Al & Fs Calls For Waiver Of 5% Tax On Hire Purchases

The Association of Leasing and Financial Services Companies (AL&FS), in its pre-budget memorandum to the Union finance minister, has reiterated its demand for waiver of the five per cent service-tax on the interest portion on lease and hire purchase (L&HP) transactions. It also sought powers to repossess assets without recourse to courts and pitched for stiffer penalties in cheque-bouncing cases.

The association has reasoned that the service-tax, if at all payable, should only be on one-time lease management fees or higher purchase documentation charges, and not on any portion of L&HP charges.

It represented that since both the interest and principal portions of a lease transaction were taxed for sales tax purposes, the entire amount should be tax exempt rather than double-taxed.

"L&HP are funding options which compete with bank loans in the market place. The 5 per cent service-tax has made borrowings via the L&HP route costlier by around 3.5 percentage points as compared to bank loans," says Mahesh Thakkar, executive director, AL&FS.

No amount of 'sales talk' about the operational convenience of the L&HP transaction could justify a price differential of this magnitude and this tax would compel the companies in the business to down their shutters, he averred.

Recovery procedures on the lines of the National Housing Bank Act have been sought by the association. The Act provides for the appointment of recovery officers and debt recovery appellate tribunals, both of whom have been vested with the powers of a civil court, where housing finance companies can apply for recovery of their dues in case of default by their borrowers.

They have been given a time limit of six months each to dispose off the applications made by the HFCs.

On the interpretation of Section 14 A of the Income Tax Act, which AL&FS said should be made applicable prospectively and not retrospectively (from 1962), the association has taken the stand that the direct cost incurred for deriving the tax-free income as also interest on money borrowed for making the investment should be disallowed.

However, the assessing officer should not allocate a pro-rata interest cost in respect of moneys borrowed by a firm in the normal course of its business and attribute such cost as an expenditure incurred for earning the tax-free income.

On the issue of cheque bouncing, AL&FS has sought a jail sentence of not less than one year which may extend to five years and a fine of not less than double the amount of dishonoured cheque which may extend to five times the cheque amount. It has sought appointment of adequate number of courts so as to decide such cases within three months from filing.