Hire purchase agreement, as is generally understood, is an agreement to hire goods with an option to purchase i.e., it gives the hirer an option to purchase the goods whether by payment of a lump sum amount or by the completion of the payment of an amount in instalments.
In K.L. Johar and Co. Vs. The Deputy Commercial Tax Officer, Coimbatore III, the Supreme Court explained that a hire purchase agreement has two elements:
(i) element of bailment, and
(ii) element of sale, in the sense that it contemplates an eventual sale and that the element of sale fructifies when the option is exercised by the intending purchaser after fulfilling all the terms of the agreement are satisfied and the option is exercised, a sale takes place of the goods which till then had been hired. Where, however, such option is not exercised or cannot be exercised because of the inability of the intending purchaser to fulfil the terms of the agreement, there is no sale at all.
It was also pointed out by the Supreme Court that the property in the goods will not pass to the intending purchaser at the time of the hire purchase agreement and that till the terms of such agreement are fulfilled and the option to purchase is exercised, the in-tending purchaser has no right in the goods except that of hirer.