CA Kinjesh Thakkar
In an attempt to promote cashless economy and digital mode of accepting payment, government has introduced section 269SU under Income Tax. Section 269SU prescribes for accepting payment through certain electronic modes as prescribed in addition to other electronic modes. The said provision is made applicable from 1st January 2020.
Section 269SU provides that
269SU. Every person, carrying on business, shall provide facility for accepting payment through prescribed electronic modes, in addition to the facility for other electronic modes, of payment, if any, being provided by such person, if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year.
Section 269SU refers to prescribed modes which are provided in Rule 119AA namely
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI); and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code
From above, it is apparent that section 269SU applies to every person who is carrying business if his total sales, turnover or gross receipts, as the case may be, in business exceeds fifty crore rupees during the immediately preceding previous year. Therefore, such persons need to have above mentioned facilities to accept payment.
On perusal of said provision there arises few important questions as to
1. Can Income Tax Act which is an act for taxing income provide for provisions on facility to be provided as modes of accepting payment?
2. Are such provision applicable to foreign companies?
The term Preamble according to Black Law dictionary is
“A clause at the beginning of a constitution or statute explanatory of the reasons for its enactment and the objects sought to be accomplished”
Preamble of Income Tax Act reads as
“An Act to consolidate and amend the law relating to income-tax and super-tax”
Thus it is an act relating to law of Income Tax which means it is law of taxing income, managing taxes and administer collection of taxes.
In this connection, it is important to note that Hon’ble Supreme court in case of Kum. A.B. Shanthi held that:
“If any Legislature makes any ancillary or subsidiary provision which incidentally transgresses over its jurisdiction for achieving the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them.”
Thus, any provision enacted to achieve objects of Income tax is valid. Object of income tax is taxing all income and avoid or curb black money so that country gets it fair share of revenue/taxes.
In order to understand the intention of the legislature for bringing section 269SU it is important to refer the memorandum explaining Finance Bill, 2019 which provides as follows:
“In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money and to promote digital economy, it is proposed to insert a new Section 269SU in the Act so as to provide that every person, carrying on business, shall, provide facility for accepting payment through the prescribed electronic modes, in addition to the facility for other electronic modes of payment, if any, being provided by such person, if his total sales, turnover or gross receipts in business exceeds fifty crore rupees during the immediately preceding previous year”.
Thus, on apparent reading we may find that section 269SU makes a valid attempt to curb black money. However, on deeper analysis it would be important to note that the legislation enacted in form of section 269SU does not mandate non-payment of cash. Also, 269SU does not mandate mandatory acceptance of payment electronically.
It only mandates providing a few facilities even if such similar facilities are in place. Such facility in three modes is neither superior to other modes of accepting electronic payment nor does it act in any better way to achieve object of countering black money or getting fair share of taxes.
Moreover, a separate legislation viz. The Payment and Settlement Systems Act, 2007 in its preamble provides that
“it is an act to provide for the regulation and supervision of payment systems in India”
Thus, when there is separate legislation for such purposes, it becomes more pertinent to understand that can income tax enter or overlap jurisdiction of other act with an intent to curb black money which apparently seems weak or being negated. Had it been a general provision of providing any facility to accept payment electronically, it would have provided more support to constitutional validity of such section.
Also, it is important to note that through BHIM UPI/QR transaction limit is INR 40,000 per transaction per day. With such small amount as limit and target being large business i.e. business with turnover or gross receipt exceeding INR 50 crores, it eventually turns out to be a more burdensome requirement to businesses in India.
From above, it can be deduced that it would be difficult to make such specific modes under Income Tax act constitutionally valid. A generic provision would have been constitutionally more powerful as compared to current section 269SU
Section 269SU is applicable to every person carrying business and there are no exceptions to it. Thus, where section does not provide exception it would be applicable to foreign companies as well subject to monetary limit of 50 crores as turnover or gross receipt in preceding financial year provided in the section. However, if foreign companies don’t have a permanent establishment in India, it can be said that they are not carrying business in India for which said section does not apply.
Government at one instance is targeting to achieve “ease of doing business in India” and such provisions being enacted becomes hinderance to important economic targets. It is important to clarify various doubts surrounding such section and exempt entities which are pure cost centres, having receipts only from outside India, foreign companies and companies already having similar facilities to obtain funds electronically from requirement of section 269SU. This would provide much relief to business especially B2B segment industries with large operations in India.
(The contents to this article are views expressed by author in its personal capacity and to the best of his knowledge. This has got no relation to professional life or organization to which it serves. It does not provide any opinion and is based on interpretation of author based on publicly available information. It would be advisable to consult a consultant before taking any action)