1996 (4) TMI 102 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Officer was right in adding a sum of Rs. 42,490 under section 69D of the Income-tax Act, 1961.
2. Whether the Appellate Tribunal's view that 'account payee demand drafts' can be equated to 'account payee cheques' is sustainable in law.

Detailed Analysis:

Issue 1: Addition of Rs. 42,490 under Section 69D
The core question is whether the amount repaid by the assessee using account payee crossed demand drafts can be deemed income under section 69D of the Income-tax Act, 1961. The relevant facts are that the respondent-assessee, a registered firm, borrowed Rs. 40,000 on hundis and repaid this amount along with Rs. 2,490 interest using account payee crossed demand drafts. The Income-tax Officer treated the total sum of Rs. 42,490 as income under section 69D. However, the Commissioner of Income-tax (Appeals) and the Tribunal both held that account payee demand drafts should be treated as equivalent to account payee cheques, thus deleting Rs. 41,175 from the assessment. The court upheld this view, stating that interpreting section 69D to include account payee demand drafts aligns with the legislative intent to ensure transaction transparency and prevent black money proliferation.

Issue 2: Equating Account Payee Demand Drafts to Account Payee Cheques
The court examined whether account payee demand drafts can be equated to account payee cheques within the meaning of section 69D. The Tribunal's decision relied on previous judgments, including Pt. Sidh Nath Shukla v. Punjab National Bank of India Ltd. and Suganchand and Co. v. Brahmayya and Co., which supported the view that demand drafts are akin to cheques. The court noted that section 69D aims to ensure transparency in financial transactions by making them go through a bank. It found that both account payee cheques and demand drafts serve this purpose and that the omission of demand drafts in section 69D was likely inadvertent. The court emphasized that a literal interpretation leading to absurd results should be avoided, and a purposive approach should be adopted. Thus, it concluded that account payee demand drafts should be treated as account payee cheques under section 69D.

Conclusion:
The court answered both questions in the affirmative and against the Revenue. It held that the Commissioner of Income-tax (Appeals) and the Tribunal were right in deleting Rs. 41,175 from the assessment under section 69D. It also upheld the view that account payee demand drafts can be equated to account payee cheques for the purposes of section 69D, aligning with the legislative intent to ensure transaction transparency and prevent black money proliferation.