475.  Whether payment on or after April 1, 1977 of amount borrowed on hundi is to comply with the section regardless of whether hundi was executed prior to the said date or on or after that date

1. The Taxation Laws (Amendment) Act, 1975 has added a new section 69D with effect from April 1, 1977, which provides that if any amount is borrowed from any person on a hundi or any amount due on it is repaid to any person, otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be assessed as the income of the taxpayer borrowing or repaying the said amount, for the previous year in which the amount is borrowed or repaid.  This will also apply to the amount of interest paid on the amount borrowed on hundis.  This provision is applicable only in respect of hundis and does not cover other types of loans, such as repayment of loan by employees to employers, repayment of loan to banks, co-operative societies, etc.

2. The term “hundi” has not been defined in the 1961 Act.  In common commercial parlance, it denotes an indigenous instrument in vernacular language which can be used by the holder thereof to collect money due thereon without using the medium of currency.  It may also be regarded as an indigenous form of bill of exchange expressed in vernacular language which has been in use in the mercantile community in India for the purpose of collecting dues.  There are numerous varieties of hundis, for example, darshani hundi, muddati hundi, shahjog hundi, jokhmi hundi, namjog hundi, dhanijog hundi, jwabi hundi and zickri chit.  The characteristics of hundis differ according to the varieties of the same.  The following characteristics are found in most of the hundis :

1. A hundi is payable to a specified person or order or negotiable without endorsement by the payee.

2. A holder is entitled to sue on a hundi without an endorsement in his favour.

3. A hundi accepted by the drawee could be negotiated without endorsement.

4. If a hundi is lost, the owner could claim a duplicate or a triplicate from the drawer and present it to the drawee for payment.  Interest can be charged where usage is established.

3. This provision will come into force with effect from April 1, 1977.  Accordingly, any payment on or after April 1, 1977 in respect of an amount borrowed on a hundi will have to comply with the requirements of this provision regardless of whether the hundi was executed prior to the said date or on or after that date.

Circular : No. 208 [F. No. 208/7/76-IT(A-II)], dated 15-11-1976

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Category : Income Tax (27891)
Type : Circulars (7809) Notifications/Circulars (32209)

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