Commissioner of Income Tax vs Madura Devakottai Transports (P.) Ltd.

N.V. Balasubramanian, J.—At the instance of the Revenue, the Income tax Appellate Tribunal, Madras, has stated a case and referred the

following common question of law for the assessment years 1978-79 and 1979-80 u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred

to as ""the Act""), for the opinion of this court

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in deleting the addition of Rs. 24,140 for the

assessment year 1978-79 assessed as income u/s 69D of the Income Tax Act, 1961 ?

(2) Whether the Appellate Tribunal''s view that documents executed by the assessee in favour of its creditors should not be treated as hundis within

the meaning of section 69D of the Income Tax Act, 1961, is maintainable in law ?

The Income Tax Officer, while completing the assessments for the years 1978-79 and 1979-80, noticed that the assessee has borrowed a sum

on hundis, made repayments thereof and also paid interest. The Income Tax Officer held that since the transactions were not effected through

account-payee cheques drawn on a bank the provisions of section 69D of the Act were attracted and accordingly made an addition of a sum of

Rs. 24,140 for the assessment year 1978-79 and another sum of Rs. 12,750 for the assessment year. 1979-80 to the income of the assessee.

When the assessee preferred appeals to the Commissioner of Income Tax (Appeals) questioning the additions in view of the specific provisions of

section 69D of the Act, the Commissioner of Income Tax (Appeals) upheld the additions. The assessee carried the matter in appeal before Income

Tax Appellate Tribunal. The Income Tax Appellate Tribunal followed its earlier order, i.e., ITO v. M. K. A. Chinnaswamy Nadar and Sons

(I.T.A. No. 1039 (MDS) of 1981, dated March 27, 1982) and found that the document had been written in English and the assessee has

promised to pay the amount to a certain person or his order. The Appellate Tribunal held that merely because the documents were written on

hundi papers or the grounds of appeal were prepared on the basis that they were hundi documents they cannot be said to be hundis. In this view

Of the matter the Tribunal held that they were not hundis and the provisions of section 69D of the Act were not attracted.

A similar question of law, whether the provisions of section 69D of the Act would be attracted on the basis of a mere execution of the document

in hundi papers came up for consideration before this court in the case of Commissioner of Income Tax Vs. Paranjothi Salt Co., and this court held

that it has to be seen in each case as to what are the contents of the document and unless the contents show that the essential characteristics of the

hundi were present, the provisions of section 69D are not attracted. This court also held that the mere circumstantial evidence that they were

written on hundi papers would not clothe them with the character of the hundis. In the instant case there is a finding of the Appellate Tribunal that

the assessee has promised to pay the amount to a certain person or his order and hence the documents concerned cannot be regarded as hundis,

though they were written on hundi papers. In view of the categorical finding of the Appellate Tribunal that they were not hundis, we are of the view

that there is no infirmity in the order of the Appellate Tribunal in deleting the addition of Rs. 24,140 for the assessment year 1978-79 and a sum of

Rs. 10,750 (wrongly taken as Rs. 12,750) for the assessment year 1979-80. In view of the factual finding of the Appellate Tribunal, we answer

both the common questions of law referred to us in the affirmative and against the Revenue. However, in the circumstances, there will be no order

as to costs.