Madras High Court
Commissioner Of Income-Tax vs Paranjothi Salt Co. on 20 January, 1994
Equivalent citations: [1995]217ITR141(MAD)
JUDGMENT Ratnam, J.
1. Under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue, the following two questions of law have been referred to this court for its opinion :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition of Rs. 30,972 assessed as income under section 69D of the Income-tax Act, 1961, for the assessment year 1978-79?
(2) Whether the Appellate Tribunal's view that the documents executed by the borrowers in favour of the assessee should not be treated as hundis within the meaning of section 69D of the Income-tax Act, 1961, is maintainable in law?"
2. The assessee is a registered firm. In the course of the assessment proceedings for the assessment year 1978-79, the Income-tax Officer found that the assessee had borrowed a sum of Rs. 30,972 from Messrs. Shanmugham Finance Corporation and Smt. Kamala Nityanandhan and the Income-tax Officer took the view that these borrowals had been made on hundis and as the receipt and the payment sin relation to the hundi borrowals were not made by account payee cheques, as required under section 69D of the Act, the amount of Rs. 30,972 should be treated as deemed income and brought to tax. On appeal by the assessee, the view taken by the Income-tax Officer was affirmed. On further appeal by the assessee, the Tribunal held that the assessee had a running account with the two creditors and the borrowals were not made on hundis, but were only in the nature of collateral security for the borrowals. In addition, the Tribunal also took the view that the word "hundi" should be given a meaning ordinarily understood in trading circles and referable to an instrument drawn up in a vernacular language and as the documents under consideration were in the English language, they could not be regarded as hundis for the purposes of section 69D of the Act. The Tribunal also rendered a finding that the documents in question were not hundis at all and that the major portion of the transactions of borrowing and repayment were made by cheques and the requirements of section 69D of the Act had also been satisfied. On the conclusions so arrived at, the Tribunal allowed the appeal and deleted the addition to Rs. 30,972. That has given rise to the questions of law set out earlier.
3. The second question referred may be first taken up, as the answer to that will settle the answer to the first question referred. The contents of the documents executed by the assessee, though written on hundi papers, show that the essential characteristic of a hundi, viz., an unconditional order signed by the maker directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument, is absent. The only circumstance that the documents have been executed on hundi papers will not clothe them with the character of hundis. In this case, the documents after referring to receipt of cash, contain a clear and categorical promise and undertaking to pay those, who had made available the amounts, together with interest on and from the date on which the amounts were repayable. Thus, the contents of the documents in question do not satisfy the requirements of hundis. In this view, irrespective of whether the documents are couched in English or any other language, they cannot be considered to be hundis for purposes of section 69D of the Act. From the order of the Tribunal, it is also seen that, amongst others, the language employed in the documents had also been taken into consideration by it, though that, by itself, may not be decisive. It would, therefore, be unnecessary for us to consider the question of the applicability of section 69D of the Act to hundis couched in English. We, therefore, answer the second question referred in the affirmative and against the Revenue.
4. Regarding the first question, in view of the answer returned on the second question that the documents are not hundis, there is no question of deeming the amounts secured thereunder as income of the assessee applying section 69D of the Act. In addition the borrowing and repayments, as found by the Tribunal, are genuine and referable to the running account the assessee had with the two creditors and covered by cheque payments as well. In view of this undisputed conclusion of the Tribunal, we answer the first question referred to us also in the affirmative and against the Revenue. There will be, however, no order as to costs.