1984 (6) TMI 122 - AT - Income Tax

Summary

Issues:
1. Interpretation of section 69D of the Income-tax Act, 1961 regarding repayment of hundi through crossed demand draft.

Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad-B involved the interpretation of section 69D of the Income-tax Act, 1961, specifically concerning whether the repayment of a hundi can be made through a crossed demand draft instead of a crossed cheque. The assessee contended that a crossed demand draft is equivalent to a crossed cheque based on legal commentary from the book on Negotiable Instruments Act by Bhashyam and Adiga. The Commissioner (Appeals) and the Income Tax Officer (ITO) had held that repayment under section 69D should be through an account payee cheque, not a demand draft.

The Commissioner (Appeals) held that a demand draft drawn by a banker upon his branch office cannot be considered a cheque as per the Bill of Exchange Act, and since the drawer and drawee are the same person, the holder has the option to treat it as a bill of exchange or a promissory note. The Commissioner also noted the distinction between a cheque and a demand draft in sections 40A(3) and 69D of the Act, concluding that only payment by an account payee cheque is protected under section 69D.

During the appeal hearing, both the assessee's counsel and the departmental representative reiterated their arguments. The Tribunal accepted the assessee's plea, citing precedents from various High Courts that view demand drafts as closely related to cheques. The Tribunal highlighted that the key difference lies in the ease of countermanding a cheque compared to a demand draft, emphasizing that the legislative intent behind section 69D is to prevent bogus hundis and payments under them. The Tribunal concluded that a demand draft fulfills the requirements of section 69D, ordering the deletion of the addition made by the ITO.

In summary, the Tribunal allowed the appeal, ruling in favor of the assessee based on the efficacy of a demand draft in fulfilling the legislative intent behind section 69D and its similarity in effect to an account payee cheque, ultimately directing the ITO to remove the additional amount from the assessee's total income.