Analysis of Section 269SS, 269ST & 269T of Income Tax Act, 1961

Moreover this Section 269ST will not come into picture where Sec 269SS applicable.

ALSO, applicable on Branch of banking company or co-operative bank, or co-operative society etc.

(i) New loan/ deposit/ specified sum OR aggregate of any such New loan, deposit and specified sum is Rs. 20,000 or more.

Example-1

XYZ Ltd. has taken New loan of Rs. 15,000 from ABC, deposit of Rs. 10,000 from DEF, and advance of Rs. 18000 from PQR. Ltd

Receiver- XYZ Ltd.(Single)

Payer- (Multiple)

1. ABC Ltd- Rs. 15,000(Cash)

2. DEF Ltd-Rs. 10,000(Cash)

3. PQR Ltd-Rs. 18,000(Cash)

Answer- No Violation of Sec 269SS, since the new loan taken from each payer is not Rs. 20,000/- or more

(ii)Old/ Unpaid any Loan/deposit/ specified sum on the date of taking such loan/deposit/specified sum is Rs.20,000/- or more.

Example-2

XYZ. Ltd has taken a Loan of Rs. 30,000 through Cheque from M/s LMN Ltd. dated 01.01.2023 and has repaid Rs. 4000 till 15.01.2023.

Now, in this Case there is Outstanding loan of Rs. 26,000 as on 15.01.2023 , hence XYZ ltd cant take further loan in Cash from M/s LMN.

(iii) Fresh Loan/deposit/specified sum

+

Unpaid/Outstanding Loan/deposit/specified sum

Aggregate is Rs. 20,000 or more.

Example 3-

Considering Example 1 , where XYZ Ltd has taken loan from

1. ABC Ltd- Rs. 15,000(Cash)

2. DEF Ltd-Rs. 10,000(Cash)

3. PQR Ltd-Rs. 18,000(Cash)

Now, XYZ want to take loan from these three payers as follows:

1.ABC Ltd- Rs. 10,000

2. DEF Ltd-Rs. 6,000

3. PQR Ltd-Rs. 5,000

In this case, XYZ can take loan as follows:

1.ABC Ltd-

In Cash- Cant take (Since Old Loan + New Loan exceed Rs. 20,000/-)

But, Can take Through Banking channel

2. DEF Ltd-Rs.

In cash- Can take since aggregate doesn’t exceed Rs. 20,000

3. PQR Ltd-

In cash- Cant take (Since Old Loan + New Loan exceed Rs. 20,000/-)

But, Can take Through Banking channel.

No person can repay any loan or deposit or specified advance in cash , if

Situation 1

• The amount of loan or deposit or specified advance together with interest exceeds Rs. 20,000 or more.

Situation 2

• The amount of loan or deposit held by such person with

Ø Branch of Banking co.

Ø Co-operative bank

Ø Other company

Ø Co-operative society

Ø Firm or other person

Loan or deposit In his name

+

Loan or deposit jointly with other person

Aggregate of such loan or deposit + together with interest

On the date of repayment is

Rs. 20,000 or more

Example-

Mr LMN receives a loan worth Rs 18000 on 01/01/2023 & by account payee cheque on 10/01/2023 of Rs 20000. Mr LMN makes the full repayment on 20/01/2023 by Rs 15000 in cash & Rs 23000 via account payee cheque.

In this scenario, the total sum of the loan has surpassed the limit of Rs 20,000. Mr LMN received the 2nd loan via account payee cheque. Therefore, there is no contravention of section-269SS. The total amount outstanding of Rs 38,000 as of 20/01/2023. Mr LMN has repaid the above amount in cash amounting to Rs 15000 on 20/01/2023 & has breached the provisions of section 269T as the total amount due was more than Rs 20000.

However, 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 loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid.

Situation 3

Aggregate of specified Advance taken by such person

In his name

+

Jointly with other person

On the date of repayment exceed

Rs. 20,000 or more.

• Receipt of cash in aggregate from a person in a day

(per person per day)

Crux

One Payer

One Receiver

One day

Aggregate of cash received from one person in multiple times but in one day aggregating to Rs. 2,00,000 or more will attract Sec 269ST here.

Sec 269ST will not attract where payment is received from multiple parties aggregating to Rs. 2,00,000/- or more but Individually from each party it doesn’t exceed Rs. 2,00,000/-

• Receipt of cash in respect of single transactions.

CRUX

One Receiver

Multiple Payer

Single Transaction

The said clause doesn’t refer to “ a person”. Even if the receipt is from different persons, so long as it is in respect of a single transaction, the recipient ought not receive Rs. 2 lakhs or more.

Example 1

India Hospital has issued Bill to the patient of Rs. 3,00,000 which is paid by different persons P,Q,R & S of Rs. 75,000/- each.

In such a case even if the individual receipt from each party is less than Rs. 2,00,000 but Still it attract Sec 269ST since it related to Single transactions/ Single billing

Example 2

Mr. X has issued Invoice of Rs. 3,50,000 to Mr. A dated 15.01.2023, against which payment made by Mr. A in five different installments of Rs. 70,000 each .

In such a case , Sec 269sT will attract since it related to one single Bill/Transaction of Rs. 3,50,000 which is divided into multiple days.

Example 3

Mr. X has issued Invoice of Rs. 3,50,000 to Mr. A dated 15.01.2023, against which Mr. A paid Rs. 2,50,000 by Neft/RTGS and rest Rs. 1,50,000/- paid in Cash.

Here 269ST will not attract since cash payment is not exceeding Rs. 2,00,000/-

Note:

The Central Board of Direct Taxes, through its circular no. 22/2017, has clarified that with reference to a receipt regarding loan repayment by NBFCs and HFCs, the receipt of one loan instalment shall constitute a ‘single transaction’ as cited in clause (b) of section 269ST & all the repayment done for a loan shall not be totalled by considering section 269ST.

• Receipt of cash in respect of transactions relating to any event or occasion from a person

Crux

One receiver

One payer

One event or occassion

The legal definitions of “event” and “occasion” are ambiguous and can lead to many misunderstandings. The purpose of the rules is to prevent people from splitting their money into multiple tiers and avoiding the restrictions.

It seeks to cover all receipts from a person in relation to transactions relating to one event or occasion such as reimbursement, cash gifts on the occasion of marriage, birthday, anniversary or the like, payments made in respect of catering, decoration etc. in marriage, travel expenses, payments of rent etc to name a few.

There may be several transactions spread over several days, but all these pertain to a single event or occasion.

But with the introduction of section 269ST ban has been imposed on cash gifts received even from relatives to the tune of more than Rs. 2 Lakhs in respect of single event or occasion like marriage etc.

Example

If an individual has performed a range of services for a user’s wedding, such as renting a lawn for the celebration, flower services and decoration services, and has produced three independent bills totalling ₹2 lakhs for each activity (total ₹6 lakhs).

Regarding all three bills/transactions, he can accept amounts less than ₹2 lakhs in cash or other forms from his consumer. Even if the limitation per activity and also the limitation per day per entity are not exceeded, because all the transactions are tied to the same event of a wedding, the overall restriction that is less than ₹2 lakhs will be a combined limit for all the purchases.

However, if the Bill of marriage of Rs. 5,70,000 are raised to three different parties for the event of marriage , then Sec 269ST will not attract, if it receives Rs. 1,90,000 from each party in Cash.

Note on further Transaction covered u/s 269ST

1. Sec 269ST applies to all types of receipts whether exempt or taxable except the receipts specifically notified by government. Therefore, section shall also apply to receipt of payment by farmers.

2. Sec 269ST applies to Introduction of Capital by Partner also.

3. Sec 269ST will be applied on cash gifts irrespective of the fact that whether such gifts have been taxed or not.

A person cannot accept a cash gift of more than Rs. 1,99,999. However, a person can receive different cash gifts of Rs. 1,99,999 or less from a person, provided the gifts do not form part of a single transaction and not related to single event/ occasion.

4. Transactions of loan or deposit between agriculturists may be exempt u/s 269SS but other transactions between agriculturists are not exempt u/s 269ST.

5. Issue of Share Capital

6. gift in cash or in kind.

7. Amount received by hospitals, educational institutions etc.

8. Advance against sale of goods/provision of service [except advance against sale of immovable property.

(i) Where the receiver/ payer falls into any of these categories:

(a) the 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 clause (45) of section 2 of the Companies Act, 2013 (18 of 2013);

(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:

Explanation

Any loan or deposit or specified sum “taken or accepted from” or “taken or accepted by” the following entities will not come under the purview of Sec 269SS.

(i) Where the receiver/ payer both having agricultural income and neither of them has any income chargeable to tax.

Hence, this Section will not be applicable in the case of both the parties, ie., the depositor and acceptor whose income is agricultural income and neither of their income is taxable under the Income Tax Act, 1961.

• Where any individual, firm, AOP, BOI, company or society etc make repayment of any loan, or deposit or specified sum to the following parties, namely

(i) Government;

(ii) any banking company, post office savings bank or co-operative bank;

(iii) any corporation established by a Central, State or Provincial Act;

(iv) any Government company13 as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(v) 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.

(a) the Government;

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

(c)Transactions of the nature referred to in Sec 269SS

(d) Such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.

Further

Vide Notification No. 57/2017, dated 3-7- 2017 & Notification No. 28/2017 dated 5-4-2017, the Central Government clarified that the provision under section 269ST shall not cover the following, viz:-

1. receipt (cash withdrawals) by any individual from a bank or a post office savings bank;

2.receipt by a business communication on behalf of a co-operative bank or a banking company, with reference to guidelines provided by the RBI;

3.receipt by a white label electronic teller machine from retail outlet on behalf of a bank, with reference to guidelines provided by the RBI under the Payment & Settlement Systems Act, 2007;

4.receipt from an agent by a pre-paid payment instruments’ issuers, with reference to guidelines provided by the RBI under the Payment & Settlement Systems Act, 2007;

5.receipt by an institution or company issuing credit cards for bills raised relating to one or more credit cards;

6.the receipt, which falls outside the ambit of section 10(17A).

Any payment made, whether in cash or in kind,—

(i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or

(ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;

• Receipt of partner’s contribution in cash by partnership Firm doesn’t treated as violation Sec 269SS , because partners are the owners of the Firm and it received through capital account of partners.

(DCIT Vs Chetan M Kakaria)

• retention bills of the contractor as ‘security deposit’ doesn’t amount to deposit, Para 39(c) of AS-7 reads that construction contracts are called ‘retention’. Thus it is not right to bring this under the meaning of deposits.

• Share application money accompanied by appropriate documentation is neither a loan nor a deposit.

However, the contrary was held in the case of Bhalotia Engineering Works (P) Ltd. 275 ITR 399. The Court held that according to the guidance note issued by ICAI on Audit of Capital and Reserves, a share application not accompanied by an application form or certificate from share transfer agents or resolution of appropriate authority would be treated as an unsecured loan.

• Assessee had accepted a sum of Rs. 2 lakhs from his son to meet urgent requirement of depositing margin money in bank account for buying a vehicle for personal use, amount so received was neither a loan nor a deposit within meaning of section 269SS, if there is a reasonable reason for such failure u/s 273B.

(Dr. Rajaram L. Akhani v. ITO (2017)

• Section 269SS does not include in its ambit where there is a transaction of loan or deposit by way of entries in the books of account by crediting or debiting the account of the other person. In other words, the provisions of section 269SS of the Act, according to us, are not attracted when there is an acknowledgement of debt by passing entry in the books of account and there is no transfer of money in cash from one person to another person by way of loan or deposit.

([CIT v. Apex Finlease Ltd. & Ors. Date of Judgement : 17.10.2016)

(CIT Vs Rugmini Ram Raghav)

• Section 269T does not include in its ambit where there is a transaction of loan or deposit by way of entries in the books of account by crediting or debiting the account of the other person. In other words, the provisions of section 269T of the Act, according to us, are not attracted when there is an acknowledgement of debt by passing entry in the books of account and there is no transfer of money in cash from one person to another person by way of loan or deposit.

(ITO Vs M/s Vipur Auto Pvt Ltd)

• Penalty u/s 271E is not to be ordinarily imposed unless the party acted deliberately in defiance of law and was guilty of conduct contumacious or dishonest act. Penalty will also not be imposed merely because it is lawful to do so, bonafide belief coupled with the genuineness of the transactions involved would constitute reasonable cause u/s 273B for not invoking the penalty u/s 271E.

(CIT Vs Saini Medical Store)

• Earnest money received by the assesse from various parties for booking of flats/shops which later on cancelled , hence assesse retuned the money without interest to the parties in Cash. In such a case , since the earnest money returned does not come under the category of loan or deposit hence penalty u/s 271E can’t be invoked.

(CIT Vs Madhav Enterprise Pvt Ltd)

Therefore, direct deposit in bank account of payee can be regarded as complying with section 269ST.