First Income-tax Officer Vs. Grahalakshmi and Co. - Court Judgment

Excerpt:
1. the revenue's contention in this appeal is that the ito's addition of rs. 57,375 under section 69d of the income-tax act, 1961 ('the act'), should be sustained. at the hearing of the appeal, though the assessee did not enter appearance, it has written that the appeal may be decided in the light of the decision of the bench 'a' of this tribunal in it appeal no. 377 (mad.) of 1981, dated 29-3-1982, in the assessee's own case for the assessment year 1978-79.2. for the assessment year 1979-80, the assessee had borrowed or repaid loans on hundi totaling rs. 57,375 as listed in the assessment order.none of the borrowals or repayments were through account payee cheques.the ito, hence, held that the entire borrowals together with interest paid therein should be treated as income under section.....

Judgment:
1. The revenue's contention in this appeal is that the ITO's addition of Rs. 57,375 under Section 69D of the Income-tax Act, 1961 ('the Act'), should be sustained. At the hearing of the appeal, though the assessee did not enter appearance, it has written that the appeal may be decided in the light of the decision of the Bench 'A' of this Tribunal in IT Appeal No. 377 (Mad.) of 1981, dated 29-3-1982, in the assessee's own case for the assessment year 1978-79.

2. For the assessment year 1979-80, the assessee had borrowed or repaid loans on hundi totaling Rs. 57,375 as listed in the assessment order.

None of the borrowals or repayments were through account payee cheques.

The ITO, hence, held that the entire borrowals together with interest paid therein should be treated as income under Section 69D. On the assessee's appeal, the Commissioner (Appeals) deleted the addition, following the order of the Tribunal in IT Appeal No. 377 (Mad.) of 1981 cited supra. We have heard the departmental representative and perused the material on record. The facts and arguments before us are similar to those considered by the Tribunal in the above order. The department wants to keep the matter alive, since the Tribunal's decision was not acceptable to it. Following the above Tribunal's order, we would uphold the Commissioner (Appeals)'s order and dismiss the revenue's appeal.

1. I have gone through the order of my learned brother, Shri C.R. Nair, Accountant Member, who dismissed the appeal of the revenue. But I am not in a position to agree with him because I am holding that the revenue's appeal is to be allowed. Therefore, I state my reasons as under.

2. The assessee is a registered firm. The previous year, relevant for the assessment year 1979-80, ended on 31-10-1978. During the year of account, the assessee borrowed or repaid loans on hundis from the parties mentioned in the assessment order and thereby claimed that the amounts borrowed by it amounting to Rs. 57,375 are not the subject-matter of Section 69D, in view of the fact that the amounts borrowed are not on hundis as these were from the persons on the Government hundi stamp paper written in English and the date of execution and due dates were noted in the instruments and, therefore, the borrowals were not hundis but only promissory notes.

3. In appeal, the Commissioner (Appeals) accepted the contention of the assessee on following the Tribunal's earlier decision in the assessee's own case in IT Appeal No. 377 (Mad.) of 1981 and CO. No. 36 (Mad.) of 1981 dated 29-3-1982, and, therefore deleted the addition of Rs. 57,375 added by the ITO under Section 69D.4. At the time of hearing, it was contended by the learned departmental representative that the Commissioner (Appeals) erred in deleting the addition of Rs. 57,375 made by the ITO under Section 69D, on following an earlier order of the Tribunal in the assessee's own case, which order has not become final, in view of the fact that the department has not accepted the view taken by the Tribunal. In support of this submission, he contends that the order of the Tribunal supra is to be reconsidered in view of the fact that English has been recognised as one of the Indian languages under the Constitution of India and the Government of India has recognised it as an official language. He further contends that Bombay Benches of the Tribunal had taken a different view than that of the decision of the Madras Bench of the Tribunal supra, which is a rational and reasonable view and, therefore, the decision of the Bombay Tribunal is to be followed being constitutionally valid, while that of the Madras Tribunal order is contrary to the provisions of the Constitution.

5. I am satisfied that the contention of the learned departmental representative is well founded and must prevail. The reasons are that if an instrument is written in English, then it cannot be held that such an instrument is not in vernacular and, therefore, is not a hundi.

Hence, the provisions of Section 69D will not apply in cases of amounts borrowed on the Government hundi stamp papers written in English. The reason is that English is one of the Indian languages recognised in the Schedule under the Constitution of India. Therefore, English is an Indian language and as such cannot be held to be a foreign language.

Secondly, English language has been recognised as official language of the Government of India and is the mother tongue of minority community, the Anglo-Indians, who are the citizens of India and, therefore, there is no basis for taking it as foreign language. Apart from this, the Bombay Bench of the Tribunal, where the Judicial Member was a party and spoke for the Bench, had taken a view that the borrowals from the creditors by the assessees on the Government stamp paper written in English is hundi for the purpose of Section 69D. Reliance can be placed on the decision in the case of Samir Glass Traders v. ITO [IT Appeal No. 26 (Bom.) of 1981], decided by Bench 'A' in the assessment year 1978-79 on 28-12-1981.

6. As I have stated above, English is not a foreign language in view of the provisions of the Constitution and, therefore, the decision of the Madras Bench supra cannot be followed, as the Tribunal considered that English is a foreign language, in holding that such borrowals on the hundi stamp papers in English are not the subject-matter of Section 69D. Therefore, I further hold that the decision of the Bombay Bench is in accordance with the provisions of the Constitution and as such it is this decision which is to be followed. In this view of the matter, I am of the view that the decision of the Madras Bench, in the assessee's own case for earlier year supra, is to be reconsidered, when there is an order of the Bombay Bench as stated above on the issue and, therefore, I hold that this is not a case where the matter should be referred to the Special Bench. Further, it cannot be referred in view of the fact that the learned Accountant Member has not considered it proper and followed an earlier order of the Madras Bench of the Tribunal on the assumption that the decisions of the Madras Benches are binding on the Benches of the Tribunal at Madras, which is not correct as it is only the decisions of the Tribunal which are binding upon its Benches. Accordingly, I hold that the decision of the Madras Bench is not to be followed and the Commissioner (Appeals) has erred in doing so and, hence, I set aside his order being erroneous in law and facts of the case and restore that of the ITO, as his order is in accordance with the supreme law of the land (said constitutional provisions of law) and the borrowals from the persons by the assessee on the Government hundi stamp paper written in English are hundis for the purpose of Section 69D.REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1979-80, we refer the following point of difference of opinion to the President for reference to Third Member, under Section 255(4) : Whether, on the facts and in the circumstances of the case, and relying on the Tribunal's earlier order in the assessee's case for the assessment year 1978-79, the assessee's borrowings including the interest thereon totaling Rs. 57,375 do not fall within the scope of Section 69D of the Income-tax Act, 1961 REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 -1 have discussed the matter with my learned brother on the issue of reference and framing of the question, but he did not agree to it. Therefore, I frame the following question and refer it to the President for its decision under Section 255(4) of the Act, since it is this question, which arises out of the orders of the Members in difference with each other and controversy among the parties : Whether an instrument written in English on the Government paper is vernacular, English being one of the languages of India recognised in the Schedule to the Constitution as well as official language of Central Government and that of mother tongue of the minority community, Anglo-Indian, recognised as such by the Constitution of India, hence, hundi for the purpose of Section 69D of the Act 1. This is a matter that has come before me as the Third Member on a point of difference of opinion between my learned brothers, who first heard the matter. Interestingly, there has been "a difference of opinion as to the point of difference of opinion. The learned Judicial Member put the difference of opinion thus : Whether an instrument written in English on the Government paper is vernacular, English being one of the languages of India recognised in the Schedule to the Constitution as well as official language of Central Government and that of mother tongue of the minority community, Anglo-Indian, recognised as such by the Constitution of India, hence, hundi for the purpose of Section 69D of the Act while the learned Accountant Member put the difference of opinion thus : Whether, on the facts and in the circumstances of the case, and relying on the Tribunal's earlier order in the assessee's case for the assessment year 1978-79, the assessee's borrowings, including the interest thereon totaling Rs. 57,375, do not fall within the scope of Section 69D of the Income-tax Act, 1961? 2. Now for the facts. The assessment relates to the assessment year 1979-80. The assessee is a partnership carrying on business at Tuticorin and for the purpose of its business, it claimed that it borrowed Rs. 57,375 on hundis. All the details of the hundis are given in the assessment order of the ITO and I do not have to repeat. But, I must say that none of the borrowals or repayments were through account payee cheques. It does not seem to be a matter in dispute as to whether the parties from whom the monies were borrowed were identifiable or not. Since these borrowals or repayments were not through account payee cheques, the ITO applied the provisions of Section 69D and added the entire sum of Rs. 57,375 as income of the assessee. It also includes the interest paid on the borrowals, which again was not paid through account payee cheques. On appeal, the Commissioner (Appeals) found that a similar addition made in the assessee's own case was deleted by the AAC and confirmed by the Tribunal, in IT Appeal No. 377 (Mad.) of 1981 and CO. No. 36 (Mad.) of 1981, dated 29-3-1982. Following with respect, the decision of the Tribunal, the Commissioner (Appeals) deleted the addition. The department felt aggrieved by this deletion and filed an appeal before the Tribunal. There were arguments and counter-arguments as to whether the instruments under which the borrowals were made, could be regarded as pronotes or hundis and what would amount to a pronote under the Negotiable Instruments Act, 1881 and what would amount to a hundi.

3. The learned Accountant Member found that the facts and arguments addressed before the Bench were similar to those considered by the Tribunal in the order just referred to above. By observing that the purpose of filing of the appeal by the department was to keep the matter alive, the earlier order of the Tribunal was on reference and following the order of the Tribunal, he dismissed the department's appeal, and confirmed the order of the Commissioner (Appeals). The point to be noted here is that the learned Accountant Member followed the order of the Tribunal in the assessee's own case for the earlier year.

4. But, the learned Judicial Member was of a different opinion. He referred to an argument said to have been addressed by the learned departmental representative before the Bench that the Bombay Benches of the Tribunal have taken a different view and that decision was more rational and reasonable and that decision should have been followed in preference to the view expressed by the Madras Bench in the assessee's own case and there was also a reference to the constitutional validity of the order passed by the Bombay Bench of the Tribunal as against the order of the Madras Bench of the Tribunal going against the Constitution. Then, he referred to the various arguments said to have been discussed in the Bombay case, which, I feel, are not necessary to repeat here, and preferred to follow the view expressed by the Bombay Benches. The pertinent observations made by him in this regard are as follows : As I have stated above, English is not a foreign language in view of the provisions of the Constitution and, therefore, the decision of the Madras Bench supra cannot be followed as the Tribunal considered that English is a foreign language, in holding that such borrowals on the hundi stamp papers in English are not the subject-matter of Section 69D. Therefore, I further hold that the decision of the Bombay Bench is in accordance with the provisions of the Constitution and as such it is this decision which is to be followed. In this view of the matter, I am of the view that the decision of the Madras Bench in the assessee's own case for earlier year (supra) is to be reconsidered, when there is an order of the Bombay Bench, as stated above, on the issue and, therefore, I hold that this is not a case where the matter should be referred to the Special Bench. Further, it cannot be referred in view of the fact that the learned Accountant Member has not considered it proper and followed an earlier order of the Madras Bench of the Tribunal on the assumption that the decisions of the Madras Benches are binding on the Benches of the Tribunal at Madras, which is not correct as it is only the decisions of the Tribunal which are binding upon its Benches. Accordingly, I hold that the decision of the Madras Bench is not to be followed and the Commissioner (Appeals) has erred in doing so and, hence, I set aside his order being erroneous in law and facts of the case and restore that of the ITO, as his order is in accordance with the supreme law of the land (said constitutional provision of law) and the borrowals from the persons by the assessee on the Government hundi stamp paper written in English are hundis for the purpose of Section 69D.5. I am unable to agree with the view expressed by the learned Judicial Member nor the question as framed by him. When there is an order in the assessee's own case for the earlier year on identical point, that order should have been followed ; there should not be any deviation unless something more spectacular was noticed by way of omission in the earlier order. As pointed out by the Madras High Court in the case of CIT v. L.G. Ramamurthi [1977] 110 ITR 453 and in the still earlier decision in the case of CIT v. S. Devaraj [1969] 73 ITR 1 (Mad.), the Bench should normally follow its earlier view on identical issue ; otherwise, the faith of the litigants in the administration of justice by the Tribunal would be shaken. I am also unable to agree with his view that in a situation like this, the matter should not be referred to a Special Bench. On the contrary, a reference to a Special Bench, in such circumstances, was the course to be adopted as suggested by the Madras High Court in the above cases. What is more, in the earlier order of the Tribunal, there was no reference to any language as foreign language for the purpose of deciding the matter that arose before it; but, what was said was that the hundi ought to be in vernacular language. In the circumstances, I find it extremely difficult to ignore the decision of the Tribunal in the assessee's own case for the earlier year and come to a contrary conclusion. I, therefore, agree with the learned Accountant Member's view and hold that the Commissioner (Appeals) was right in deleting the addition following the earlier order of the Tribunal in the assessee's own case.

6. The matter will now go before the regular Bench for disposing of the appeal in accordance with the view of the majority.