Article explains Introduction Of Section 269 ST , Transactions Between The Firm And Its Partners and applicability of Section 269 ST, Permissible Limits Of Receipts By Cash under Section 269 ST and Exclusions / Exemptions / Clarifications Regarding Section 269ST.
The Finance Act, 2017 has introduced a new section 269ST in the Income Tax Act with effect from 01st April, 2017.
According to this Section “No person shall receive an amount of two lakh rupees or more— (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account.
In this regard, it is being frequently asked that whether the provisions of Section 269ST are also applicable on transactions between the firm and its partners. In this article an attempt has been made to discuss various aspects of this issue.
Generally, there may be following type of transactions between the firm and its partners –
(i) Capital contributions made by the partner to the firm : This transaction is related to the receipt by the firm from its partner. The provisions of Section 269ST are very well applicable to this also. It is so because the provisions of Section 269ST are applicable to each and every receipt irrespective of its nature and irrespective of relation between the parties.
It is applicable (i) whether the receipt is for business purpose or for personal purpose (ii) whether the receipt is with or without consideration (iii) whether the receipt is of capital or revenue nature.
It is not applicable only in cases – (i) where there is specific exclusion / exemption in the Section 269ST itself ; or (ii) where exemption has been granted by the government way of any notification ; or (iii) non applicability has been clarified by the government by way of any clarification etc.
There is no specific exclusion / exemption / clarification etc. regarding capital contribution made by the partner to its firm. Therefore, the provisions of Section 269ST are very well applicable to the capital contribution made by the partner to the firm.
(Note :- In this transaction, Section 269ST is applicable to the firm (who is the recipient) and not to the partner.)
(ii) Withdrawal of capital / profit share by the partner from the firm : This transaction is related to the receipt by the partner from its firm. In this transaction, Section 269ST is applicable to the partner (who is the recipient) and not to the firm. The situation in this regard is also similar as mentioned in point no. (i) above regarding capital contribution made by the partner. Therefore, the provisions of Section 269ST are also applicable to the withdrawal of capital / profit share by the partner from the firm.
(iii) Loan / Deposits Given By The Firm To Its Partner : The Section 269ST is related to the receipt. Here firm is not recipient therefore, in this case Section 269ST will not be applicable to the firm.
In this transaction, Section 269ST will also not be applicable on the partner (receiving loan / deposit) because acceptance of loan / deposit is covered by the provisions of Section 269SS and not by Section 269ST. Rather it has been specifically excluded by Section 269ST itself by its ambit.
(iv) Loan / Deposits Given By Partner To The Firm : In this case also Section 269ST will not be applicable on the partner as well as on the firm due to the same reason as mentioned in point no. (iii) above.
(v) Repayment Of Loan / Deposit By The Partner To The Firm : In this case, the provisions of Section 269ST will be very well applicable to the firm (who is the recipient). It will not be applicable to the partner (who is the payee). However, in this case, the provisions of Section 269T shall be applicable to the partner.
(vi) Repayment Of Loan / Deposit By The Firm To The Partner : In this case, Section 269ST will be applicable to the partner and Section 269T will be applicable to the firm (as per the analogy given in point no. (v) above.
(vii) Other Receipts By The Partner From The Firm / By The Firm From The Partner : In this case also Section 269ST will be applicable on the recipient (unless specifically excluded / exempted / clarified).
The restrictions levied in Section 269ST are on the basis of (i) per day per person (ii) per transaction ; and (iii) all transactions per event / occasion. All these basis / limits are applicable simultaneously.
Per Day Per Person Limit : It is self explanatory i.e., wherever Section 269ST is applicable, a partner of the firm can take only up to “less than Rs. 2 lakhs” from the firm in cash etc. modes in a single day. The similar situation will be applicable on receipt by firm from its partner.
Per Transaction Limit : It is also self explanatory i.e., wherever Section 269ST is applicable a firm can receive amount of only “up to less than Rs. 2 lakhs” from its partner in cash etc. mode in a single transaction (complying with other limits). The similar analogy will also be applicable on receipt by partner from the firm.
All Transactions Per Event / Occasion Limit : There is no definition of words “event” / “occasion” used in clause (c) of Section 269ST. There is also no clarification from CBDT on this issue. There are also no judicial decisions on this matter. Therefore, in absence of the same two views are prevailing i.e.,-
(i) firstly, the meaning of the words “events” / “occasion” should be restricted only to the social, cultural etc. events ; and
(ii) secondly, it should be extended to financial events / occasions etc. also i.e., in the present context, the entering in to partnership may be treated as an event / occasion and thus, only single consolidated limit of “less than Rs 2 lakhs” may be available for the entire tenure of the partnership (not only for the financial year etc.).
If first view is followed then a firm or partner can obtain up to “less than Rs. 2 lakhs” every day from each other in cash etc. mode i.e., for example – up to Rs.1,99,999 X 365 = Rs.7,29,99,635/- .
If the second view is followed then the firm or partner can obtain only up to “less than Rs. 2 lakhs” in the entire tenure of the partnership.
However, it is mentionable that there is no specific direction from the CBDT / in the law / from the courts etc. in favour of the first view i.e., strict view. Therefore, in exceptional circumstances, the second view i.e., lenient view may be followed by the assesses, auditors etc. with suitable precautions and disclosures.
The exclusions etc. given in the law / by CBDT are as under :
(i) In Section 269ST itself it has been provided that the provisions of this section shall not apply to (i) any receipt by— (a) Government; (b) any banking company, post office savings bank or co-operative bank; (ii) transactions of the nature referred to in section 269SS; (iii) such other persons or class of persons or receipts, which the Central Government may, by notification in the Official Gazette, specify.
(ii) Vide clarification made by Circular No.22 of 2017 Dated 03rd July, 2017 it has clarified that all the installments paid for the loan granted by Non Banking Financial Companies and Housing Finance Companies shall not be aggregated for the purpose of Section 269ST.
(iii) Vide Notification no. 28/2017, F.No.370142/ 10/2017-TP, S.O. 1057 (E) dated 05th April, 2017 the provisions of Section 269ST have been made not applicable in respect of cash receipt from banking company, post office savings bank or co-operative bank.
(iv) Vide Notification No. 57/2017 Dated 03rd July, 2018 the provisions of Section 269ST have been made not applicable in respect of the receipt by a business correspondent on behalf of a banking company etc., receipt by a white label automated teller machine operator from retail outlet sources on behalf of a banking company etc., receipt from an agent by an issuer of pre-paid payment instruments, receipt by a company or institution issuing credit cards against bills, receipt which is not includible in the total income under clause (17A) of section 10 of the Income-tax Act, 1961.
(v) No exclusion / exemption / clarification has been made to exclude transactions between the firm and its partners. Therefore, Section 269ST is very well applicable regarding these transactions.
The author has also written other articles related to Section 269ST. The links to view / read the same are :
Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author do not owns any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.