INCOME-TAX (SECOND AMENDMENT) ACT, 1981 – CIRCULAR NO. 345, DATED 28-6-1982

1. Amendments at a glance

31

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

SECTION/SCHEDULE
PARTICULARS
269T
Mode of repayment of term deposits 3
269TT
Mode of payment of Special Bearer Bonds, 1991 4
276F
Failure to comply with section 269T 5
278A
Punishment for second and subsequent offences 6
279(1)
Prosecution to be at the instance of Commissioner 7

Explanatory Notes

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Introduction

1.1 The Income-tax (Amendment) Ordinance, 1981 was promulgated by the President on July 11, 1981. The Ordinance was replaced by the Income-tax (Second Amendment) Bill, 1981, which was introduced in the Lok Sabha on September 8, 1981. The Bill was passed by both the Houses of Parliament and received the assent of the President on September 19, 1981 and has been enacted as Act No. 38 of 1981. This circular explains the substance of the provisions of the Income-tax (Second Amendment) Act, 1981.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Background

2.1 The proliferation of black money poses a serious threat to the national economy and it was considered necessary to take effective steps to contain and counter this major economic evil. The Government have, in recent past, taken several legislative and administrative measures to unearth black money. The Income-tax (Second Amendment) Act, 1981 (hereinafter referred to as ‘the Amending Act’) represents another step in the same direction.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

2.2 It came to Government’s notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative societies and partnership firms either in their own names or in benami names. The Income-tax (Second Amendment) Act, 1981 seeks to counter attempts to circulate black money in this manner.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

The mode of repayment of term deposits – Section 269T

3.1 The Income-tax (Second Amendment) Act, 1981 has inserted a new Chapter XXB in the Income-tax Act regarding requirement as to mode of repayment in certain cases to counteract evasion of tax. Sub-section (1) of section  269T provides that no company (including a banking company), co-operative society or partnership firm will repay to any person, any deposit made by him with such entity otherwise than by an account payee cheque or an account payee bank draft in cases where the amount of the deposit, or the  aggregate amount deposited along with the interest, if any, is or exceeds Rs. 10,000. The first proviso to sub-section (1) provides that where the repayment of such term deposit is to be made by a banking company or a co-operative bank, such bank can make the repayment by crediting the amount of such deposit to an account, if any, maintained with such company or bank by the person to whom such deposit has to be repaid. The second proviso to sub-section (1), however, provides that the provisions of this sub-section will apply only in relation to the repayment of any deposit made before  September 19, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981 received the assent of the President.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.2 Sub-section (2) of new section 269T provides that no branch of a banking company or a co-operative bank and no other company or co-operative society or a partnership firm will 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 the amount of the deposit together with interest, if any, payable thereon is or exceeds Rs. 10,000. The provisions of this sub-section also apply in case where the aggregate amount of the deposit held by any such person with the branch of the banking company or the co-operative bank or any 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 interest, if any, payable on such deposits is Rs. 10,000 or more. The provisions of sub-section (1) apply only where the amount of each deposit (together with interest thereon) is Rs. 10,000 or more. In other words, these provisions do not apply in cases where the aggregate amount of the deposits made by the depositor (either in his own name or jointly with any other person) with a branch of a bank, etc., exceeded the specified limit of Rs. 10,000. In order to make the relevant provisions more effective, sub-section (2) of section 269T has been made applicable in all cases where the aggregate amount of the deposits held by a person with a branch of a bank including a co-operative bank or with any other company or co-operative society or partnership firm either in his own name or in a joint name with any other person on the date of repayment along with interest, if any, is not less than Rs. 10,000.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.3 The first proviso to sub-section (2) provides that where the repayment of the term deposit is to be made by a branch of the  bank, company or co-operative bank, any such repayment can also be made by crediting the amount of such deposit to the savings bank account  or current account, if any, maintained with such branch by the person to whom such deposit is required to be repaid. It may be noted that the first proviso to sub-section (1) provides for such repayment to be made by the bank, company or co-operative bank by crediting the amount of such deposit to any account maintained by such person with such banking company or the co-operative bank.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.4 The second proviso to sub-section (2) provides that the provisions of this sub-section shall apply in relation to the repayment of any deposit to be made on or after September 19, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981 received the assent of the President.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.5 The Explanation to section 269T defines certain expressions used in the section. Clause (i) of the Explanation defines ‘banking company’ to mean to have the same meaning as assigned to it in clause (a) of the Explanation to section 40A(8). Further ‘deposit’ as defined in clause (ii) of the Explanation means any deposit of money which is repayable after notice or repayable after a period.

[Section 2 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Mode of repayment of Special Bearer Bonds, 1991 – Section 269TT

4.1 Section 3 of the Amending Act has inserted a new section 269TT in the Income-tax Act relating to mode of repayment of the Special Bearer Bonds, 1991.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

4.2 New section 269TT provides that notwithstanding anything  contained in any other law for the time being in force, the repayment of the Special Bearer Bonds, 1991 at the time of its maturity will be made only by an account payee cheque or account payee bank draft drawn in the name of the person to whom such repayment is to be made. It may be mentioned that the Supreme Court had dismissed the writ petitions filed by Shri R.K. Garg and others challenging the constitutional validity of the Special Bearer Bonds Scheme—See R.K. Garg  v. Union of India  [1981] 7 Taxman 53 (SC). At the time of hearing of the writ petitions, the Government had undertaken to repay the Bonds at the time of redemption  by account payee cheque or account payee bank draft only. Section 3 of the Amending Act has made specific provisions in this behalf.

[Section 3 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Failure to comply with the provisions of section 269T – Section 276E

5.1 Section 4 of the Amending Act has inserted a new section 276E in the Income-tax Act relating to failure to comply with the provisions of section 269T. The new section provides that if a person without reasonable cause or excuse repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, that is to say, otherwise than by an account payee cheque or account payee bank draft or by credit to the bank account of the payee as explained above, he will be punishable with  imprisonment for a term which may extend to 2 years and shall also be liable to a fine equal to the amount of such deposit.

[Section 4 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Amendment of the provisions relating to punishment for second and subsequent offences – Section 278A

6.1 Section 5 of the Amending Act has amended section 278A of the Income-tax Act relating to the punishment of second and subsequent offences by including a reference to section 276E therein. In other words, if any person convicted of an offence under section 276E is again convicted for the same offence, he will be punished for the second and every subsequent offence with rigorous  imprisonment for a term which shall not be less than 6 months but which may extend to 7 years and with fine.

[Section 5 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Prosecution to be at the instance of Commissioner – Section 279

7.1 Section 6 of the Amending Act has amended section 279 of the Income-tax Act which provides that prosecution for offences under the Act shall be at the instance of the Commissioner. Section 6 of the Amending Act has amended sub-section (1) of section 279 to include a reference to section 276E therein. The effect of the amendment will be that a person shall not be proceeded against for an offence under section 276E except at the instance of the Commissioner.

[Section 6 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Repeal and saving

8.1 Sub-section (1) of section 7 of the Amending Act provides for the repeal of the Income-tax (Amendment) Ordinance, 1981. Further, sub-section (2) of section 7 of the Amending Act provides that notwithstanding any such repeal, anything done or any action taken under the Income-tax Act, 1961 as amended by the said Ordinance will be deemed to have been done or taken under the Income-tax Act, 1961 as amended by the Income-tax (Second Amendment) Act, 1981.

2. Provisions explained

  31

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

SECTION/SCHEDULE
PARTICULARS
269T
Mode of repayment of term deposits 3
269TT
Mode of payment of Special Bearer Bonds, 1991 4
276F
Failure to comply with section 269T 5
278A
Punishment for second and subsequent offences 6
279(1)
Prosecution to be at the instance of Commissioner 7

Explanatory Notes

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Introduction

1.1 The Income-tax (Amendment) Ordinance, 1981 was promulgated by the President on July 11, 1981. The Ordinance was replaced by the Income-tax (Second Amendment) Bill, 1981, which was introduced in the Lok Sabha on September 8, 1981. The Bill was passed by both the Houses of Parliament and received the assent of the President on September 19, 1981 and has been enacted as Act No. 38 of 1981. This circular explains the substance of the provisions of the Income-tax (Second Amendment) Act, 1981.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Background

2.1 The proliferation of black money poses a serious threat to the national economy and it was considered necessary to take effective steps to contain and counter this major economic evil. The Government have, in recent past, taken several legislative and administrative measures to unearth black money. The Income-tax (Second Amendment) Act, 1981 (hereinafter referred to as ‘the Amending Act’) represents another step in the same direction.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

2.2 It came to Government’s notice that a substantial amount of black money was deposited by tax evaders with banks, companies, co-operative societies and partnership firms either in their own names or in benami names. The Income-tax (Second Amendment) Act, 1981 seeks to counter attempts to circulate black money in this manner.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

The mode of repayment of term deposits – Section 269T

3.1 The Income-tax (Second Amendment) Act, 1981 has inserted a new Chapter XXB in the Income-tax Act regarding requirement as to mode of repayment in certain cases to counteract evasion of tax. Sub-section (1) of section  269T provides that no company (including a banking company), co-operative society or partnership firm will repay to any person, any deposit made by him with such entity otherwise than by an account payee cheque or an account payee bank draft in cases where the amount of the deposit, or the  aggregate amount deposited along with the interest, if any, is or exceeds Rs. 10,000. The first proviso to sub-section (1) provides that where the repayment of such term deposit is to be made by a banking company or a co-operative bank, such bank can make the repayment by crediting the amount of such deposit to an account, if any, maintained with such company or bank by the person to whom such deposit has to be repaid. The second proviso to sub-section (1), however, provides that the provisions of this sub-section will apply only in relation to the repayment of any deposit made before  September 19, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981 received the assent of the President.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.2 Sub-section (2) of new section 269T provides that no branch of a banking company or a co-operative bank and no other company or co-operative society or a partnership firm will 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 the amount of the deposit together with interest, if any, payable thereon is or exceeds Rs. 10,000. The provisions of this sub-section also apply in case where the aggregate amount of the deposit held by any such person with the branch of the banking company or the co-operative bank or any 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 interest, if any, payable on such deposits is Rs. 10,000 or more. The provisions of sub-section (1) apply only where the amount of each deposit (together with interest thereon) is Rs. 10,000 or more. In other words, these provisions do not apply in cases where the aggregate amount of the deposits made by the depositor (either in his own name or jointly with any other person) with a branch of a bank, etc., exceeded the specified limit of Rs. 10,000. In order to make the relevant provisions more effective, sub-section (2) of section 269T has been made applicable in all cases where the aggregate amount of the deposits held by a person with a branch of a bank including a co-operative bank or with any other company or co-operative society or partnership firm either in his own name or in a joint name with any other person on the date of repayment along with interest, if any, is not less than Rs. 10,000.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.3 The first proviso to sub-section (2) provides that where the repayment of the term deposit is to be made by a branch of the  bank, company or co-operative bank, any such repayment can also be made by crediting the amount of such deposit to the savings bank account  or current account, if any, maintained with such branch by the person to whom such deposit is required to be repaid. It may be noted that the first proviso to sub-section (1) provides for such repayment to be made by the bank, company or co-operative bank by crediting the amount of such deposit to any account maintained by such person with such banking company or the co-operative bank.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.4 The second proviso to sub-section (2) provides that the provisions of this sub-section shall apply in relation to the repayment of any deposit to be made on or after September 19, 1981, that is, the date on which the Income-tax (Second Amendment) Act, 1981 received the assent of the President.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

3.5 The Explanation to section 269T defines certain expressions used in the section. Clause (i) of the Explanation defines ‘banking company’ to mean to have the same meaning as assigned to it in clause (a) of the Explanation to section 40A(8). Further ‘deposit’ as defined in clause (ii) of the Explanation means any deposit of money which is repayable after notice or repayable after a period.

[Section 2 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Mode of repayment of Special Bearer Bonds, 1991 – Section 269TT

4.1 Section 3 of the Amending Act has inserted a new section 269TT in the Income-tax Act relating to mode of repayment of the Special Bearer Bonds, 1991.

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

4.2 New section 269TT provides that notwithstanding anything  contained in any other law for the time being in force, the repayment of the Special Bearer Bonds, 1991 at the time of its maturity will be made only by an account payee cheque or account payee bank draft drawn in the name of the person to whom such repayment is to be made. It may be mentioned that the Supreme Court had dismissed the writ petitions filed by Shri R.K. Garg and others challenging the constitutional validity of the Special Bearer Bonds Scheme—See R.K. Garg  v. Union of India  [1981] 7 Taxman 53 (SC). At the time of hearing of the writ petitions, the Government had undertaken to repay the Bonds at the time of redemption  by account payee cheque or account payee bank draft only. Section 3 of the Amending Act has made specific provisions in this behalf.

[Section 3 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Failure to comply with the provisions of section 269T – Section 276E

5.1 Section 4 of the Amending Act has inserted a new section 276E in the Income-tax Act relating to failure to comply with the provisions of section 269T. The new section provides that if a person without reasonable cause or excuse repays any deposit referred to in section 269T otherwise than in accordance with the provisions of that section, that is to say, otherwise than by an account payee cheque or account payee bank draft or by credit to the bank account of the payee as explained above, he will be punishable with  imprisonment for a term which may extend to 2 years and shall also be liable to a fine equal to the amount of such deposit.

[Section 4 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Amendment of the provisions relating to punishment for second and subsequent offences – Section 278A

6.1 Section 5 of the Amending Act has amended section 278A of the Income-tax Act relating to the punishment of second and subsequent offences by including a reference to section 276E therein. In other words, if any person convicted of an offence under section 276E is again convicted for the same offence, he will be punished for the second and every subsequent offence with rigorous  imprisonment for a term which shall not be less than 6 months but which may extend to 7 years and with fine.

[Section 5 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Prosecution to be at the instance of Commissioner – Section 279

7.1 Section 6 of the Amending Act has amended section 279 of the Income-tax Act which provides that prosecution for offences under the Act shall be at the instance of the Commissioner. Section 6 of the Amending Act has amended sub-section (1) of section 279 to include a reference to section 276E therein. The effect of the amendment will be that a person shall not be proceeded against for an offence under section 276E except at the instance of the Commissioner.

[Section 6 of the Amending Act]

INCOME-TAX (SECOND AMENDMENT) ACT, 1981

Repeal and saving

8.1 Sub-section (1) of section 7 of the Amending Act provides for the repeal of the Income-tax (Amendment) Ordinance, 1981. Further, sub-section (2) of section 7 of the Amending Act provides that notwithstanding any such repeal, anything done or any action taken under the Income-tax Act, 1961 as amended by the said Ordinance will be deemed to have been done or taken under the Income-tax Act, 1961 as amended by the Income-tax (Second Amendment) Act, 1981.

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