1983 (9) TMI 158 - AT - Income Tax

Borrowals as Hundies not Assessable under IT Act: Tribunal clarifies distinction, rejects legal reference

COMMISSIONER OF INCOME TAX. Versus KA KHADAR SONS.

The Tribunal determined that the borrowals made by the assessee in the form of Hundies were actually promissory notes and not subject to assessment under ... - Issues:1. Interpretation of section 69D of the Income-tax Act, 1961 regarding borrowals made by the assessee through means other than an account payee cheque.2. Determination of whether the borrowals made by the assessee in the form of Hundies constitute loans under section 69D.3. Analysis of the nature of the documents involved in the borrowals as promissory notes or Hundies.4. Examination of the legal implications of documents executed in English language being considered as Hundies.Analysis:The judgment pertains to an application under section 256(1) of the Income-tax Act, 1961 seeking a reference of a question of law arising from the Tribunal's order in ITA No. 775 (Mds)/82 regarding the assessment of the assessee M/s K.A. Khadar & Sons for the assessment year 1979-80. The issue revolves around whether the sum of Rs. 65,000 borrowed by the assessee, not through an account payee cheque, can be assessed under section 69D. The Tribunal declined to draw up a statement of the case as it found no referable question of law arising from its order.The assessee, a partnership firm, borrowed a certain amount on documents claimed to be Hundies during the relevant accounting year. The Income Tax Officer (ITO) treated these borrowals as loans on Hundies and added the total amount under the assessee's income from 'other sources' due to the cash receipt not being through an account payee cheque. However, the Appellate Authority deleted the addition based on a Board circular and the argument that the documents, though labeled as Hundies, were in English and not in vernacular. The Tribunal, after considering submissions and document nature, concluded that the borrowal was not on a Hundi but a promissory note, emphasizing the distinction between the two instruments.The Tribunal referenced a Calcutta High Court decision highlighting that the mere engraving of 'Hundi' on an instrument does not determine its character, which must be ascertained from the document itself. Additionally, the Tribunal differentiated between a promissory note and a bill of exchange, noting that the involved documents were promissory notes, not Hundies. The decision was based on factual findings, not legal questions. The Departmental representative's reliance on a previous case was dismissed, emphasizing that the present case's facts did not raise any legal issues warranting a reference. Consequently, the request for reference was rejected, and the application was dismissed.