COMMISSIONER OF INCOME TAX Vs. GRAHALAKSHMI AND CO

JUDGEMENT

(1.) IN this reference under section 256(1) of the income -tax Act 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue, the two questions of law, which have been referred to this court for its opinion are

(2.) THE assessee is a registered firm and during the previous year relevant to the assessment year 1978 -79, the assessee had taken some loans and repaid them in cash. The borrowals were on the basis of instruments, which were regarded as "hundis" by the Income -tax Officer and as the borrowals and repayments were not made through account payee cheques, an amount of Rs. 57, 325 regarded as deemed income under section 69D of the Act, was brought to tax. On appeal by the assessee, the Appellate Assistant Commissioner took the view that the documents in respect of the borrowals were in English and not in a vernacular or oriental language and that they were only promissory notes intended to serve as collateral security.

(3.) THOUGH it may be that they had been written on hundi papers, yet, we are unable to read into those documents, one of the essential characteristics of a hundi, viz., an unconditional order 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. Merely because the documents have been executed on hundi papers, would not make them hundis, if contentwise they are not. In this case, the documents after referring to receipt of cash, contain a clear and categorical promise and undertaking to pay those, who have made available the amount, together with interest on and from the date on which the amounts were repayable. Considering the contents of the documents, in the light of the requirements of a hundi, we are unable to hold that the documents in question are hundis. Irrespective, therefore, of the language employed, whether English or any other language, the instruments cannot be considered as hundis for the purposes of section 69D of the Act. It is also seen that amongst several other reasons, the Tribunal had also taken into account the language employed in the documents, though that by itself, may not be conclusive. Further, the Tribunal had also found as a fact that the transactions were genuine and the parties were traceable and the transactions had also been reflected in the books of account of both the parties. Taking note of the contents of the documents, it is also quite possible that the parties thereto, had also not regarded them as hundis and that would justify the failure to resort to cheque payments. Indeed, when once the documents have been found to be not hundis, section 69D of the Act cannot be applied at all. In CIT v. Paranjothi Salt Co. (T.C. No. 886 of 1983, order delivered today).