Restrictions levied on Cash Receipts- Analysis of few aspects of Section 269ST

Article contains Introduction to Section 269ST of Income Tax Act, 1961, Analysis of Section 269ST Levying Restriction on Cash Receipts explaining restrictions,  Allowable Modes Of Receipts ,  Exemption Granted In Section 269ST, Type of Receipts to which Section 269ST applies,  Example Of Transactions Where Section 269ST May Be Applicable, Extract of Section – 269ST of Income-tax Act, 1961 and Extract of Section 271DA of Income-tax Act, 1961.

A. Introduction to Section 269ST of Income Tax Act, 1961

The Finance Act, 2017 has introduced a new section 269ST in the Income Tax Act with effect from 01^st April, 2017. This section aims for restricting the cash transaction for achieving the mission of the Government to move towards less cash economy to reduce generation and circulation of black money in the economy.

In this section it has been mentioned that “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.

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.

The Finance Act, 2017 has also introduced an another new section 271DA which provides for penalty for failure to comply with the provisions of above section 269ST.

B. Analysis of Section 269ST Levying Restriction on Cash Receipts

The detailed analysis of Section 269ST of Income Tax Act, 1961 is as under :

1. Restriction Is Only On Receipt Of Money And Not On Anything In Kind

The provisions of Section 269ST do not specifically mention that whether they are applicable only to the receipt of money or also to receipt of anything in kind. However, the author is of the opinion that from the background and purpose of introducing these provisions as mentioned in the Memorandum Explaining Clauses of the Finance Bill, it can be logically inferred that these provisions are applicable only in respect of the receipt of money and not in respect of the receipt of anything in kind.

In the memorandum, the heading given is “Restriction on cash transactions”. The relevant description given is that “Black money is generally transacted in cash and large amount of unaccounted wealth is stored and used in form of cash. In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed to insert section 269ST”. Thus, the main aim is to restrict cash transactions. The cash transactions can happen only in the case of money and not in the case of receipt in kind. Therefore, logically it can be inferred from those provisions that section 269ST is in respect of money only.

It is also mentionable here that similar type of restrictive provisions are contained in Section 269SS also. It has been specifically mentioned there that they are applicable only in respect of “Sum of money” and not otherwise. This reason also support the above view.

An another reason here is also that if the provisions of Section 269ST are stretched to items in kind say movable or immovable properties then there will be various other issues (like for penalty U/s. 271DA what will be the value of such item e.g., actual transaction value or fair market value or stamp duty value etc.) which have not been addressed. Therefore, logically these provisions may be in respect of receipt of money only.

Some peoples have an another view that the above provisions are applicable to the receipt of anything in kind also. The base of this alternate view is that in the Section 269ST the word “Amount” is used and not a word “Sum”. The word amount is vide and covers both cash and kind whereas the word sum covers only sum of money. The author do not agree with this another view due to the reasons that – (a) firstly, the legislature has not made any distinction between these two words. In Section 269ST the word “Amount” has been used whereas in the related Section 271DA, the word “Sum” has been used. Therefore, this criteria do no appears here to be meaningful. (b) Secondly, this alternate view appears to have been generated from the wordings of section 56 where the word “Sum” has been used for sum of money. In this regard it is mentionable here that in that section the word “sum” has been used only for “money” merely because for movable and immovable properties there are different clauses in section 56 itself. Therefore, the second base of the alternate view also do not appears to be tenable.

However, CBDT should make clarification on this issue to avoid inconvenience to the peoples.

2. Restriction is Only on Person Receiving Money and Not on Person Paying Money

The restriction U/s. 269ST is only on receipt of money and not on payment of money. Therefore, penalty U/s. 271DA on violation of these provisions shall be leviable only on the person receiving money and not on the person paying the money. (It is mentionable here that there are already some restrictions on payment of money in cash etc. over certain prescribed limits. However, they are contained in the other provisions of the Income Tax Act e.g., Section 40A(3) etc. and they are not subject matter of the present topic).

3. Restriction Is Applicable On All The Entities :

The restriction U/s. 269ST is applicable on all the entities (except those which have been exempted specifically). In the section the word “Person” has been used for both payer and the receiver. As per section 2(31), the word person includes individuals, HUFs, companies, firms, AOPs, BOIs, local authorities and other artificial judicial persons. Thus, the restriction is on receipt of money by any individual, firm etc. entity from any other individual, firm etc. entity.

4. Restriction Is Only When Amount Received is Rupees 2 Lakhs Or More

The provisions of this section are not applicable when the receipts are less than rupees 2 lakhs. They are applicable only when the amount of receipt is of Rs. 2 lakhs or more. This limit is mentioned in many ways like per day, per transaction, for occasion / event etc.

5. Allowable Modes Of Receipts

The amount beyond the above limit can be received only through (a) an account payee bank cheque ; or (b) an account payee bank draft ; or (c) use of electronic clearing system through a bank account (e.g., NEFT, RTGS, Online transfer from one bank account to another etc.). The receipt of amount through any other mode e.g., cash, bearer cheque, crossed cheque, self cheque, transfer entry or adjustment entry in books of account etc. are not permitted. However, the amount under the above limit can be received through any mode e.g., cash etc..

6. Exemption Granted In Section 269ST

The Government (Central Government, State Government etc. and not local authority), Banking companies, Post Office Saving Banks and Cooperative Banks have been exempted from these provisions. Thus, any amount of money can be deposited in cash etc. in the all type of accounts (e.g., saving account, current account, loan accounts etc.) by account holder, borrower etc. Similarly, any amount of tax, duty etc. can be paid to the Central Government, State Government etc. (other than local authority) through cash etc. other modes.

7. Applicable to Receipts Whether For Business, Personal Or Any Other Purpose

The restriction is applicable irrespective of purpose of accepting amount i.e., whether business purpose of personal purpose or as a trustee, custodian etc. However, it is mentionable here that these provisions are not applicable to the transactions of receiving money for loan, deposit or for transfer of immovable property. Because there are already separate provisions under Section 269SS restricting receipt of money in cash etc. for above purposes. The provisions of Section 269ST also specifically excludes receipts on account of the transactions covered in Section 269SS. The limit for accepting money for those purposes in cash etc. is Rs. 20,000/- only. Here care is to be taken by tax consultants etc. while educating the general public (who is not much proficient in tax laws) that due to Section 269ST, the limit of Rs. 20,000/- has not been increased to Rs. 2 lakhs for loan, deposit, immovable property transactions etc.

8. Applicable To Receipts Whether With Or Without Consideration

The restriction is applicable irrespective of the fact that whether the receipt is with or without consideration. In case receipt of money without consideration in contravention of Section 269ST, there will be dual impact, one charge of tax U/s. 56 (in specific cases) as well as levy of penalty U/s. 271DA.

9. Example Of Transactions Where Section 269ST May Be Applicable

The provisions of section 269ST do not contain the list of transactions / purpose on which they shall be applicable. Therefore, all the transactions / purposes (other than those mentioned in section 269SS and exempted in section 269ST itself) are covered by the above restriction. Some example of these transactions / purposes may be (a) sale proceeds of goods and services (b) sale proceeds of movable properties (c) fees, remuneration, salary, dalali, brokerage , contract receipts etc. (d) recovery of loan given and interest thereon (this is not covered presently in Section 269SS) (e) gift received on marriage etc. occasion or otherwise (f) donation receipts by trusts etc. (g) Advance taken by partner of firm, employees from employer, agents from principal etc. for personal purpose or for purpose of business itself (h) withdrawal of capital / profit by a partner of firm from firm. This is only a typical list. There may be many other type of transactions / purposes where the above restriction is applicable.

10. Restriction On Withdrawal From Bank In Cash Etc. Removed

Initially, the most significant and severe impact of this restriction was that it was applicable also on withdrawal of amount in cash etc. from own saving bank account, Current account, from bank loan accounts like CC Limit, OD limits etc. However, later on, this restriction has been removed by the CBDT vide Notification no. 28/2017, F.No.370142/ 10/2017-TP, S.O. 1057 (E) dated 05th April, 2017. A press release dated 05th April, 2017 was also released by the CBDT in this regard.

11. Restriction also applies on Receipt for Sale of Agricultural Produce

In clause 83 of notes on clauses to Finance Bill, it was mentioned that the provisions of section 269ST shall not be applicable to the sale of agricultural produce by any person being an individual or Hindu Undivided Family in whose hands such receipts constitutes agricultural income. But this exemption was not appearing in the proposed Section 269ST in the Finance Bill, 2017. Therefore, at that time it was felt generally that the same might had been omitted in proposed Section 269ST due to some mistake and was expected to be included later in the final Section 269ST. This expected exemption was also appearing to be logical because already such type of agricultural income based exemption has been given in existing similar provisions of Section 269SS. But later on, no such relief was considered in the finally passed Finance Act.

Further, the CBDT vide Circular No. 27/ 2017 F. No. 370149/213/2017 –TPL specifically clarified that “any cash sale of an amount of Rs. 2 lakh or more by a cultivator of agricultural produce is prohibited under section 269ST of the Act”.

Therefore, the above restrictions are also applicable on receipt of the sale proceeds of the agricultural produce.

Conclusion: Thus, the government has tried to cover almost all the major transactions within the ambit of these provisions. However, some relaxations and clarifications for genuine circumstances (as discussed above ) should be granted.

C. Extract of Section – 269ST of Income-tax Act, 1961

[Mode of undertaking transactions.

269ST. 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:

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.

Explanation.—For the purposes of this section,—

(a) “banking company” shall have the same meaning as assigned to it in clause (i) of the Explanation to section 269SS;

(b) “co-operative bank” shall have the same meaning as assigned to it in clause (ii) of the Explanation to section 269SS.]

D. Extract of Section 271DA of Income-tax Act, 1961

[Penalty for failure to comply with provisions of section 269ST.

271DA. (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.]

(Republished with Amendments)

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