Bhashyam v. Commissioner of Income Tax

Facts

• A question arose regarding the tax treatment of income from hundis
• The classification depended on whether hundis are "negotiable instruments"
• The taxpayer contended hundis are negotiable by custom

Issue

1. Whether a hundi qualifies as a negotiable instrument under S.13 of the NI Act.

Held

• Hundis are negotiable instruments by usage of trade under S.13(2). They possess the essential characteristic of negotiability (free transferability with holder in due course rights) even though their form may differ from the statutory instruments in S.13(1). S.13(2) accommodates instruments deemed negotiable by custom.

Ratio Decidendi

S.13(2) extends negotiability to instruments recognised by trade usage. Hundis qualify as deemed negotiable instruments regardless of formal differences from S.4/S.5 instruments.