Bearer is a negotiable instrument within the meaning of the Negotiable Instruments Act, 1881. - Income Tax - 177/CBDT

INSTRUCTION NO 177/CBDT, Dated: June 4, 1970 Section(s) Referred: 132(1)(c) ,132(3) Statute: Income - Tax Act, 1961 The Board had stated in their letter F.NO.15/156/65-IT(Inv), dated, 28-10-65 that a promissory note payable to order or to bearer is a negotiable instrument within the meaning of the Negotiable Instruments Act, 1881, and comes within the purview of 'other valuable article or thing' as contemplated by section 132(1)(c) attracting thereby by the provisions of section 132(5) regarding summary assessment. It has been suggested that promissory notes would really fall in the category of documents and cannot be classified as other valuable article or thing, and therefore the question of passing an order u/s.132(5) retaining the promissory notes for being applied in the manner laid down in section 132A, does not arise. It is pointed out that retaining promissory notes is likely to involve the Department in litigation if the amount becomes irrecoverable. 2. A promissory note is both a document and a valuable thing and whether it falls in one category or the other has to be determined having regard to the words used in section 132 and the purpose of that section. The following six expressions have been repeatedly used in section 132:- i) Books of Account. ii) Other documents. iii) Money iv) Bullion. v) Jewellery. vi) Other valuable articles or things. At some places in section 132 all the expressions have been used together, while at other places only the first two or the last four have been used together. At some other places in section 132 along with the first two expressions, the word 'assets' has been used in place of the last four. Reading the various sub-sections and clauses of section 132 in the context of an in conjunction with each other, it is clear that the last four expressions include in their ambit things which have an intrinsic value. The fact that the word 'assets' has been used along with the word documents clearly shows that the documents contemplated in the section are those which are not in the nature of assets. Promissory Notes being documents in the nature of assets would, therefore, fall in the category of other valuable articles or things. The Board's instructions contained in its letter dated 28-10-65 mentioned above, therefore do not require any modification. 3. Promissory notes which have been seized in the course of a search and are likely to become time-barred may be returned on the assessee depositing an amount equal to the value of the promissory note, if the assessee can be pursuaded to do so. In cases where the assessee refuses to deposit an equivalent amount, no useful purpose would be served by retaining the promissory notes. On the other hand, it would involve the Department in litigation if the amount due under the promissory note becomes irrecoverable because of the failure to return it to the assessee. In such cases, either a photostat copy of the promissory note should be retained or a copy certified by the assessee to be a true copy. 4. In searches which may be undertaken in future, in addition to obtaining a photostat or certified copy some further action is possible. Section 132(3) provides that where it is not practicable to seize any valuable article or thing, the authorised officer may direct the person in immediate possession or control of the article or thing not to part with or otherwise deal with it without the previous permission of the authorised officer and the said officer may take such steps as may be necessary for ensuring compliance with the sub-section. Therefore, in such cases an order u/s.132(3) should be passed directing the person in possession of the promissory notes to part with the said notes unless an equivalent amount is deposited with the ITO.