COMMISSIONER OF INCOME-TAX v. K. P. ABDULLAH.
Tax Case No. 559 of 1988, decided on June 18, 1998.
HIGH COURT OF MADRAS
C. V. Rajan, for the Applicant : R. Kumar, for the Respondent
R. JAYASIMHA BABU, J. :
The question referred to us at the instance of the Revenue which question arises out of the assessment of the respondent’s income for the asst. yr. 1981-82 is as to “whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the additions made under section 69D of the IT Act, 1961, for the asst. yr. 1981-82 ?”
2. Sec. 69D of the Act reads as under :
“69D. Amount borrowed or repaid on hundi-Where any amount 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 a 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 :
Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.
Explanation : For the purpose of this section, the amount repaid shall include the amount of interest paid on the amount borrowed.”
If the instrument is regarded as a promissory note, the section is inapplicable.
3. The document which the ITO regarded as a hundi reads thus :
“12,500/- No. 21-75 np.
Due dt. 15th August, 1980, Madras
Date : 19th May, 1980
At (88) Eighty eight days after date without graced days …… promise to pay to M/s Jagadeesh Enterprises or order at the office of ………….. the sum of Rupees twelve thousand five hundred only for value received in cash this day.
For Mayfair Plastic Company
This document provides for payment by the executant of the sum mentioned in the document at the expiry of 88 days after the date of execution of the document. The amount payable is certain. The time at which the payment is to be made is also certain. All the four transactions which the TO regarded as being hundi transactions had been carried out in the same format as one set out in this order. The assessee had borrowed from four lenders in his sum of Rs. 12,500, Rs. 12,400, Rs. 7,500 and Rs. 7,500. There is no dispute about the date of the loans and also the fact that repayment had been effected. The date of repayment has also been set out in the order of the AAC. The repayments were not made by cheque but by cash. Repayment of the loan by cash, if it was a loan obtained on a promissory note is not illegal and the genuineness of the transactions not being in doubt, the assessee was entitled to the proper consideration of these transactions as loans borrowed and repaid.
4. The learned counsel for the Revenue in support of the order of the ITO submitted that the document in reality is a hundi and relied on the following illustration of hundi given in the Commentary on the Nagotiable Instruments Act by Bashyam and Adgarts – 16th Edn. p. 47.
“Thavamani Hundi for loan (2) Madras Place and date
At ………… days after the date we jointly and severally promise to pay ……..or order at the Imperial Bank, Madras, a sum of Rs. ………….. only for value received in cash.
It was, therefore, submitted that the documents executed by the assessee in this case which are in that manner are in fact hundies and, therefore, attracts section 69D of the Act.
5. The learned counsel for the assessee submitted that hundies are normally written in the vernacular language and since these documents are in English on that ground alone those document cannot be regarded as hundi are unable to agree that the language in which the instrument is written is decisive. Though normally hundies are written in the vernacular language as the traders who used hundies in the past by and large were illiterate in English, that does not lead to the conclusion that if a document which is otherwise a hundi is written in the English language, such a document cannot be regarded as a hundi. It is the content of the document that matters and not the language in which it is written.
6. The learned counsel for the assessee further submitted that having regard to the definition of promissory note in section 4 of the Negotiable Instruments Act r/w second para of section 5 of the Act, there can be no manner of doubt that the documents under consideration are in fact promissory notes and such promissory notes cannot merely for the purposes of invoking section 69D of the Act be described as hundies. The counsel also submitted that a hundi is normally an unconditional order made 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. The counsel in this context referred to the decision of the Calcutta High Court in the case of Harsukdas vs. Dhirendra Nath AIR 1941 Cal 498 (FB) and the decisions of this Court in CIT vs. S. Ramanathan (1996) 131 CTR (Mad) 37 : (1995) 215 ITR 79 (Mad) : TC 42R.1870 and CIT vs. Paranjothi Salt Co. (1995) 211 ITR 141 (Mad) : TC 42R.1869 as also the decision of a Bench of this Court in TC No. 888/83, decided on 20th January, 1994. Reference was also made to the decision of the Andhra Pradesh High Court CIT vs. Dexan Pharmaceuticals (P) Ltd. (1995) 126 CTR (AP) 57 : (1995) 214 ITR 576 (AP) : TC 42R.1870. In all these decisions it has been held that the normal characteristics of a hundi are as stated in the submission of the counsel, i.e., an unconditional order made by the maker directing the third person to pay certain sum of money to or order of the other person or to the bearer of the instrument.
7. It is not necessary for the purposes of this case to determine what are the characteristics of a hundi, as if the document under consideration is one which answers the definition of promissory note contained in Negotiable Instruments Act. Such a document would clearly be subject to all the provisions of the Act and would ceased to be a document which could be regarded as a hundi to which usages relating to hundies would be applicable notwithstanding the provisions of the Negotiable Instruments Act. Sec. 1 of the Negotiable Instruments Act provides that nothing contained in that Act affects the Indian Paper Currency Act, 1871, section 21, of affect any local usage relating to any instrument in an oriental language. The proviso to section 1 clarified that such usages may be excluded by any words in the body of the instrument, which indicate an intention that the legal relations of the parties thereto shall be governed by that Act.
8. The usages saved by section 1 of the Act are only those relating to any instrument in an oriental language and even in case of such an instrument such usages may be excluded by any words in the body of the instrument which indicate the intention that the legal relations of the parties shall be governed by the Act.
9. The instruments in question here are not instruments in a oriental language and no question of applying any local usages which may be at variance of the provisions of the Act being applied arise. Further, the effect of section 1 of the Act is to make the Act applicable to all negotiable instruments if such instruments are in any language other than a oriental language. The instruments in oriental language to the extent provided in section 1 are unaffected by the provisions of the Act.
10. The instruments in question here are as already noticed contain a definite promise to pay; which promise is unconditional it is signed by the maker; the sum of money to be paid is certain; the identity of the paper is set out, and provision is made for payment to him to his order. The time of payment, however, is not merely on demand, but at the expiry of the period specified in the instrument. These answer the definition of promissory note contained in section 4 of the Act read with Para 2 of section 5 of the Act. Sec. 5 of the Act defines a bill of exchange and in Para 2 thereof provides that “a promise or order to pay is not ‘conditional’ within the meaning of the section and section 4 by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind is certain to happen, although the time of its happening may be uncertain.”
The fact that the borrower is to pay the amount after the specified number of days, therefore, does not render the document a conditional document to pay. It remains an unconditional promise to pay. Sec. 69D of the Act is, therefore, clearly inapplicable and the Tribunal has reached the right conclusion in this regard.
Our answer to the question referred, therefore, is in the affirmative, in favour of the assessee and against the Revenue. The assessee is entitled to costs in the sum of Rs. 1,000.