1996 (9) TMI 72 - HC - Income Tax

Summary

Issues:
Challenge to the validity of section 69D of the Income-tax Act, 1961 and exclusion of loans taken on hundi from total income.

Analysis:

The petitioners challenged the validity of section 69D of the Income-tax Act, 1961, arguing it was unconstitutional. The petitioners sought to exclude loans taken on hundi and interest paid from their total income. The Income-tax Officer added the hundi loans and interest to the total income of the assessee under section 69D, despite explanations provided by the petitioners. The appellate authority and Income-tax Appellate Tribunal upheld the assessment. The petitioners then filed a writ petition challenging the validity of section 69D.

Section 69D of the Income-tax Act, introduced in 1977, deems amounts borrowed or repaid on hundi as income if not transacted through account payee cheques. The provision aims to prevent tax evasion and circulation of black money through hundi transactions. The petitioners argued that section 69D violated constitutional articles 14 and 19(1)(g) by interfering with their freedom of trade. However, the Revenue's counsel contended that the provision was a regulatory measure to curb tax evasion and ensure transparency in transactions.

Comparisons were drawn to section 40A(3) which restricts deductions for expenditures not made through bank transactions. Judicial precedents supported the legislative intent to curb black money circulation. The court noted that section 69D aligns with the objective of ensuring transparency in financial transactions, similar to provisions like section 269SS which regulate loan transactions through bank cheques for verification purposes.

The court upheld the validity of section 69D, stating it did not contravene constitutional provisions. Emphasizing the importance of transparency in financial dealings to prevent black money circulation, the court dismissed the petition. The judgment highlighted the legislative intent behind such provisions and their alignment with constitutional principles. The petitioners' challenge to section 69D was rejected, and no costs were awarded in the matter.