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TMI Blog1988 (1) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... des this point of applicability of section 69D, there are some other points, which we would like to dispose of at the outset. 2. The first point was against the disallowance of a sum of Rs. 22,320 on account of hotel expenses. This amount was disallowed by the Income-tax Officer on the ground that they were in the nature of entertainment expenses, whereas it is the claim of the assessee that these expenses were incurred in the normal course of business and pursuant to the long standing trade practice. Reliance, in support of the admissibility of this claim, was placed upon a decision of the Gujarat high Court in the case of CIT v. Patel Bros. & Co. Ltd. [1977] 106 ITR 424. The Finance Act, 1983 by inserting Explanation 2 in section 37(2A) with retrospective effect from 1-4-1976 expanded the meaning of the expression 'entertainment expenditure' to include the expenditure on the provision of hospitality of every kind, by the assessee to any person, whether by way of provision of food or beverages or any other manner whatsoever, whether or not such provision was made by reason of any express or implied contract or custom or usage of trade and excluded from its purview, the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt, as to how many bulbs were purchased, how many were utilised and how many were held in stock. The Tribunal had disallowed Rs. 1,60,000 in the previous year, out of Rs. 1,69,000 claimed. The excess disallowance of Rs. 25,000 only was deleted. This year there was no such disallowance made by the department. Akin to the disallowance of Rs. 1,60,000 made in the previous year, the total disallowance was only Rs. 25,000. Since the Tribunal had already confirmed a disallowance of Rs. 1,60,000 in the previous year, which leads us to believe that some disallowance was called for, since the disallowance made this year was only Rs. 25,000 and since the assessee had not maintained any stock account, and since the existence of unutilised bulbs was not denied, we think that the disallowance of Rs. 25,000 was not unwarranted, nor can it be said to be excessive. We, therefore, confirm the disallowance. 4. The next ground taken up was disallowance of expenses out of shooting-Rs. 1,00,000 set erections and costume expenses-Rs. 50,000 shooting set erections-Rs. 35068 and the entertainment expenses Rs. 8,474. At the time of hearing, the learned counsel for the assessee did not press these disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Ugar Sugar Works Ltd.'s case, which is binding on us, governs the issue and no alteration in that view was made by the Bombay High Court in the subsequent decision in Western Rolling Mills (P.) Ltd.'s case. In Ugar Sugar Works Ltd.'s case the Bombay High Court had to deal with the question, whether, when an assessee had not appealed to the AAC against the finding of the Income-tax Officer, rejecting the assessee's claim for development rebate, although at the same time it had appealed to the AAC against other disallowance made by the Income-tax officer, he could be permitted to raise the point of development rebate, before Tribunal. The Bombay High Court, after a review of the entire case law on the subject, took the view what the finding of the Income-tax Officer not having been appealed against to the AAC, it must be assumed that the assessee was not aggrieved by the finding of the Income-tax Officer and that it had accepted the same. Further, the finding of the Income-tax Officer not being the subject-matter of appeal before the AAC he not having been called upon to adjudicate the same, and not having adjudicated upon the same, there could not be any decision of the AAC on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (1979) 116 ITR 778, where the Andhra Pradesh High Court considered and applied the decision of the Supreme Court, held that the AAC had the power to entertain the ground of appeal provided that there was ample material on the record. The Bombay High Court held that the decision of the Supreme Court in Gurjargravures (P.) Ltd.'s case was no bar to the entertaining of the claim by the AAC or the Tribunal when there was material before the Income-tax Officer. On coming to this conclusion the Bombay High Court held categorically at page 57 of the report that they were not considering the question as to whether there was any difference between the powers of the AAC and the powers of the Tribunal in this petition and confined themselves only to the powers of the AAC to entertain a new ground. This is what the Bombay High Court observed : "In the instant case we are not required to consider whether there is any difference between the powers of the AAC and the Tribunal in this petition. We are considering the powers of the AAC (for Commissioner of Appeals) to entertain a new ground. Before either of the decisions is applied, let us consider, whether there was any material on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he addition with the following observation : "Section 69D provides that where any amounts 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 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. Admittedly in the present case, the amounts of Rs. 50,000 and Rs. 30,000 were borrowed by the appellant against 'hundis' and the repayments of the loans were made in cash. Therefore, provisions of section 69D are clearly attracted. The ITO is, therefore, justified in adding the amount of Rs. 80,000 as income under the provisions of this section. Accordingly, I reject this ground." Against this order of the Commissioner of Income-tax (Appeals) the present appeal is filed and the question is, whether what was repaid on 'hundi loan' could be treated as the income of the assessee or not. Arguments were addressed to us quite elaborately by Shri S. A. Joshi, for the assessee, Shri Y. P. Trivedi as an Intervener and Shri S. C. Tewari for the revenue. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made only through account petty cheques. It was pursuant to this recommendation that section 69D was enacted. The Bench then traced the history, as to what a 'hundi' meant and referred to the Commentary on Negotiable Instruments Act (Act XXVI of 1881). Sixteenth Edition by M. S. Parthasarathy and also referred to the circulars issued by the Central Board of Direct Taxes No. 208 dated 15-11-1976. On a consideration of these authorities and the source of information the Bench came to the view that the following are the characteristics of a 'hundi' : (a) A hundi is payable to a specified person or order or negotiable without endorsement by the payee; (b) A holder is entitled to sue on a 'hundi' without an endorsement in his favour; (c) A hundi accepted by the drawee could be negotiated without endorsement; (d) If a 'hundi' is lost, the owner could claim a duplicate or triplicate from the drawer and present it to the drawee for payment; (e) Interest can be charged where usage is established.". The Bench then contrasted these characteristics with the requirements of a Bill of Exchange as defined in section 5 of the Negotiable Instruments Act. It found that a hundi is different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso explained the provisions of section 69D and referred to the history relating to the hundis and how they came into vogue and how the business community was utilising them as a credit facility and what would be their characteristics. It also referred to the various kinds of hundis, which were in use and briefly referred to them. The other circular was no. 221 dated 6-6-1977. Both the circulars were considered by the Tribunal in its order in extenso and after quoting from them culled out the characteristics of a hundi and more or less applied those characteristics to find out whether the instrument executed in that case was a hundi or a promissory note. 7. It does not, therefore, appear proper for the Revenue to contend before us now that Circulars of the Board were not considered by the Madras Bench in Grahalakshmi & Co.'s case. Without going into the finer nuances of law relating to the Negotiable Instruments, all that we would like to hold is that the test laid down by the Madras Benches in the case referred to above are of universal application and that is the only way to find out whether a document executed is hundi or not. Since we have found, that the test laid down by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 25 np. Rs. 5,000 Bombay dated 28-12-1977 At (163) one hundred sixty three days after date without days of grace pay at Bombay to Girdharidas Ghanshamdas or order the sum of Rupees Five Thousand (Rs. 5,000) for value received this day. for R. K. Films To, Sd/- K. V. Sunder Raman, Trombay Road, &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Raman, Sd/- Trombay Road, Proprietor Chembur, Bombay. Notice of Dishonour Waived For R.K. Films Accepted. Sd/- Sd/- K.V. Sunder Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a promissory note takes this case out of the purview of Grahalakshmi & Co.'s case as will as K. A. Khader Sons' case decided by the Madras Bench of the Income-tax Appellate Tribunal. 10. Now, if the bill of exchange in this case is negotiable only by endorsement, then it ceases to be a hundi, as explained by the Board in the circular referred to in Grahalakshmi & Co.'s case and also by the statement of law given by M. S. Parthasarathy in the Negotiable Instruments Act, Sixteenth Edition in Appendix I cited above. To repeat, a hundi must, by custom, be transferable like cash by delivery. If it is not transferable like cash by delivery, it does not become a hundi as explained in the case of Grahalakshmi & Co. The object of section 69D was to trace the source of money brought into the books by an assessee through the medium of a hundi. Since a hundi is transferable like cash by delivery, it becomes difficult to spot the person giving it and, therefore, the source becomes difficult to trace. In order to trace the source, section 69D provided that these transactions either for borrowal or repayment must be by account payee cheques, which would identify the person while in the proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility. The effect of endorsement is provided for in section 50 of the Negotiable Instruments Act, which says that : "The endorsement of a negotiable instrument followed by delivery transfers to the endorse the property therein with the right of further negotiation; but the endorsement may, by express words, restrict or exclude such right, or may merely constitute the endorse an agent to endorse the instrument, or to receive its contents for the endorser or for some other specified person." Thus, the effect of endorsement is to transfer to the endorse the property in the document with right of further negotiation. This transfers the property in the document with the right of further negotiation, if to be achieved by endorsement, then it becomes a bill of exchange and not a hundi. In this case the document is made payable to order. Therefore, it is negotiable only by endorsement and delivery thereof. If a document is negotiable by endorsement and delivery thereof, it becomes a bill of exchange and not a hundi. It would also not become a promissory note in certain cases. Therefore, keeping in view the terms of the instrument executed in this case, we are of the opinion that this bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product. I have considered the matter carefully and in may opinion there is no force in the argument of the learned counsel for the appellant. The provisions of section 37(3C) are applicable only in a case where the assessee has not set up industrial undertaking for the manufacture of production of any articles. As the appellant has been in the film line for the last several years and had produced several films in the past, he cannot be said to have established a new industrial undertaking by producing the film 'Satyam Shivam Sundaram'. As such the provisions of section 37(3D) are not applicable in this case. The disallowance of Rs. 1,10,482 made by the ITO is according to the provisions of section 37(3A) and, therefore, is according to law. I, therefore, reject this claim." In this contract our attention was invited to a decision of the Income-tax Appellate Tribunal, Bombay Bench in the case of First ITO v. Y. R. Chopra (sic). In this case also the question arose whether each picture produced by a producer would amount to the setting up of a new industrial undertaking for the purpose of taking advantage of the provisions of sections 37(3A) and 37(3C). There also during the accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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