| If the nature of the transaction is
such that the asset given for a period of time is to be ‘used’ by the receiver,
but, by the nature of the transaction, cannot be ‘used up’ by him, the
predetermined gain would be categorised as rent not Riba#.
Illustration
Mr A leases out his house to Mr B
for one year at a rent of Rs. 5000 per mensem. In the third month, Mr B
is unable to pay the rent, and, in accordance with the terms of his contract,
he has to vacate the premises. To do this, he does not have to ‘re-create’
the building as the nature of the whole arrangement was such that he could
not ‘use up’ the property.
On the other hand, Mr A gives a sack
of wheat to Mr C for a certain time period, during which Mr C has to pay
Rs. 50 every week to Mr A over and above the value of wheat. Now, in the
second week Mr C is unable to pay Rs. 50. In this case, he might have to
‘re-create’ the sack of wheat to return the loan as he might have consumed
it, or ‘used it up’.
To use accounting terminology, one
might say that Riba# is charged on
circulating capital whereas Rent on fixed capital.
It is also important to note that
it is the nature of the transaction, not the nature of the commodity, which
determines whether the capital is circulating or fixed, that is whether
it can or cannot be ‘used up’. For example, a machine hired to produce
goods may be categorised as fixed capital as, by the nature of the transaction,
it cannot be ‘used up’, whereas the same equipment borrowed as stock-in-trade
for sale by a fellow trader may be categorised as circulating capital as,
by the nature of the transaction, it may be ‘used up’ to generate revenue.
Consequently, one can say that in
case of a Riba# bearing transaction:
i) there is a gain at a predetermined rate on the loan,
and
ii) the nature of the transaction is such that the commodity
borrowed can be ‘used up’ to generate revenue.
It is needles to say that money is a commodity
which, by its nature, involves transactions in which the loaned capital
sum may be ‘used up’ by the borrower. Therefore, whenever money is lent,
any gain at a predetermined rate on the principal is Riba#. |