Provisions of Section 269ST

Section 269 T was inserted in the Income Tax Act, 1961 by the Finance Act, 2017. The government has aimed to curb generation of black money, to move towards less cash economy and promote digital economy. The government has attempted to target and penalize receiver instead of payer. It is applicable whether the recipient person is a seller of goods or provider of service transferor of capital assets or any other person. Further, section begins with words ‘no person’ which means this section is applicable to all whether individual, company, firm, trust or association of persons. This section is applicable to residents and non residents. We shall divide the section into 5 parts to understand it in a better way:

Provisions of Section 269ST

A. No person shall receive an amount of two lakh rupees or more in aggregate from a person in a day

The first clause of the section has restricted any person, to not receive an amount of Rs. 2 Lakh or more from a person in a day otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here purpose of the payment is irrelevant. The main focus is ‘from a person’ and ‘in a day’.

Now a question arises what is a meaning of a day. A legal day commences at 12 o’ clock midnight and continues until the same hour the following night. {Prabhu Dayal Sesma vs State of Rajasthan, AIR 1986 SC 1948)

The restriction is applicable even if the different receipts are in relation to distinct transactions entered into on same day or different days. This section will be violated if following four pre-requisites are fulfilled:

i) There is single payer

ii) There is a single receiver.

iii) The payment is in single day.

iv) The amount received by the person in cash is Rs. 2 Lakhs or above.

The payment may be towards two separate invoices of different dates and each invoice below Rs. 2 Lakh, but the person cannot receive Rs. 2,00,000 or more in cash from a person in aggregate in a single day.

B. In respect of a single transaction

This part of the section restricts receipt of Rs. 2,00,000 or more in respect of a single transaction otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Here the major focus is on ‘single transaction’. The number of installments or parts in which payment is made is irrelevant. Further, here word ‘a person’ is not used. Therefore, the recipient cannot receive Rs.2,00,000 or more in cash in a single transaction even if different persons are making payment. However, if the each of invoice amounts are below Rs. 2 Lakh, this provision may not be contravened. The pre-requisites for section to be violated are:

i) Single Receiver

ii) The cash payment relating to a particular transaction is Rs. 2,00,000 or more.

If the parties try to split their payments, such that one transaction is given effect to over multiple days like making payments of Rs. 10,000 on different dates in respect of a single transaction, then obviously it will not fall under first clause as aggregate is out of question being payments received on different dates but is covered by second clause.

Example

M/s Lotus Chemicals issued invoice of Rs. 7,50,000 to their customer on 19/12/2019. The customer intends to make payment in cash in 10 weekly installments of Rs. 75,000 each. Whether M/s Lotus Chemicals can accept the above proposal?

M/s Lotus Chemicals cannot accept the above proposal as the cash receipts (though on different dates) are towards a single transaction and exceeds Rs. 2 Lakh.

C. In respect of transactions relating to one event or occasion from a person

This clause attempts to target transactions scattered over different days but relating to a single event or occasion. Here major focus is ‘one event or occasion’ and ‘a person’. Pre-requisites for attraction of this section shall be:

i) Single Receiver

ii) Single Payer

iii) Cash payment relating to single event/ occasion is Rs. 2 Lakhs or more.

From the above it is interesting to note that in clause (c) of Section 269ST of Income Tax Act the words “from a person” have been used. Due to this now the language has became that “No person shall receive an amount of Two lakh rupees or more in respect of transactions relating to one event or occasion from a person”. In cases where there are more than one transaction and they are related with one event or occasion, the entity will fell in clause (c) and in such a situation, separate limit will became available for different persons in a joint transaction.

For example, if for a marriage there are 3 different bills of Rs. 1 lakhs each (total Rs. 3 lakhs), and all the three bills are in the name of three different persons say one bill (garden on rent for marriage reception,) of Rs. 1 lakhs is in the name of the person who is being married, second bill (given tent house services) is in the name of father of that person for Rs. 1 lakhs and the third bill (for decoration ) is in the name of the mother of that person for Rs. 1 lakhs. Then in such a situation entire Rs. 3 lakhs can be paid in cash etc. mode i.e., Rs. 1 lakh by the person being married, Rs. 1 lakhs by the father and Rs. 1 lakhs by the mother. Even if all the bills are in the joint names of three persons then also the payment can be made in the above manner.

D. Exemptions: The above provisions are not applicable in the following cases

Receipt by Government;

Receipt by any banking company, post office savings bank or co-operative bank

Transactions of the nature referred to in section 269SS i.e. acceptance of loans/ deposits/ specified advance.

Persons/ receipts notified by government:

Receipts (cash withdrawals) by any person from bank, cooperative bank or post office savings bank

  • Receipt by business correspondent on behalf of banking company or cooperative bank as per RBI guidelines.
  • Receipt by white label ATM operator from retail outlet sources on behalf of banking company or cooperative bank.
  • Receipt from an agent by an issuer of prepaid payment instruments.
  • Receipt by company/ institution issuing credit cards against bills raised in respect of one or more credit cards.
  • Receipt exempt u/s 10(17A) i.e. any award from state/central government

E. Penalty u/s 271DA:

Penalty for failure to comply with provisions of section 269ST

(1) If a person receives any sum in contravention of the provisions of section 269ST, he shall be liable to pay, by way of penalty, a sum equal to the amount of such receipt: Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention. (2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

If any person violates sec 269ST, then penalty shall be levied @ 100% of such receipt.

Example 1: ABC & Co. issued invoice of Rs. 1,60,000 to Mr. Bhushan on 15/04/2020 and another invoice of Rs. 1,25,000 on 16/04/2020. Can ABC & Co receive the payment of Rs.2,85,000 in cash/ bearer cheque on 17/04/2020?

No, as the aggregate of both the invoices exceeds Rs. 2,00,000; ABC & Co. cannot receive the whole amount in cash/ bearer cheque. Only amount upto Rs. 1,99,999 can be received in cash/ bearer cheque in single day.

Example 2 : ABC & Co. issued following invoices and received following payments:

ABC & Co. issued following invoices and received following payments

Example 3: M/s ABC & Co. sold a machinery for Rs. 6,00,000 to 3 different persons X, Y and Z

ABC & Co. sold a machinery for Rs. 6,00,000 to 3 different persons X, Y and Z

Example 4. Mr. Puneet receives following gifts on his marriage:

S.No. Particulars Whether Sec
269ST Violated
Reasons
1 Receives shagun of Rs.1,000 each in cash from 220 persons No None of the person gifted Rs.2 Lakh or more in cash.
2 Receives shagun of Rs.1,11,000 from his uncle on the marriage day and Rs.1,51,000 on the day of reception. Yes As the total cash
receipt from a personrelating to occasion ‘marriage’ exceeds
Rs. 2 Lakh
3 His uncle gifted Rs. 1,70,000 to him and Rs. 81,000 to his mother in cash No No person has received Rs.2 Lakh or more in cash.

In case of 2nd and 3rd limb of sec 269ST the word ’transaction’ has been used

(b) in respect of a single transaction; or

(c) in respect of transactions relating to one event or occasion from a person

However, for the purposes of section 2(xxiv) of the Gift-tax Act, 1958, it has been held that the term ‘transaction’ refers to a bilateral transaction but not to a unilateral transaction. [Dr. A. R. Shukla v. CGT [1969] 74 ITR 167 (Guj.); CGT v. Jer Mavis Lubimoff [1978] 114 ITR 90 (Bom.), CGT v. Ebrahim Haji Usuf Botawala [1980] 122 ITR 62 (Bom.)]. Hence, a gift may not be covered under 2nd and 3rd limb of sec 269ST of the Act.

Following the above judgments, gift is a unilateral act and not a transaction. Therefore, in the above table, in case 2, where shagun of Rs.1,11,000 is received from his uncle on the marriage day and Rs.1,51,000 on the day of reception, there may not be violation of sec 269ST. However, the first limb i.e. in aggregate from a person in a day shall continue to apply in case of gifts.

Example 5. M/s Tania Event Managers arranged a marriage function in February 2020.

Date Particulars Case 1 Case-2 Case-3 Case-4
22/02/2020 Invoice for ‘Ring Ceremony’ 1,80,000 70,000 1,80,000 1,80,000
23/02/2020 Invoice for catering on ‘Marriage Day’ 1,90,000 60,000 1,90,000 1,90,000
23/02/2020 Invoice for decoration on ‘Marriage Day’ 45,000 45,000 45,000 45,000
Total of Invoices 4,15,000 1,75,000 4,15,000 4,15,000
01/03/2020 Received cash from Bride’s father 1,75,000 1,75,000 1,75,000 1,75,000
03/03/2020 Received cash from Bride’s father 60,000 25,000
04/03/2020 Received cash from Bride’s brother 65,000
05/03/2020 Received payment by credit card/ account payee cheque 1,80,000 1,75,000 2,15,000
Total cash payments 2,35,000 1,75,000 2,40,000 2,00,000
From Bride’s father 2,35,000 1,75,000 1,75,000 2,00,000
From Bride’s brother 65,000
Violation of sec 269ST Yes No No Yes
Penalty u/s 271DA 2,35,000 Nil Nil 2,00,000

Summary of Sec 269ST

CLAUSES Conditions Irrespective of
a) in aggregate from a person in a day Number of persons- 1

Number of Days-1

Number of transactions
a)in respect of a single transaction Number of transactions- 1 Number of persons

Number of days

a)in respect of transactions relating to one event or occasion from a person Number of persons-1

Number of event/occasion- 1

Number of days

Number of transactions

 

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7 Comments

  1. SUBHASH C B says:

    Sir,

    A business naming ABC issues gst invoices to XYZ Business monthly 2 or 3 amounting around Rs.40000 each (around Rs.1 lakh or 1,20,000 per month) per annum it becomes around 12 lakhs.
    can ABC business receive cash from XYZ business (Rs.9000 or below 10000 daily basis or two days once or weekly twice) the hole 12 lakh in a year.

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