Section 106 — Amount borrowed or repaid through negotiable instrument, hundi, etc. Successor to s.69D of the 1961 Act.
Section 106 is in Chapter VI — Aggregation of Income, which runs from section 101 to section 107.
Sub-section (1) deems an amount to be the income of the person borrowing or repaying it where that amount, including interest on it, is borrowed or repaid through a negotiable instrument or on a hundi otherwise than by an account payee cheque, or through any mode specified by the Board in this behalf. The deemed income falls in the tax year in which the amount was borrowed or repaid, and the sum caught includes the interest paid on the borrowed amount.
Sub-section (2) prevents the same borrowing being taxed twice: where the amount borrowed has already been deemed to be a person's income under sub-section (1), he is not to be assessed again in respect of that amount under that sub-section on its repayment.
Hundi and bearer-instrument lending leaves no traceable record of who advanced the money, so the Act taxes the transaction itself in the hands of the borrower or repayer instead of attempting to trace it. The requirement of an account payee cheque is what makes the difference, forcing the transaction through an identifiable banking channel. Sub-section (2) keeps the deeming from operating twice on a single loan.
The charge does not depend on the loan being bogus. A genuine borrowing on a hundi settled by a bearer cheque is caught, because the test is the mode of payment and not the truth of the transaction. Both legs are exposed — borrowing in the year of borrowing, repayment in the year of repayment — with interest paid on the borrowed amount expressly swept in. The only relief is sub-section (2), and it is narrow: it protects the amount borrowed, once deemed income, from being assessed again on repayment under the same sub-section. The escape is at the front end, by using an account payee cheque.
A firm borrows Rs. 20 lakh on a hundi in a tax year, receiving the money by a bearer cheque. Under sub-section (1) the whole Rs. 20 lakh is deemed to be the firm's income for that tax year, even though it is in truth a loan and is shown as a liability in its books. Two years later the firm repays the Rs. 20 lakh with interest of Rs. 3 lakh, again otherwise than by account payee cheque. Sub-section (2) protects the Rs. 20 lakh already assessed from being assessed again on repayment under that sub-section.
In an assessment order adding a hundi loan or its repayment as deemed income, usually after the Assessing Officer has traced the mode of receipt or payment through bank records or the books; there is no return schedule or form of its own for it.
the amount so borrowed or repaid (including interest paid on the borrowed amount) shall be deemed to be the income of the person borrowing or repaying
such person shall not be liable to be assessed again in respect of such amount under that sub-section on repayment of such amount
See the full 1961 to 2025 concordance.
See the circulars index.
