Landmark SC Ruling on Property Transaction in Cash: Did It Quote Wrong Section?

Supreme Court Rules on Income Tax and Property Suit Involving Unaccounted Cash Transactions : A Landmark Verdict—but Did It Quote the Wrong Section?

Facts

In RBANMS Educational Institution vs. B. Gunashekar & Another, the Supreme Court ruled on a case where the respondents claimed to have paid ₹75 lakhs in cash as advance for a property purchase, under an agreement to sell. This was allegedly done without any registered sale deed and in violation of Section 269ST of the Income Tax Act, 1961, which prohibits cash transactions of ₹2,00,000 or more. The Court highlighted that such cash dealings contribute to black money and are a direct contravention of the law.

Key takeaways from the Income Tax point of view:

1. Violation of Section 269ST: The respondents’ claim of cash payment of ₹75 lakhs was noted as a clear breach of Section 269ST, which was enacted to curb black money and promote digital transactions.

2. Implications under Section 271DA: As per the law, receiving cash payments above ₹2,00,000 attracts a penalty equal to the amount received. Though the penalty is on the recipient, the Court emphasized the obligation of plaintiffs to disclose the source of such large cash payments.

3. Directive to Courts and Authorities:

• • All courts must inform the jurisdictional Income Tax Department if a suit involves claims of cash transactions exceeding ₹2 lakhs.
  • Sub-registrars and other authorities are directed to notify the Income Tax Department if documents presented for registration mention such transactions.
  • Income Tax authorities must act upon these inputs and initiate proceedings if violations are found.
  • If tax authorities find that a registering officer failed to report such a transaction, disciplinary action is to be initiated against them by the Chief Secretary of the State/UT.

4. Emphasis on Enforcement: The Court criticized the lack of enforcement despite the clear legal provisions and stressed the need for stricter compliance to achieve the government’s digital economy goals.

This judgment sets a precedent for rigorous enforcement of income tax laws in civil litigation involving high-value property transactions and underscores the judiciary’s commitment to curbing unaccounted cash flows in the real estate sector.

The verbatim copy from the Supreme Court decision is as under:

“It will be useful to refer to the Budget Speech during the introduction of the Finance Bill, 2017 and the extract of the memo presented with the Finance Bill, 2017, which lay down the object:”

“However, when the Bill was passed, the permissible limit was capped under Rupees Two Lakhs, instead of the proposed Rupees Three Lakhs. When a suit is filed claiming Rs.75,00,000/- paid by cash, not only does is create a suspicion on the transaction, but also displays, a violation of law. Though the amendment has come into effect from 01.04.2017, we find from the present litigation that the same has not brought the desired change. When there is a law in place, the same has to be enforced. Most times, such transactions go unnoticed or not brought to the knowledge of the income tax authorities. It is settled position that ignorance in fact is excusable but not the ignorance in law. Therefore, we deem it necessary to issue the following directions:

(A) Whenever, a suit is filed with a claim that Rs. 2,00,000/- and above is paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department to verify the transaction and the violation of Section 269ST of the Income Tax Act, if any

(B) Whenever, any such information is received either from the court or otherwise, the Jurisdictional Income Tax authority shall take appropriate steps by following the due process in law,

(C) Whenever, a sum of Rs. 2,00,000/- and above is claimed to be paid by cash towards consideration for conveyance of any immovable property in a document presented for registration, the jurisdictional Sub-Registrar shall intimate the same to the jurisdictional Income Tax Authority who shall follow the due process in law before taking any action,

(D) Whenever, it comes to the knowledge of any Income Tax Authority that a sum of Rs. 2,00,000/- or above has been paid by way of consideration in any transaction relating to any immovable property from any other source or during the course of search or assessment proceedings, the failure of the registering authority shall be brought to the knowledge of the Chief Secretary of the State/UTfor initiating appropriate disciplinary action against such officer who failed to intimate the transactions.

AUTHORS VIEWS:

In the recent path-breaking ruling, the Supreme Court of India, in RBANMS Educational Institution vs. B. Gunashekar & Another (2025 INSC 490), took a strong stance against unaccounted cash transactions in real estate dealings. The Court not only rejected a speculative property suit based on an unregistered agreement to sell with ₹75 lakhs allegedly paid in cash, but also issued directives to lower courts and tax authorities to report such transactions to the Income Tax Department.

While the intent and impact of the ruling are commendable, the legal community has noticed a critical error in the statutory reference made by the Court.

The Core Issue: Misapplication of Section 269ST

The Supreme Court relied on Section 269ST of the Income Tax Act, 1961, to highlight the illegality of a ₹75 lakh cash payment made as advance consideration for a property sale. The Court also invoked Section 271DA to suggest a penalty against the recipient.

However, this reliance on Section 269ST is not legally accurate given the nature of the transaction.

Let’s Break It Down: 269ST vs. 269SS

What Section 269SS Actually Covers:

• Applies to: Any person accepting loan, deposit or specified sum in cash.
• “Specified sum” is defined to include any advance or otherwise in relation to transfer of immovable property.
• Threshold: ₹20,000
• Penalty: Equal to the amount received, under Section 271D

Clearly, a cash advance of ₹75,00,000 under an agreement to sell immovable property falls directly under Section 269SS.

What Section 269ST Actually Covers:

• Prohibits receipt of ₹2,00,000 or more in cash:
  • From a single person in a day,
  • For a single transaction,
  • For one event or occasion.
• Does not apply to loans, deposits or advances covered under Section 269SS.
• Penalty: Equal to the amount received, under Section 271DA

In fact, the Explanatory Memorandum to Finance Bill 2017 clarifies that 269ST excludes transactions already covered under 269SS.

Supreme Court’s Observation (from the Judgment):

“The agreement claims ₹75,00,000/- paid in cash, despite the introduction of Section 269ST to the Income Tax Act in 2017… action is to be taken on the recipient.”

While the spirit of this observation is valid in targeting black money, the section cited (269ST) does not apply to property-related advances. That’s precisely what Section 269SS was designed for.

Real Consequences of the Mistake

Although the judgment may still serve as persuasive authority, the misapplication of the law may lead to:

• Confusion among lower courts and litigants;
• Misinterpretation by tax and registration authorities;
• Incorrect penalty proceedings initiated under 271DA instead of 271D.

Respectful Recommendation

It is respectfully submitted that a clarificatory order or future correction from the judiciary or legal commentators could go a long way in:

• Ensuring correct application of tax law, and
• Preserving the integrity of an otherwise landmark judgment.

 Key Takeaway: When dealing with cash advances in property deals, it’s Section 269SS that applies—not 269ST.

Conclusion

The RBANMS Educational Institution case marks a strong judicial stance against speculative property litigation and under-the-table transactions. However, it’s a reminder that legal precision matters, especially when it comes to statutory interpretation in fiscal statutes.

Does Quoting 269ST Instead of 269SS Qualify as Per Incuriam?

Arguments in Favor of It Being Per Incuriam:

1. Clear statutory framework:

• • Section 269SS squarely applies to cash advances for property, while 269ST explicitly excludes such advances.
  • The Court failed to consider the correct provision, even though it directly governs the facts.

2. Conflict with established interpretations:

• • The Supreme Court itself, in cases like Ameer Minhaj v. Deirdre Elizabeth Issar (2018) 7 SCC 639, and Suraj Lamps, has upheld the application of 269SS in similar contexts.

3. Potential for confusion or misapplication by subordinate authorities:

• • Lower courts or tax officers could wrongly initiate penalty under Section 271DA instead of 271D, based on the SC’s ruling.

 Arguments Against Labeling It Per Incuriam:

1. Obiter dicta vs. ratio decidendi:

• • The income tax reference was not central to the decision (which focused on Order VII Rule 11 CPC).
  • Hence, the reference to Section 269ST may be treated as obiter dicta—a passing comment—not part of the binding precedent.

2. Court’s broader objective upheld:

• • The SC was emphasizing the policy goal of discouraging cash transactions, even if the section number was wrong.
  • The misreference may be viewed as clerical or peripheral, not affecting the core ruling.

 Conclusion: Technically, Yes—but Functionally, It Depends

• Technically, the judgment could be labeled per incuriam insofar as it misquotes a statutory provision fundamental to the transaction at hand.
• Functionally, unless the income tax issue was central to the ratio decidendi, this may not invalidate the entire judgment or reduce its authority on the civil law aspects.

What Can Be Done?

• Clarificatory petition or review (though rare in such cases).
• Scholarly or professional commentary, to ensure correct interpretation.
• Subordinate courts and tax officers can distinguish the judgment on this point, treating it as per incuriam for income tax purposes only.