TMI Blog2001 (2) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm could borrow money in cash from the local moneylender for meeting local expenses such as labour payments etc. but immediately upon doing so, the local office would issue internal instructions to the headoffice to make the payment of the borrowed sum directly to the moneylender. As a matter Of fact, the money was given by the moneylender in exchange of such internal payment instructions issued by the local office to the head office. As a part of this arrangement, head office of the assessee-firm was making instructed payments to the moneylender, by crossed cheques, usually within 2-3 days of such payment instruction being issued by the tea estate office. Thus, effective borrowing period was time required in implementing the payment instructions issued by the tea estate office to the head office, which worked out to, on an average, less than 3 days. In consideration of these services, the moneylender was charging a flat interest of 75 paisa per hundred rupees. On these undisputed facts, the learned Assessing Officer was of the opinion that this arrangement by the assessee was in nature of borrowing against hundi and since these borrowings were in cash, section 69D was attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than 3 days an average, but it cannot be in dispute that the local moneylender's funds were enjoyed by the assessee for at least this short period. It is also not in dispute that a flat interest of 0.75 per cent on the amount so financed was paid to the moneylender and that during the year such interest charges came to Rs. 33,570, details of which have been furnished in assessee's paper book itself at page No 6. Once we reach a conclusion that there was a de facto borrowing, as we do conclude in this case the next thing is to examine whether or not such borrowing can be said to be covered by 'borrowing on hundis' and, therefore, hit by the mischief of section 69D of the Incometax Act, 1961. 5. It will be worthwhile to reproduce the relevant legal provision in order to properly appreciate the controversy before us in correct perspective. Section 69D, inserted in the Income-tax Act by the virtue of Taxation Laws (Amendment) Act, 1975 w.e.f. 1st April 1977, reads as follows: 'Where any amount is borrowed on a hundi form, 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to relied upon by the AAC in his order, has held that only those instruments can be called 'hundis' which are written in vernacular .... Later Madras A Bench of the Tribunal (Camp: Madurai) in the case of Second ITO Tuticorin v. Mls Grahlaxmi Co. in ITA No. 377 (Mad.)/81 (assessment year 1978-79) to which one of us, the Vice-President, was a party, has added one more reason that (is that) section 69D applies only to instruments which are negotiable without endorsement and the negotiability is the principal test to find out whether a document is a hundi or not...' In the case of P. S. TS. Thiraviarathna Nadar, revenue had brought to tax certain sums because these constituted repayments, otherwise than by way of account payee cheques, on certain instruments drawn in English which, according to revenue authorities, constituted hundis. However, Commissioner (Appeals) held that since these documents were drawn in English, these could not be described as hundis. The Tribunal affirmed the views of the first appellate authority and even revenue's reference application was rejected by Hon'ble Madras High Court. Finally, Hon'ble Supreme Court also dismissed special leave petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, though written on hundi papers, show that 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 the receipts of cash, contain a clear and categoric promise to pay those, who made available the amounts, together with interest on and from the date these amounts were repayable. Thus the contents of documents in question do not satisfy the condition of hundis. In this view, irrespective of whether the documents are in English or any other language, they cannot be considered to be Hundis in any case....' The aforesaid judgment of Hon'ble Madras High Court has been followed in SKS Rajamani Nadar v. CIT [1995] 216 ITR 696, CIT v. Paranjothi Salt Co. [1996] 220 ITR 291 CIT v. Madura Devakottai Transports (P.) Ltd. [l999] 238 ITR 1003, CIT v. Prithivi Fire Works Industries [1999] 239 ITR 230, CIT v.K.P. Abdullah [1999] 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal were echoed by the Hon'ble Andhra Pradesh High Court when Hon'ble High Court came to be in seisin of this very matter in a reference petition. Their Lordships, in their, judgment reported as CIT v. Intraven Pharmaceuticals (P.) Ltd. [1996] 219 ITR 225 inter alia observed that : " .... We have perused the provisions of section 69D as well as the objects and reasons for introduction of this section. The reference there is only to the Wanchoo Committee report which had made reference to unearthing the black money and preventing its proliferation. In other words, object was only to am that transaction on borrowal of hundi will be made visible by making the transaction go through the bank.... In our opinion, the object of making disallowance under section 69D is only in the event of transaction being unverifiable....' 9. Let us now come back to the facts of this case. As we do so, we have to further bear in mind that section 69D deals with artificial income created by the provisions of the Income-tax Act and, therefore, this section needs to be strictly construed. As observed by the jurisdictional High Court in the case of CIT v. Bhupender Singh Atwal [1993] 140 ITR 928, ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such instruments can be treated as 'borrowing on hundi' in the hands of the assessee. In view of our finding that the instrument in question cannot be treated as 'hundi' in the hands of the assessee, we are of the considered view that the borrowing on such an instrument cannot be treated as 'borrowing on hundi' and is, therefore, outside the ambit of mischief of section 69D. We may also mention that there is also unanimity on the subject that a hundi is negotiable without endorsement by the payee but in the case before us, there is no question of negotiation of these instruments as these are only firm payment instructions and in all the instances of these borrowings, payments have been made within 2 to 3 days on an average. As observed by the Hon'ble Andhra Pradesh High Court, it is not the form but the substance of the document and it is the true nature of transaction which is really to be seen. Similarly, Full Bench of Hon'ble jurisdictional High Court in the case of Harsuk Das, total contents and effect of the document have to be looked into for finding out as to whether a transaction is or is not on a hundi. Keeping in view entire gamut of this case, we are of the considered v ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
