The Delhi High Court, in a recent ruling, dismissed an order of the Trial Court wherein a money recovery suit was dismissed on the ground that loan transactions above Rs. 20,000 cannot be recognized since such transactions are barred by the Income Tax Act under the provisions of sections 269SS and 269T.
In the instant case, the plaintiff has given a loan of Rs. 3 lakhs to the defendant. When the Plaintiff demanded repayment of the loan, the Defendant is alleged to have executed a written agreement/receipt in the presence of two witnesses. Subsequently, the plaintiff initiated legal proceedings against the defendant since no amount was re-paid.
The Trial court, while dismissing the plea of the plaintiff, has held that in view of the provisions of the Income Tax Act, no loan above Rs. 20,000/- could have been given in cash, so the loan transaction is not liable to be recognized.
Rejecting the above view taken by the Trial Court, Justice Prathiba M Singh held that “In so far as this is concerned, Sections 269SS and 269T do make it compulsory for persons who accept loan or deposits of about Rs.20,000/- to accept them only through proper banking channels. The consequence of not doing so could fasten the parties with penalties under the Income Tax Act, 1961 which the Court is not concerned with in these proceedings. The Plaintiff and the Defendant could be in violation of the said provisions which would be gone into by the Income Tax Authorities. Authorities are free to take action against the parties for violation of the provisions of the said Act. Under instructions from the Plaintiff, counsel for the Plaintiff submits that the Plaintiff used to file Income Tax Returns till 2 to 3 years back and has not filed any returns recently.”
Diving deeply into the facts of the case, the Court observed that the Trial Court was in error in holding that the Plaintiff has not discharged his onus in proving that the loan was taken. “The Receipt dated 4 th September 2008 exists and the Defendant does not deny his signatures on the same. The Plaintiff is thus entitled to a decree in his favor,” the Court said.
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