by Arobinda Podder and has been in use
for the projection of films ever since, so far as we could ascertain in the course of the
argument. The agreement provided in detail for monthly payments to commence in June
1939 and to continue until November 1942, the sums payable each month being
specified, and the total provided for being Rs. 7,137/14. The last payment was made by
Arobinda Podder in June 1941, but the plaintiff did not commence his action out of which
the present appeal arises until the 23rd July 1954, the reason given being that "in view of
his own friendship with the defendant" he had for so long refrained from exercising his
rights. The plaint recounted the details of the transaction as well as of the payments,
stating specifically that instalments from June 1941 to November 1942 were in arrears. It
went on to declare that "under the temps of the said agreement, owing to defendant's
default in payment of more than three instalments", the plaintiff had become entitled to
the return of the apparatus. He had however demanded the return of the apparatus for the
first time by a registered notice on the 18th December 1953, which notice was superseded
for technical reasons by another notice of the 18th January 1954, and finally by a
pleader's notice issued on the 1st April 1954, which had been followed by verbal
demands. Arobinda Podder had however failed to return the apparatus, and since that
time had been wrongfully detaining it, nor had he allowed the plaintiff' access to the
cinema hall foe the purpose of seizing the apparatus in exercise of his rights under the
agreement.
At this point, the contents of the agreement may be briefly recounted. It provided that
when the full amount of Rs. 7,137/14 had been paid by instalments as specified, Arobinda
Podder would become absolute owner of the apparatus and Shewram Dal, Agarwala
would thereafter have no further right, title or interest therein, and, if requested, would
execute a formal transfer deed. All this was set out in the first article, which, however,
also clearly specified that "till the payment of the full value of the price settled and
mentioned below the hire-purchaser will have the right to keep and use the said machines
at his Chayabani Theatre Hall, Chandpur", subject to the conditions of the contract. The
second article provided that if there should be default in payment of three consecutive
instalments, the "owner" would have the right to remove the apparatus from the custody
of the "hire-purchaser" into his own custody to use as he pleased, and he would also have

"every right to sell . . . . without objection . . . . . what- soever from the hire-purchaser,
and the hire-purchaser will not be entitled to set up any claim whatsoever to the said
machines and will allow free access to the owner and every facility to him to take away
the said machines into the custody of the owner".,

By article (3), the "hire-purchaser" was required to insure the apparatus in the name and
for the interest of the "owner", himself paying the premiums regularly. Article (4)
imposed .a duty on the "hire-purchaser" to maintain the apparatus in good order and
safeguard it from loss from any cause, and article (5) required him to allow the owner or
his agents free access to his cinema hall for the inspection of the apparatus. Article (6)
obliged the "hire-purchaser" to keep the apparatus in his own custody and to refrain from
selling or pawning or otherwise disposing of it, and further that without the consent of the
"owner" he would not remove the apparatus from his cinema hall. Article (7) provided for
the contingency under which the "owner" having retaken possession of the apparatus,
should sell it. In such a case, if there was any excess in price fetched over the balance
remaining due to the "owner" such excess would appertain to the `hire-purchaser", but if
any money was left due to the "owner", he would have the right to recover it by selling
the "present properties both movable and immovable belonging to the hire-purchaser".
By way of precaution against the possibility that the sale might be so contrived as to
leave a balance due to the "owner", this article expressly provided that the sale should be
held openly and that the hire-purchaser should the informed about it. Under article (8)
power was given to the "owner" to enter the "hire purchaser's" premises for the purpose
of. retaking possession of the apparatus under the terms' of the agreement. Article (9)
provided that for the fulfilment of the conditions of agreement all the furniture in the
Chayabani Theatre Hall, should remain hypothecated. Articles (10) and (11) relate to
matters of no concern in this case, but article (12) expressly provides, repeating in
relation to different contingencies the terms of article (7) viz. that should the apparatus be
destroyed by fire, and when the claim should be met by the Insurance Company, to
money would be first applied in satisfaction of unpaid instalments due to the owner, but
"if any excess remains thereafter then the hire-purchaser shall get that excess amount to
which the owner shall not be entitled".

The reliefs claimed in the suit were as follows :-

(a) a decree for return of the apparatus within a time to be fixed by the Court ;

(b) in case the articles should not be returned, then a decree awarding compensation to
the extent of Rs. 4,000 on the basis of a certain calculation ;

(c) in case the defendant should return the apparatus, then a decree enabling the plaintiff
to sell it in order to recover the amount of his compensation, viz., Rs. 4,000; and

(d) if the sale proceeds be found insufficient, then the decree should declare a charge for
the balance upon the properties of the Chayabani Theatre Hall, and order that they should
be sold and plaintiff's dues recovered there from.

Costs were also claimed.

The defendant denied that the apparatus belonged to the plaintiff, declaring that he had
himself purchased the apparatus, but being short of funds, had borrowed money with
which to pay the price from the plaintiff. He admitted having executed the agreement of
the 14th March 1939, but said that this was done under pressure from the plaintiff for
payment of his debts. In paragraph 4 of the written statement however an equivocal
statement was made as regards the ownership of the apparatus in the following terms,
viz:-

" --------------the defendant states that the plaintiff was never the owner of the Cinema
Talkie machines---------In fiany event the defendant has become the owner of the said
machines."

The words "has become" were repeated in paragraph 5 of the written statement, reliance
being placed upon the "true terms, scope and effect" of the instrument of the 14th March
1939. It appears to negative the allegation that the defendant had himself bought the
apparatus and paid for it with borrowed money. Similarly, the denial of default in
payment of the instalments contained in paragraphs 6 and 8 is not free from equivocation.
The plaintiff's allegation that instalments from June 1941 to November 1942 were in
arrears was traversed in paragraph 6, but in paragraph 8, specific mention was made that
"the defendant made default in payment of the November 1942 instalment .........and in
December 1942 the plaintiff for the first time verbally, asked the defendant to return the
said cinema talkie machines". In paragraph 7, a contention in law was raised, namely, that
on proper construction, the instrument of the 14th March 1939 would be found to be not a
hire-purchase agreement, but an agreement for sale, for which reason the plaintiff was not
entitled to return of the apparatus. In paragraph 8 to which reference has been made
already, besides declaring that the first occasion when return of the apparatus was
demanded was in December 1942, the defendant also expressly denied receipt of the
plaintiff's registered notice of the 18th January 1954. In paragraph 9, after denying that
the cause of action arose from the date of that notice or that the defendant's possession of
the apparatus became unlawful from that date, it was expressly averred that the cause of
action, if any, arose between July 1941 and December 1942, and the effect was stated in
paragraph 11 to be that the suit was barred by the law of limitation.
In the course of the trial, it was established that the apparatus had in fact been ordered
from a Company in Calcutta by the defendant, who was unable to produce the necessary
money upon arrival of the goods, and accordingly full payment was made to the Calcutta
Company by the plaintiff, after which the defendant by a written kabala transferred
ownership of the apparatus to the plaintiff. This was done three days before the execution
of the memorandum of agreement upon which the suit is based. The case was contested
mainly upon the issue whether this agreement was an agreement of hire-purchase or had
the effect of creating by itself, a transfer of ownership. The trial Court found that
payments had been made only to the extent admitted by the plaintiff, and with respect to
the agreement concluded that the defendant had not yet become owner of the apparatus
since he had failed to pay the price in full. The amount of the unpaid instalments was
calculated by the trial Court to be Rs. 2,917/10. The plaintiff' had claimed compensation
for delay in payment to the extent of Rs. 1,082/6 making a total of Rs 4,000, which the
trial Court thought to be excessive, and accordingly had reduced the total amount
claimable by the plaintiff to the round figure of Rs. 3,500.

On the point of limitation, the trial Court held that this fell to be determined under Article
49 of Schedule 1 of the Limitation Act which provides in relation to suits for specific
movable property a period of three years limitation which commences from the date
"when the property is wrongfully taken or injured or when the detainer's possession
becomes unlawful". The trial Court held that as the suit had been brought within three
years from the 18th January 1954, from which date the defendant's possession became
unlawful, it was not barred by time. A decree was made in the following terms, viz:-

"The plaintiff is entitled to recover a sum of Rs. 3,500 with costs from. the defendant.
The defendant is however given two months' time to pay up the decretal dues failing
which the plaintiff will be at liberty to sell the machines described in the Schedule I of the
plaint and if the price fetched be less than the decretal amount the plaintiff will have right
to recover the balance that would remain after deducting the sale price there from by
selling the personal properties of the defendant. If on the other hand the sale price of the
machines exceeds decretal amount then the defendant will be entitled to such excess "

An appeal from this decision was taken before the subordinate Judge of Comilla who
modified it to the extent of reducing the amount found due to the plaintiff from Rs. 3,500
to Rs. 2,917/0/0, on the ground that the-agreement did not provide for any interest. A
second appeal was then preferred by the defendant in the High Court, and was heard by a
Division Bench. In tile judgment of the High Court the only point considered was
whether the agreement was a hire-purchase agreement. The learned Judges after
consideration of relevant decisions came to the conclusion that in the present case, the
"main distinguishing feature of a hire-purchase agreement", namely, that the hirer has a
right to terminate the contract for hire at his pleasure and is not bound to pay the value of
the goods, was absent, and therefore the agreement was an agreement for sale. On this
point " it should be mentioned that the finding of the first appellate Court was by no
means clear, as appears from the following passage:- ,
"So, I find and hold that the plaintiff is the onwer of the movable properties mentioned in
schedule of the plaint. Though the present contract between the parties is not a true
hire-purchase as an essential feature of contract for hire purchase, namely, the option
given to the prospective purchaser to terminate the contract is wanting, I think it just like
an agreement on hire-purchase system as the plaintiff as owner of the goods has given
possession of the same in favour of the defendant, and the agreement entered into by the
parties is that the owner could terminate the hiring and retake possession in default of
payment at any moment after default is made."

But having held that the agreement was one far sale, the High Court proceeded to say that
for this reason, Article 49 of the Limitation Act would not govern the case, which would
instead fall under Article 116, providing for suits for compensation for the breach of a
contract- in writing, registered, to which a six-year period of limitation was attached, to
commence on the same date as for a suit on a similar contract not registered.

Leave was granted to Shewram Das Agarwala to appeal against this decision, as- it raised
a question of general and substantial importance regarding the appropriate Article in the
Limitation Act applicable to a case like the present.

Mr. Mesbahuddin for the appellant took us through the provisions of the agreement in an
attempt to support the conclusions reached by the Courts below the High Court. In our
opinion, the conclusion that the agreement was not to be construed as a hire purchase
agreement can be supported on other grounds besides that mentioned by the learned
Judges of the High Court, viz., that it contains no provision enabling the "hire-purchaser"
to return the apparatus. Firstly, as has been pointed out- above, there is a specific
provision in the first paragraph of the agreement that the "hire-purchaser" would have
"the right to keep and use" the apparatus "till the payment of the full value of the price
settled" subject only to the other terms and conditions, of which the relevant condition is
that contained in article (2) relating to the right of distraint to be vested in the owner upon
default of payment of three consecutive instalments. The conferment of a "right" in these
terms is highly unusual. Its duration was to be determined by the performance of an
obligation by the "hire purchaser" himself. Moreover, upon fulfilment of this obligation,
the right was not to 'terminate, but was to continue. The purpose behind the use of these
words is thus not wholly clear, but it is certainly opposed to any suggestion that the
"hire-purchaser" was entitled to return the property, in the manner of a true hire-purchaser
at law. Further indications to the contrary are found in the two provisions regarding the
right of the "hire purchaser" to receive any balance over the amount due to the owner
which might be left upon a forced sale by the owner under the terms of the agreement. If
property in the goods continued to vest in the owner, there could be no question of the
"hire-purchaser" having a right to any part of the sale proceeds. Moreover, the apparatus
in question being movable property, the ordinary presumption would be that property in
the apparatus passed to the alleged "hire-purchaser" when the contract was made, it being
immaterial whether the time of payment of the price was postponed. beyond the date of
the contract. Reference in this connection may be made to section 20 of the Sale of
Goods Act, 1930, which is relatable to `an unconditional contract for the sale of specific
goods" but embodies a principle which in our opinion may be extended to cover a case
where there are terms in the contract which purport to retain ownership in the vendor
until the fulfilment of a certain condition relating to the price, alongside with other
conditions from which an equally clear conclusion may be drawn that ownership in the
goods became vested in the vendee upon the making of the contact.

We consider that when the agreement of the 14th March 1939 is read as a whole, it can be
understood only as an agreement by which the apparatus was sold to Arobinda Podder,
subject to certain conditions regarding the payment of the price, which t conditions
themselves are supported by further conditions relating to custody of the apparatus itself
at the instance of the unpaid 'vendor.

In this view, we are unable to support the conclusion of the High Court that the case fell,
in point of limitation, under Article 116. The contract undoubtedly gave a right to the
vendor to seize the property and bring it to sale upon default in payment of three
consecutive instalments, but this should be read subject to the condition in article (1) that
until the fell price was paid, the other party would be entitled to retain possession of the
apparatus sold, in other words that by mere default in payment of the instalments, the
possession of Arobinda Podder did not become unlawful. That possession only developed
in 7954 when a notice of demand was sent and was not complied with. The learned
Judges in the High Court appear to have been of the view that breach of the contract took
place in June 1941 when the default in payment of instalments took place. In fact the
default in terms of article (2) of the agreement did not become, valid until there was a
default of three consecutive instalments, but that did not, as we have seen, immediately
entitle the vendor to treat the possession of Arobinda Podder as if it were unlawful
Arobinda Podder was expressly empowered to keep possession of the apparatus Until the
full price had been paid by himself, subject to the right of the vendor to retake possession
and sell the apparatus to recover his dues. It was only when the vendor purported to
exercise that right, and Arobinda Podder resisted that exercise; that there was a breach of
the contract on the part of the latter, and from that, date, his possession would be deemed
to be unlawful. It is clear that the suit was brought within the time limited by Article 49
viz., three years commencing from that date.

For these reasons, we allow this appeal, and setting aside the decree of the High Court,
we restore the decree of the first appellate Court, which we consider was the proper
decree to make in the circumstances of the case, ire view of the fact that the
memorandum of agreement made no provision for interest on unpaid instalments. We
allow the appellant his costs throughout in proportion to the amount of the decree of the
first appellate Court.

A. H. Appeal allowed.