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Fifth Income-tax Officer Vs. K.A. Khader Sons - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1983)6ITD65(Mad.)
AppellantFifth Income-tax Officer
RespondentK.A. Khader Sons
Excerpt:
.....the nature of the document has to be looked into for the purpose of deciding whether it is a hundi or a promissory note and the mere fact that the word 'hundi' is engraved on the stamp would not determine the character of the document.4. on a consideration of the submission of the parties and the nature of the document involved in this case, a copy of which has been filed before us, we are satisfied that the borrowal in this case cannot be held to be on hundis. the document in the instant case clearly shows that it is a promissory note executed in terms similar to the one considered in the calcutta high court decision referred to by the learned counsel and considered in the order of the tribunal in the case of grahalakshmi & co. (supra). in the calcutta high court decision,.....
Judgment:
1. This is an appeal by the department. It relates to the income-tax assessment for the year 1979-80 of the assessee, K.A. Khader Sons, Gudiyatham. The objection of the department is to the deletion by the AAC of the addition of Rs. 65,000 made by the ITO under the head 'Income from other sources' by resort to Section 69D of the Income-tax Act, 1961 ('the Act'). During the accounting year relevant to the assessment year 1979-80 involved in this appeal, the assessee borrowed certain amounts on documents alleged to be hundi, the details of which are set out in the order of the AAC. The ITO considered them to be loans borrowed on hundi and as they were received in cash, which is otherwise than through an account payee cheque, he considered that the provisions of Section 69D were attracted warranting add back of the total amount of such borrowal as the assessee's income from 'other sources'. Section 69D provides that where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be. In other words, if the amount is borrowed on a hundi and such amount is received not by an account payee cheque drawn on a bank, the amount of such borrowal will be treated as income and included in the assessment.

2. In the appeal preferred by the assessee, the AAC deleted the addition accepting one of the arguments of the assessee based on the clarification and instruction given by the Board in Circular No. 221 [F. No. 208-25/76-IT(A-II)], dated 6-6-1977 [See Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., pp. 306-08] though he found force in the assessee's other contention that since the so-called hundis were in English language and not in vernacular, they cannot be regarded as hundis. The department has come up in appeal against his order.

3. In the appeal before us, the learned departmental representative submitted that though the order of the Tribunal relied on by the assessee in IT Appeal No. 1162 of 1979, dated 24-10-1980, supports the assessee's contention that the document cannot be regarded as a hundi as it is not in any vernacular, but in English language, the decision has not been accepted and the department has filed a reference application in respect of the same. He, however, submitted that the acceptance of the other argument by the AAC with reference to Circular No. 221, dated 6-6-1977, is not justified, as according to him, the circular does not support the assessee in the facts of this case.

Referring to the circular mentioned above, it is pointed out that the circular covers only darshani hundi transactions of the type referred to in items (i), (ii) and (iii) of para 2 of the circular and according to it the transactions not of the type referred to above on darshani hundi had to be examined with reference to the facts and circumstances of each case so as to determine whether or not there is a borrowal on such hundis, in which case the provisions of Section 69D would apply.

The learned counsel for the assessee besides relaying on the order of the Tribunal in IT Appeal No. 1162 of 1979, dated 24-10-1980, also referred to other orders of the Tribunal, namely, Second ITO v.Grahalakshmi & Co. [1982] 2 ITD 420 (Mad.), I TO v. N.K.A. Chinnaswamy Nadar & Sons [IT Appeal No. 1039 (Mad.) of 1981 dated 27-3-1982] and N.C. Annamalai Chettiar & Sons [IT Appeal No. 2247 (Mad.) of 1981 dated 20-11-1982]. It was further pointed out by the learned counsel that in the order of the Tribunal in the case of Grahalakshmi & Co. (supra), the decision of the Calcutta High Court in Harsukdas Balkissendas v.Dhirendra Nath Roy AIR 1941 Cal. 498 has been considered and applied and according to this decision, the nature of the document has to be looked into for the purpose of deciding whether it is a hundi or a promissory note and the mere fact that the word 'hundi' is engraved on the stamp would not determine the character of the document.

4. On a consideration of the submission of the parties and the nature of the document involved in this case, a copy of which has been filed before us, we are satisfied that the borrowal in this case cannot be held to be on hundis. The document in the instant case clearly shows that it is a promissory note executed in terms similar to the one considered in the Calcutta High Court decision referred to by the learned counsel and considered in the order of the Tribunal in the case of Grahalakshmi & Co. (supra). In the Calcutta High Court decision, after noting the fact that there is no definition of a hundi in the Negotiable Instruments Act, 1881, and apparently there is no legal definition either statutory or otherwise thereof, though such documents are in common use, the Court noticed a definition or description of a hundi in Wilson's Glossary published in 1940 and edited by Mr. Ganguly and Mr. Basu, advocates of the Court and the description or definition contained therein is 'hundi--a bill of exchange'. After referring to the provisions of the Stamp Act, it was found that an instrument on which the word 'hundi' is engraved may be either a promissory note or a bill of exchange and the word 'hundi' on the stamp paper does not determine the character of the document which has to be done with reference to the provisions of the document itself. From the definitions of 'promissory notes' and 'bills of exchange', it was observed that the essential character of a promissory note is that it shall contain a promise and the essential character of a bill of exchange is that it shall contain an order. It is clear, therefore, that in the instant case notwithstanding the fact that the word 'hundi' is engraved in the stamp paper, the nature of the document shows that it is a promissory note in which a particular amount is undertaken to be paid and not a bill of exchange, which is of the nature of a hundi.

We do not find anything in the circular which would support the department's contention. The circular, even in items (i), (ii) and (iii) deals with different types of darshani hundi in which there is no borrowal and such hundi is given in the nature of a security. In respect of such hundis, therefore, it is held that Section 69D is not applicable. It is at the same time mentioned in paragraph 6 of the circular that it could not be said that there could not be no borrowal on darshani hundi and the transactions not falling in the types referred to in items (i), (ii) and (iii) are to be examined with reference to the facts and circumstances of each such case so as to determine whether or not there is a borrowal on such hundis. In other words, it must be found with reference to the facts in each case that there is a borrowal on hundi which is equivalent to a bill of exchange and if we keep in mind the characteristic of a bill of exchange, pointed out in the Calcutta High Court decision, it would be seen that it must contain an order on a person to pay a certain amount. If the borrowal is not on the basis of any such document, in which there is an order on a person to pay a certain amount, but on a promissory note, it is not a borrowal on hundi and, therefore, will not be hit by Section 69D. We also agree with the other considerations stated in the various orders of the Tribunal for coming to a similar conclusion. In these circumstances, we find no merit in the department's objection, which is accordingly rejected. The order of the AAC is, therefore, upheld.


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