2001 PLP 3232 (PTD)

"Rs. 12.500 No. 2‑1.75 np. Due Date 15‑8‑1980, Madras Date: 19‑5‑1980 At (88) Eighty‑eight days after date without grace days promise to pay to Messrs. Jagadeesh Enterprises or order at the office of the sum of rupees twelve thousand five hundred only for value received in cash this day. For May Fair Plastic Company (Sd.) Proprietor. " This document provides for payment by the executant of the sum mentioned in the document at the expiry of 88, days after the date of execution of the document. The amount payable is certain. The time at which the payment is to be made is also certain. All the four transactions which the Income‑tax Officer regarded as being hundi transactions had been carried out in the same format as the one set out in this order. The assessee had borrowed from four lenders the sums of Rs.12,500, Rs.12,400, Rs.7,500 and Rs.7,

500. There is no dispute about the date of the loans and also the fact that repayment has been effected. The date of repayment has also been set out in the order of the Appellate Assistant Commissioner. The repayments were not made by cheque but by cash. Repayment of the loan in cash if it was a loan obtained on a promissory note is not illegal and the genuineness of the transactions not being in doubt, the assessee was entitled to the proper consideration of those transactions as loans borrowed and repaid. Learned counsel for the Revenue in support of the order of the Income‑tax Officer submitted that the document in reality is a hundi and relied on the following illustration of a hundi given in the commentary on the Negotiable Instruments Act by Bashyam and Adiga, 16th edition, page 47: Thavamani Hundi for loans‑‑‑(2) Madras Place and date. At.....days after the date we jointly and severally promise to pay ..or order at the Imperial Bank, Madras, a sum of Rs .. ..only for value received in cash. Signature. It was, therefore, submitted that the documents executed by the assessee in this case which are in that manner are in fact hundis and, therefore, attract section 69D of the Act. Learned counsel for the assessee submitted that hundis are normally written in the vernacular language and since these documents are in English on that ground alone these documents cannot be regarded as hundis. We are unable to agree that the language in which the instrument is written is is decisive. Though normally hundis are written in the vernacular language as the draders who used hundis in the past by and large were illiterate in English, that does not lead to the conclusion that if a document which is otherwise a hundi is written in the English language, such a document cannot be regarded as a hundi. It is the content of the document that matters and not the language in which it is written. Learned counsel for the asaessee further submitted that having regard to the definition of promissory note in section. 4 of the Negotiable Instruments Act read with the second para. of section 5 of the Act, there can be no manner of doubt that the documents under consideration, are in fact promissory notes and such promissory notes cannot merely for the purpose of invoking section 69D of the Act be described as hundis. Counsel also submitted that a hundi is normally an unconditional order made by the maker directing a certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. Counsel in this context referred to the decision of the Calcutta High Court in Harsuk Das v. Dhirendra Nath, AIR 1941 Cal. 498 (FB) and the decisions of this Court in CIT v. S. Ramanathan (1995) 215 ITR 79 and CIT v. Paran Jothi Salt Co. (1995) 211 ITR 141 as also the decision of a Bench of this Court in Tax Case No.888 of 1983, decided on January 20, 1994 (CIT v. Grahalakshmi & Co. (1999) 240 ITR 952 (Appex) (infra). Reference was also made to the decision of the Andhra Pradesh High Court in CIT v. Dexan Pharmaceuticals (Pvt.) Ltd. and Instrument Techniques (Pvt.) Ltd. (1995) 214 ITR

576. In all these decisions it has been held that the normal characteristics of a hundi are as stated in the submission of the counsel, i.e., an unconditional order made by the maker directing the third person to pay certain sum of money, to or order of the other person or to the bearer of the instrument. It is not necessary for the purposes of this case to determine what are the characteristics of a hundi, as, if the documents under consideration is one which answers the definition of promissory note contained in the Negotiable Instruments Act, such a document would clearly be subject to all the provisions of the Act and would cease to be a document which could be regarded as a hundi to which usages relating to hundis would be applicable notwithstanding the provisions of the Negotiable Instruments Act. Section 1 of the Negotiable Instruments Act provides that nothing contained in the Act affects the Indian Paper Currency Act, 1871, section 21, or any local usage relating to any instrument in an oriental language. The proviso to section 1 clarified that such usages may be excluded by any words in the body of the instrument, which indicate an intention that the legal relations of the parties thereto shall be governed by that Act. The usages saved by section 1 of the Act are only those relating to any instrument in an oriental language and even in the case of such an instrument such usages may be excluded by any words in the body of the instrument which indicate the intention that the legal relations of the parties shall be governed by the Act. The instruments in question here are not instruments in an oriental language and no question of applying any local usages which may be at variance with the provisions of the Act being arises. Further, the effect of section 1 of the Act is to make the Act applicable to all negotiable instruments if such instruments are in any language other than an oriental language. The instruments in oriental language to the extent provided in section 1 are unaffected by the provisions of the Act. The instruments in question here as already noticed contain a definite promise to pay; which promise is unconditional; it is signed by the maker; and the sum of money to be paid is certain; the identity of the payee is set out, and the provision is made for payment to him or to his order. The time of payment, however, is not merely on demand, but at the expiry of the period specified in the instrument. These features answer the definition of promissory note contained in section 4 of the Act read with para. 2 of section 5 of the Act. Section 5 of the Act defines a bill of exchange and in para. 2 thereof provides that "a promise or order to pay is not 'conditional' within the meaning of the section and section 4 by reason of the time for payment of the amount or any instalment thereof being expressed to be on the lapse of a certain period after the occurrence of a specified event which, according to the ordinary expectation of mankind is certain to happen, although the time of its happening may be uncertain". The fact that the borrower is to pay the amount after the specified number of days, therefore, does not render the document a conditional document to pay. It remains an unconditional promise to pay. Section 69D of the Act is, therefore, clearly inapplicable and the Tribunal has reached the right conclusion in this regard. Our answer to the question referred, therefore, is in the affirmative, in favour of the assessee and against the Revenue. The assessee is entitled to costs in the sum of Rs.1,

000. M.B.A./403/FC Reference answered.