SECTIONS 269SS AND 269T

Requirement as to mode of acceptance or repayment of loans/deposits in certain cases

SECTIONS 269SS AND 269T l MODE OF TAKING OR ACCEPTING/REPAYING CERTAIN LOANS AND DEPOSITS

1283. Housing Development Finance Corporation Ltd., notified under clause (e) of proviso to the section, being institution to which provisions are not to apply.

In exercise of the powers conferred by clause (e) of proviso to section 269SS of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies Housing Development Finance Corporation Limited, Bombay, in respect of its Home Savings Plan Scheme, Loan Linked Deposit Scheme and Certificate of Deposit Scheme, including Cumulative Interest Scheme for the purpose of the said section.

Notification : No. SO 3607, dated 18-7-1986 as modified by SO 3828/4250, dated 28-10-1986.

1284. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000 would attract the provisions of section 269T

1. Indian Banks’ Association had sought a clarification as to whether the payment in cash of periodical interest amount along exceeding Rs. 10,000 would attract the provisions of section 269T. This section provides that no company, co-operative society or firm shall repay any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of deposit or the aggregate of the amount of deposit together with any interest is Rs. 10,000 or more.

2. The matter has been examined in consultation with the Ministry of Law. The Board has been advised that the payment of interest of Rs. 10,000 or more, will have to be made in the manner provided in section 269T. So far as the repayment of deposit together with any interest is concerned, there is no room for doubt. If the amount of repayment after including the interest is Rs. 10,000 or more, the provisions of section 269T would be attracted. This is because the interest accrued on the deposit and credited to the account periodically or otherwise partakes of the character of a deposit and as such becomes a deposit itself.

Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-1-1987.

1285. Clarification regarding date of applicability of amendments to sections 40A(3), 269SS and 269T by Direct Taxes Laws (Amendment) Act, 1987

1. Provisions of sections 40A(3), 269SS and 269T of the Income-tax Act, 1961 have been amended by the Direct Tax Laws (Amendment) Act (Act No. 4 of 1988) and consequently the monetary ceilings prescribed under the aforesaid sections have been raised from Rs. 2,500 to Rs. 10,000, Rs. 10,000 to Rs. 20,000 and Rs. 10,000 to Rs. 20,000 respectively. As per provisions of section 1(2) of the Direct Tax Laws (Amendment) Act, these changes have been made effective from 1-4-1989.

2. Board have received a number of representations regarding the date of applicability of the abovementioned amended sections of the Income-tax Act. It is hereby clarified that the amendment provisions of sections 269SS and 269T will apply to payments or repayments made on or after 1-4-1989. In respect of disallowance of payments made under section 40A(3), the amendment will apply to payments made in the previous years relevant to the assessment year 1989-90 and subsequent years.

Circular : No. 522, dated 18-8-1988.

JUDICIAL ANALYSIS

EXPLAINED IN – In Vir Sales Corporation v. ACIT [1994] 121 CTR (Trib.) (Ahd.) 46, the Tribunal observed as follows :

“In the instant case, the assessing authority has levied penalty with reference to the transactions of loans and deposits of Rs. 20,000 and above. It is clear from the aforesaid circulars that the monetary limit of Rs. 10,000 earlier provided in sections 269SS and 269T were raised to Rs. 20,000 w.e.f. 1st April, 1989 and the Board in the above referred circular has categorically clarified that the higher monetary limit will cover the transactions on and after 1st April, 1989. It would, therefore, necessarily follow that the penal provisions of sections 271D and 271E were also intended to be operative prospectively from 1st April, 1989 in respect of transaction done on or after 1st April, 1989 exceeding the monetary ceiling of Rs. 20,000 prescribed in the provisions of sections 269SS and 269T. It is an admitted fact that all the impugned transactions, for which penalties in question have been levied were done before 1st April, 1989, which falls in assessment year 1989-90. In view of the aforesaid clarifications issued by the Board also, the said penal provisions contained in sections 271D and 271E cannot be invoked in the case of the assessee in relation to the impugned transactions pertaining to assessment year 1989-90.” (pp. 62-63)

EXPLAINED INJaipur Carpet Mfg. (India) (P.) Ltd. v. Dy. CIT [2000] 113 Taxman 227 (Mag.) (Jp. – Trib.), in following words :

“It is clear from the Board’s Circular Nos. 522, dated 18-8-1988 and 651, dated 23-11-1990 that the monetary limit of Rs. 10,000 earlier provided in sections 269SS and 269T, was raised to Rs. 20,000 with effect from 1-4-1989 and the Board in the above-referred Circular has categorically clarified that the higher monetary limit will cover the transactions on or after 1-4-1989.” (p. 228)

1286. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with commission agents

1. Section 269T of the Income-tax Act provides that no company, co-operative society or firm shall repay to any person any deposit otherwise than by any account payee cheque or account payee bank draft where the amount of deposit and interest thereon, if any, is Rs. 10,000 or more.

2. The Direct Tax Laws (Amendment) Act, 1987 has amended the definition of “deposit” for the purpose of section 269T of the Income-tax Act. Under the amended definition, the said term has been defined to mean “any deposit of money which is repayable after notice or repayable after a period and, in case of a person other than a company, includes deposit of any nature”.

(The italicised portion has been added by the said Amendment Act.)

3. A number of references have been received by the Board seeking clarification whether the sale proceeds of agricultural commodities, left over by the agricultu-rists with their ‘Kachcha Arhatiyas’, would also come within the ambit of deposit of any nature necessitating its payment by an account payee cheque as provided under section 269T of the Act.

4. The Board is of opinion that where a ‘Kachcha Arhatiya’ sells goods belonging to an agriculturist, the sale proceeds thereof which remain with him cannot be regarded as a deposit made by the agriculturists with the ‘Kachcha Arhatiya’. Further, whether the ‘Kachcha Arhatiya’ remits only a part of the sale proceeds to the agriculturist, the unremitted part of the sale proceeds would also not assume the character of a deposit. Therefore, the repayment of such sale proceeds does not fall within the purview of section 269T of the Act.

5. However, such unremitted sale proceeds would assume the character of a deposit if the amount is retained by the ‘Kachcha Arhatiya’ in pursuance of a direction in this regard by the agriculturist, irrespective of whether the amount is retained in the same account or transferred to different accounts and irrespective of whether the directions are to call it a deposit or just to retain the same for future payment. The repayment in such cases will be covered under section 269T of the Act.

Circular: No. 556, dated 23-2-1990.

JUDICIAL ANALYSIS

The above circular was relied upon in Harpal Singh Jaswant Singh v. ITO [1995] 126 Taxation 12 (Trib.), and it was held that the provisions of sections 269SS and 269T were not attracted to the facts of the case. (pp. 20-21).

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Section 269T

MODE OF REPAYMENT OF CERTAIN DEPOSITS.

(1) No company (including a banking company), co-operative society or firm shall repay to any person any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of the deposit, or where the amount of the deposit is to be repaid together with any interest, the aggregate of the amount of the deposit and such interest, is ten thousand rupees or more :

Provided that where the repayment is by a banking company or co-operative bank, such repayment may also be made by crediting the amount of such deposit to the account (if any) with such company or bank of the person to whom such deposit has to be repaid :

Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit on or after the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President.

(2) No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the deposit if – (a) The amount of the deposit together with interest, if any, payable thereon, or

(b) The aggregate amount of the deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, either in his own name or jointly  with any other person on the date of such repayment together with the interest, if any, payable on such deposits, is twenty thousand rupees or more :

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such deposit to the savings bank account or the current account (if any) with such branch of the person to whom such deposit has to be repaid :

Provided further that nothing in this sub-section shall apply to or in relation to the repayment of any deposit before the date on which the Income-tax (Second Amendment) Act, 1981, receives the assent of the President.

Explanation : For the purposes of this section, –  (i) “Banking company” shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

(ia) “Co-operative bank” shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(ii) “Deposit” 2109a means any deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes deposit of any nature.

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Section 269SS

MODE OF TAKING OR ACCEPTING CERTAIN LOANS AND DEPOSITS.

No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor) any loan or deposit otherwise than by an account payee cheque or account payee bank draft if, –

(a) The amount of such loan or deposit or the aggregate amount of such loan and deposit; or

(b) On the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or

(c) The amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more :

Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by, –

(a) Government;

(b) Any banking company, post office savings bank or co-operative bank;

(c) Any corporation established by a Central, State or Provincial Act;

(d) Any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(e) Such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette :

Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.

Explanation : For the purposes of this section, –  (i) “Banking company” means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;

(ii) “Co-operative bank” shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) “Loan or deposit” means loan or deposit of money.

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