Commissioner of Income Tax vs S. Ramanathan

Thanikkachalam, J.—Under s. 256(1) of the IT Act, 1961, at the instance of the Revenue, the Tribunal had referred the following question

for our opinion : ""Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the hundi loans of Rs.

1,15,000 and the interest thereon of Rs. 15,000 which was disallowed by the ITO under s. 69D of the IT Act, 1961 ?

The assessee, S. Ramanathan, had taken loans of Rs. 50,000 and Rs. 65,000, respectively, on 31st July, 1977, and 1st Aug., 1979, from the

Mercantile Credit Corpn. The ITO treated these loans as hundi loans. Since the borrowings were effected in cash, the ITO applied s. 69D of the

IT Act, 1961, and added the amounts in question to the income of the assessee for the asst. yr. 1980-81. The ITO also disallowed the interest

amount of Rs. 15,000 involved in the same transactions since the payments in respect of the loans were paid in cash. On appeal, the CIT(A) held

that s. 69D of the IT Act would not be applicable to the facts of the case. Accordingly, he deleted the addition in question made by the ITO.

Aggrieved against the order, the Department filed an appeal before the Tribunal. The Tribunal following its earlier order in the case of Second

ITO vs. Grahalakshmi & Co. (1984) 14 TTJ (Mad) 287 : (1984) 2 ITD 420 (Mad), held that the provisions of s. 69D have no application to

these loans and, accordingly, deleted the additions and confirmed the order passed by the CIT(A). A similar question came up for consideration

before this Court in the case of CIT vs. Grahalakshmi & Co. in Tax Case No. 888 of 1983 wherein this Court by an order dt. 20th Jan., 1994 has

held, on identical facts, that the instruments cannot be regarded as hundis so as to attract the application of s. 69D of the Act. This view was also

taken by this Court on similar facts in Tax Case No. 886 of 1983 in the case of Commissioner of Income Tax Vs. Paranjothi Salt Co., in its order

dt. 20th Jan., 1994. Since the facts arising in the present reference are similar to the facts arisen in the abovesaid decisions stated supra, we hold

that the Tribunal was correct in coming to the conclusion that s. 69D would not be applicable in the present case. Similarly, interest payment also

cannot come within the purview of s. 69D of the Act. Accordingly, the order passed by the Tribunal on this aspect is in order.

In the result, we answer the question referred to us in the affirmative and against the Department. No costs. Counsel''s fee Rs. 500.