2001 (2) TMI 269 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition under Section 69D on account of cash borrowings on Hundies.
2. Determination of whether the transactions in question constituted borrowing on Hundies.
3. Interpretation of the term "Hundi" under Section 69D.
4. Examination of the applicability of Section 69D to the transactions in question.

Detailed Analysis:

1. Deletion of Addition under Section 69D on Account of Cash Borrowings on Hundies:
The revenue's primary grievance was against the CIT(A)'s deletion of the addition of Rs. 45,28,754 made under Section 69D, which was attributed to cash borrowings by the assessee from a local moneylender. The Assessing Officer had made this addition on the grounds that the borrowings were in the nature of Hundies, thereby attracting Section 69D.

2. Determination of Whether the Transactions in Question Constituted Borrowing on Hundies:
The assessee, a Calcutta-based firm owning a tea garden, had an arrangement with a local moneylender to borrow money in cash for local expenses, with immediate internal instructions to the head office to repay the moneylender by crossed cheques within 2-3 days. The CIT(A) concluded that there were no borrowings as the account credited was 'HO remittance' and not that of the moneylender. Additionally, it was held that even if there was borrowing, the transactions did not involve Hundies.

3. Interpretation of the Term "Hundi" Under Section 69D:
Section 69D stipulates that any amount borrowed on a Hundi or repaid otherwise than through an account payee cheque shall be deemed as income. The term "Hundi" was not clearly defined in the Income-tax Act, but CBDT Circulars and judicial precedents provided clarity. A Hundi is generally an indigenous bill of exchange, usually in vernacular language, and involves three parties: drawer, drawee, and payee. The Tribunal noted that the transactions in question were bilateral, involving only the assessee and the moneylender, and thus did not meet the criteria of a Hundi.

4. Examination of the Applicability of Section 69D to the Transactions in Question:
The Tribunal examined whether the borrowings could be considered as borrowing on Hundies. The Tribunal found that:
- The transactions were bilateral, involving only two parties.
- The documents were in English, not vernacular, which is a key characteristic of Hundies.
- The borrowings were repaid by crossed account payee cheques within a short period.
- The instruments did not possess the essential characteristics of a bill of exchange or Hundi.

The Tribunal concluded that the transactions did not constitute borrowing on Hundies and were outside the ambit of Section 69D. The Tribunal supported the CIT(A)'s conclusion and declined to interfere, thereby dismissing the revenue's appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 69D, determining that the transactions in question did not constitute borrowing on Hundies. The appeal by the revenue was dismissed, affirming that the provisions of Section 69D were not attracted in this case.