INTRODUCTION: The Finance Bill, 2017 has proposed to introduce a new section 269ST in the Income Tax Act with effect from 01st April, 2017. This section aims for restricting the cash transaction for achieving the mission of the Government to move towards less cash economy to reduce generation and circulation of black money in the economy.
In this section it has been mentioned that “No person shall receive an amount of three lakh rupees or more— (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
It has been provided that the provisions of this section shall not apply to (i) any receipt by— (a) Government; (b) any banking company, post office savings bank or co-operative bank; (ii) transactions of the nature referred to in section 269SS; (iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
It is also proposed to insert a new section 271DA to provide for levy of penalty for receipt of sum in contravention of the above provisions.
AN ANALYSIS OF THE PROVISIONS OF THE SECTION : The detailed analysis of these provisions are as under :
RESTRICTION IS ONLY ON RECEIPT OF MONEY AND NOT ON ANYTHING IN KIND:
Through this section the restriction is put only on receipt of money and not on anything in kind. This can be logically inferred from the background and purpose of introducing these provisions in the Memorandum Explaining Clauses of the Finance Bill itself. The heading given there is “Restriction on cash transactions”. The relevant description given is that “Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash. In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed to insert section 269ST”. Thus, the main aim is to restrict cash transactions. The cash transactions can happen only in the case of money and not in the case of receipt in kind. Therefore, logically it can be inferred from those provisions that section 269ST is in respect of money only.
It is also mentionable here that similar type of restrictive provisions are contained in Section 269SS also. It has been specifically mentioned there that they are applicable only in respect of “Sum of money” and not otherwise. This reason also support the above view.
An another reason here is that if these provisions are stretched to items in kind say movable or immovable properties then there will be various other issues (like for penalty U/s. 271DA what will be the value of such item e.g., actual transaction value or fair market value or stamp duty value etc.) which have not been addressed. Therefore, logically these provisions may be in respect of receipt of money only.
An another view is also there, that in the Section 269ST the word “Amount” is used and not a word “Sum”. The word amount is vide and covers both cash and kind whereas the word sum covers only sum of money. In this regard, the opinion of the author is that in this case the legislature has not made any distinction between these words. In Section 269ST the word “Amount” has been used whereas in the Section 271DA, the word “Sum” has been used. Therefore, this criteria do no appears here to be useful.
This alternate view appears to have been generated from the wordings of section 56 where the word “Sum” has been used for sum of money. In this regard it is mentionable here that in that section the word sum has been used only for “sum of money” merely because for movable and immovable properties there are different clauses in section 56 itself.
However, CBDT should make clarification on this issue to avoid inconvenience to the peoples.
RESTRICTION IS ONLY ON THE PERSON RECEIVING MONEY AND NOT ON THE PERSON PAYING MONEY:
The restriction U/s. 269ST is only on receipt of money and not on payment of money. Therefore, penalty U/s. 271DA on violation of these provisions shall be leviable only on the person receiving money and not on the person paying the money. (It is mentionable here that there are already some restrictions on payment of money in cash etc. also, but they are contained in the other provisions of the Income Tax Act and are not subject matter of the present topic).
RESTRICTION IS APPLICABLE ON ALL THE ENTITIES : The restriction U/s. 269ST is applicable on all the entities (except those which have been exempted specifically). In the section the word “Person” has been used for both payer and the receiver. As per section 2(31), the word person includes individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial judicial persons. Thus, the restriction is on receipt of money by any individual, firm etc. entity from any other individual, firm etc. entity.
RESTRICTION IS ONLY WHEN THE AMOUNT RECEIVED IS RUPEES 3 LAKHS OR MORE : The provisions of this section are not applicable when the receipts are less than rupees 3 lakhs. They are applicable only when the amount of receipt is of Rs. 3 lakhs or more. This limit is mentioned in many ways like per day, per transaction, for occasion / event etc.
ALLOWABLE MODES OF RECEIPTS : The amount beyond the above limit can be received only through (a) an account payee bank cheque ; or (b) an account payee bank draft ; or (c) use of electronic clearing system through a bank account (e.g., NEFT, RTGS, Online transfer from one bank account to another etc.). The receipt of amount through any other mode e.g., cash, bearer cheque, crossed cheque, self cheque, transfer entry or adjustment entry in books of account etc. However, the amount under the above limit can be received through any mode e.g., cash etc.
EXEMPTION GRANTED IN SECTION 269ST : The Government (Central Government, State Government etc. and not local authority), Banking companies, Post Office Saving Banks and Cooperative Banks have been exempted from these provisions. Thus, any amount of money can be deposited in cash etc. in the all type of accounts (e.g., saving account, current account, loan accounts etc.) by account holder, borrower etc. Similarly, any amount of tax, duty etc. can be paid to the Central Government, State Government etc. (other than local authority) through cash etc. other modes.
APPLICABLE TO RECEIPTS WHETHER FOR BUSINESS PURPOSE, PERSONAL PURPOSE OR ANY OTHER PURPOSE: The restriction is applicable irrespective of purpose of accepting amount i.e., whether business purpose of personal purpose or as a trustee, custodian etc. However, it is mentionable here that these provisions are not applicable to the transactions of receiving money for loan, deposit or for transfer of immovable property. Because there are already separate provisions restricting receipt of money in cash etc. for these purposes. The limit for accepting money for those purposes in cash etc. is Rs. 20,000/- only. Here care is to be taken by tax consultants etc. while educating the general public (who is not much proficient in tax laws) that due to Section 269ST, the limit of Rs. 20,000/- has not been increased to Rs. 3 lakhs for loan, deposit, immovable property transactions etc.
APPLICABLE TO RECEIPTS WHETHER WITH OR WITHOUT CONSIDERATION: The restriction is applicable irrespective of the fact that whether the receipt is with or without consideration. In case receipt of money without consideration in contravention of Section 269ST, there will be dual impact, one charge of tax U/s. 56 (in specific cases) as well as levy of penalty U/s. 271DA.
EXAMPLE OF TRANSACTIONS WHERE SECTION 269ST MAY BE APPLICABLE: The provisions of section 269ST do not contain the list of transactions / purpose on which they shall be applicable. Therefore, all the transactions / purposes (other than those mentioned in section 269SS and exempted in section 269ST itself) are covered by the above restriction. Some example of these transactions / purposes may be (a) sale proceeds of goods (b) sale proceeds of movable properties (c) fees, remuneration, salary, dalali, brokerage , contract payments etc. (d) recovery of loan given and interest thereon (this is not covered presently in Section 269SS) (e) gift received on marriage etc. occasion or otherwise (f) donation receipts by trusts etc. (g) Advance taken by partner of firm, employees from employer, agents from principal etc. for personal purpose or for purpose of business itself (h) withdrawal of capital / profit by a partner of firm from firm. This is only a typical list. There may be many other type of transactions / purposes where the above restriction is applicable.
RESTRICTION ON WITHDRAWAL FROM BANK IN CASH ETC.: The most significant and severe impact of this restriction is that it is applicable also on withdrawal of amount in cash etc. from own saving bank account, Current account, from bank loan accounts like CC Limit, OD limits etc. Thus, a self cheque, crossed cheque and bearer cheque can be only of amount of less than Rs. 3 lakhs. (For receipt of maturity of term deposit amount with bank etc. there is already another restriction U/s. 269T on banks etc. due to which the banks etc. do not repay the same in cash etc. exceeding the limit of Rs. 20,000/- or more). This appears to be as per the intention of the government under which recently after demonetization various limits were imposed on withdrawal of cash etc. from bank. However, looking to the severe probable inconveniences to the large number of public the proposed restriction on bank withdrawals in cash etc. should be withdrawn. It is also mentionable that there are already sufficient other provisions e.g., applicability of Section 269ST to other transactions / purposes, Section 269SS, 269ST, Section 40A(3) etc. which may be sufficient to achieve the less cash moto of the government.
One issue to be dealt here is that a view is prevailing that the banking companies, post office saving banks, cooperative banks have been exempted under these provisions, therefore, the above limit may not be applicable on cash etc. withdrawals from banks etc. In this regard it is mentionable here that the above exemption is only for the limited purpose of receipts by the banks etc. and not for payments by the banks etc. Therefore, the proposed provisions shall be applicable for withdrawals from banks etc. also.
RESTRICTION MAY NOT BE APPLICABLE FOR RECEIPT FOR SALE OF AGRICULTURAL PRODUCE FROM OWN AGRICULTURAL ACTIVITIES : In clause 83 of notes on clauses to Finance Bill, it has been mentioned that the provisions of section 269ST shall not be applicable to the sale of agricultural produce by any person being an individual or Hindu Undivided Family in whose hands such receipts constitutes agricultural income. But this transaction is not appearing in the Section 269ST itself. However, it appears that the same might has been omitted due to some mistake and later on may be included therein. This view also appears to be logical because already such type of agricultural income based exemption has been given in existing similar provisions of Section 269SS.
Conclusion : Thus, the government has tried to cover almost all the major transactions within the ambit of these provisions. However, some relaxations and clarifications for genuine circumstances (as discussed above ) should be granted.
The author has prepared his own video lecture on the above topic in hindi language.