Per Shri T. V. Rajagopala Rao, Judicial Member - This is an appeal filed by the assessee against the order of the Commissioner (Appeals) dated 7-7-1983 and it relates to the assessment year 1978-79. The only question involved in this appeal is whether the repayment of hundi can be made by a crossed demand draft instead of crossed cheque. The contention of the assessee is that crossed demand draft is the same as crossed cheque as per the commentary made in their book on Negotiable Instruments Act by Bhashyam and Adiga, 14th edition as follows : "The High Court of Bombay in Maturi Sanyasilingam v. Exchange Bank of India & Africa Ltd. AIR 1948 Bom. 1 and Haji Sheikh Hasanoo v. S.Natesa Mudaliar & Co. AIR 1959 Bom. 267 has taken the view that a demand draft issued by a bank on its branch or vice versa is not a cheque nor a bill of exchange while the other High Courts in Suganchand & Co. v. Brahmayya & Co. AIR 1951 Mad. 910 Pt. Sidh Nath Shukla v.Punjab National bank of India Ltd. AIR 1960 All. 238 and State Bank of India v. Jyoti Ranjan Mazumdar AIR 1970 Cal. 503 have held that it is a bill of exchange and is very nearly allied to cheque. Having regard to the definitions contained in sections 5 and 6 and the provisions of sections 85A and 131A. it is submitted that the view of the Allahabad, Assam Calcutta and Madras High Courts is correct." (p. 131) At page 325 of their book, the same authors describing the nature of the bankers draft stated as follows : "16. Bankers draft - Bankers drafts are orders addressed by one bank to another or by a bank to its branch to pay a specified sum to a payee named or his order. It will be noted that they bear close resemblance to cheques but they were not recognised as such in English law when the drawer and the drawee are branches or offices of the same bank. By the passing of Bill of Exchange Amendment Act, 1932, the bank drafts have been brought into line with cheques. In India, they could be treated as cheques, as the definition of bill of exchange does not require the order to be addressed by one person to another. But this view has been doubted. (See sec. 6, ante)." "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 :" 2. The assessee is a closely-held private company. Previously, assessment was completed under section 141A of the Act on 23-2-1979.
However, it was reopened under section 143(2) of the Act. The ITO proposed to add more than Rs. 1 lakh to the returned income. Hence, he issued a draft assessment order to the assessee on 4-3-1981. After considering the assessees objections dated 26-3-1981, the IACs instruction dated 23-4-1981 were issued to the ITO and the assessment was completed according to those instructions. The assessee found to have borrowed moneys from hundis and was found to have repaid the same by demand drafts. The ITO held that the repayments as per the requirements under section 69D should be through account payee cheque.
However, it was argued before the ITO that there is not much difference between the payment by demand draft and payment by cheque. The ITO found that in the language of section 40A (3) of the Act, both the words cheques and demand drafts were used whereas, according to him, the Legislature advisedly omitted the use of the word draft from the wording of section 69D. Therefore, he did not accept the contentions of the assessee and added the principal sum of Rs. 10,000 and the interest of Rs. 1,600 paid through demand drafts as the income of the assessee and, thus, he completed the assessment on a total income of Rs. 1,09,806 as against the loss of Rs. 67,060 returned by the assessee as per his return dated 13-2-1979.
3. Even before the Commissioner (Appeals) the excerpts from Negotiable Instruments Act, (supra) quoted above, were relied upon. After discussing the legal aspect, the learned Commissioner (Appeals) held that a demand draft drawn by a banker upon his branch office cannot be called a cheque since it is not addressed to by one person to another according to section 3 of the Bill of Exchange Act. He also held that since both the drawer and the drawee are the same person, the holder and not the banker has the option of treating the instrument either as a bill of exchange or a promissory note. He further found that the Act has drawn a distinction between a cheque and a demand draft, if we carefully observe the wordings of sections 40A (3) and 69D. Therefore, he held that payment by an account payee cheque only will be protected under section 69D but not a payment through a bank draft. Inasmuch as in this case the loan was said to have been repaid through a bank draft, the principal as well as the interest said to have been paid on this loan have to be treated as the assessees deemed income under section 69D and, thus, he affirmed the addition.
4. We heard Shri B. S. Murthy, the learned counsel for the assessee, and Shri B. P. R. Naik, the learned departmental representative. Almost the same contentions which were advanced before the learned Commissioner (Appeals) were also reiterated by both sides us. After hearing the arguments, we are inclined to accept the plea advanced on behalf of the assessee in view of the preponderant authority available to the assessee. Except the Bombay High Court all other High Courts had taken that the demand draft is very nearly allied to a cheque. The difference and distinction between the demand draft and a cheque were found on two aspects-firstly, a draft can be drawn only by a bank on another bank and not by a private individual as in the case of a cheque and secondly, a draft cannot be easily countermanded as a cheque, either by the person who purchased it or by the bank to whom it is presented. The intendment of section 69D is to prevent bogus hundis and the payment under the bogus hundis. The Legislature felt that if the principal and interest due on a hundi are repaid through an account payee cheque drawn on a bank, then it cannot be said that the hundi is a bogus one. At least it would go to establish that the hundi repaid was a real hundi. Having known the intendment of the Legislature, the question is how far the payment of the principal and interest due under a hundi through a demand draft would change the desired effect sought to be brought about by the Legislature by enacting section 69D. Once the demand draft is purchased and it is dispatched to the drawer of the hundi it cannot even be countermanded. The fact that the demand draft was drawn through one bank over the other does not in any way affect the genuineness of the payment. Therefore, as far as the payment to the drawer of the hundi is concerned, the account payee cheque as well as the demand draft would be all of the same effect. To put it more correctly the demand draft is more efficacious than the account payee cheque inasmuch as the latter is liable to be countermanded whereas the former cannot be. Under the circumstance, we feel that the requirements of section 69D are fulfilled in this case and we order that the ITO should delete the addition of Rs. 11,600 from the total income of the assessee.