COMMISSIONER OF INCOME TAX Vs. PARANJOTHI SALT CO

JUDGEMENT

(1.) UNDER S. 256(2) of the IT 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 :

(2.) THE assessee is a registered firm. In the course of the assessment proceedings for the asst. yr. 1978 -79, the ITO found that the assessee had borrowed a sum of Rs. 30,972 from M/s Shanmugham Finance Corporation and Smt. Kamala Nityanandhan and the ITO took the view that these borrowals had been made on hundis and as the receipt and the payments in relation to the hundi borrowals were not made by account payee cheques, as required under S. 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 ITO 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 S. 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 S. 69D of the Act had also been satisfied. On the conclusions so arrived at, the Tribunal allowed the appeal and deleted the addition of Rs. 30,972. That has given rise to the questions of law set out earlier.

(3.) 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 S. 69D of the Act. In addition the borrowings 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.