Provisions to curb black money a recap Part –I

[C.A. DEV KUMAR KOTHARI]

 We find several provisions in the Income-tax Act, 1961 (The Act) designed to achieve the purpose of putting checks on black money- that is income  on which tax has not been paid. These provisions go behind the documents and in case the document is not genuine, a sum of money which is claimed to be a capital receipt or tax free receipt can be brought to tax. Here in this write-up we intend to have a fresh look on the provisions and therefore relevant provisions as they stand now are reproduced with highlights of key word for an easy recap of the matter. Footnotes for changes made more than ten years ago or simply to substitute designation of ITO with AO and insignificant amendments are not given. In this write-up provisions of search and survey are not covered. Any judgments are also not covered. In subsequent articles in this series these will be covered. Readers can search provisions, amendments from time to time which took place and section wise judgments on this website.

 [Expenses or payments not deductible in certain circumstances.

40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession".

(2) xxx

[(3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.

(3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees:

Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this subsection where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.]

[Provided further that in the case of payment made for plying, hiring or leasing goods carriages, the provisions of sub-sections (3) and (3A) shall have effect as if for the words "twenty thousand rupees", the words "thirty-five thousand rupees" had been substituted.]

(4) Notwithstanding anything contained in any other law for the time being in force or in any contract, where any payment in respect of any expenditure has to be made by ¹⁶[an account payee cheque drawn on a bank or account payee bank draft] in order that such expenditure may not be disallowed as a deduction under sub-section (3), then the payment may be made by such cheque or draft; and where the payment is so made or tendered, no person shall be allowed to raise, in any suit or other proceeding, a plea based on the ground that the payment was not made or tendered in cash or in any other manner.]

¹[Special provision for full value of consideration in certain cases.

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted ²[or assessed or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted ²[or assessed or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2) Without prejudice to the provisions of sub-section (1), where—

(a) the assessee claims before any Assessing Officer that the value adopted ²[or assessed or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

(b) the value so adopted ²[or assessed or assessable] by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.

Explanation 1..— For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).

³[Explanation 2.— For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.]

(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted ²[or assessed or assessable] by the stamp valuation authority referred to in sub-section (1), the value so adopted ²[or assessed or assessable] by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.] 

Income from other sources.

56.

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(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :—     

⁶[(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 ⁷[but before the 1st day of April, 2006], the whole of such sum :

            Provided that this clause shall not apply to any sum of money received—

                     (a) from any relative; or

                     (b) on the occasion of the marriage of the individual; or

                     (c) under a will or by way of inheritance; or

                     (d) in contemplation of death of the payer; or

                    ⁸[(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

                     (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

                     (g) from any trust or institution registered under section 12AA.]

            Explanation.—For the purposes of this clause, "relative" means—

                           (i) spouse of the individual;

                           (ii) brother or sister of the individual;

                           (iii) brother or sister of the spouse of the individual;

                           (iv) brother or sister of either of the parents of the individual;

                           (v) any lineal ascendant or descendant of the individual;

                           (vi) any lineal ascendant or descendant of the spouse of the individual;

                           (vii) spouse of the person referred to in clauses (ii) to (vi);]

        ⁹[(vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 ¹⁰[but before the 1st day of October, 2009], the whole of the aggregate value of such sum:

                Provided that this clause shall not apply to any sum of money received—

                     (a) from any relative; or

                     (b) on the occasion of the marriage of the individual; or

                     (c) under a will or by way of inheritance; or

                     (d) in contemplation of death of the payer; or

                     (e) from any local authority as defined in the Explanation to clause (20) of section 10; or

                     (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

                     (g) from any trust or institution registered under section 12AA.

                  Explanation.—For the purposes of this clause, "relative" means—

                           (i) spouse of the individual;

                           (ii) brother or sister of the individual;

                           (iii) brother or sister of the spouse of the individual;

                           (iv) brother or sister of either of the parents of the individual;

                           (v) any lineal ascendant or descendant of the individual;

                           (vi) any lineal ascendant or descendant of the spouse of the individual;

                           (vii) spouse of the person referred to in clauses (ii) to (vi).]

        ¹¹[(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—

                 (a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

                ¹³[(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;]

                 (c) any property, other than immovable property,—

                         (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

                         (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:

                Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections:

                Provided further that this clause shall not apply to any sum of money or any property received—

                         (a) from any relative; or

                         (b) on the occasion of the marriage of the individual; or

                         (c) under a will or by way of inheritance; or

                         (d) in contemplation of death of the payer or donor, as the case may be; or

                         (e) from any local authority as defined in the Explanation to clause (20) of section 10; or

                         (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

                         (g) from any trust or institution registered under section12AA.

                Explanation.—For the purposes of this clause,—

                         (a) "assessable" shall have the meaning assigned to it in Explanation 2 to sub-section (2) of section 50C;

                         (b) "fair market value" of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed;

                         (c) "jewellery" shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;

                         (d) "property" ¹⁴[means the following capital asset of the assessee, namely:—]

                                (i) immovable property being land or building or both;

                                 (ii) shares and securities;

                                 (iii) jewellery;

                                 (iv) archaeological collections;

                                 (v) drawings;

                                 (vi) paintings;

                                 (vii) sculptures; ¹⁵[***]

                                 (viii) any work of art; ¹⁶[or]

                                 ¹⁷[(ix) bullion;]

                         (e) "relative" shall have the meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of this section;

                         (f) "stamp duty value" means the value adopted or assessed orassessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;]

        ¹⁸[(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,—

                 (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

                 (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:

               Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

                Explanation.—For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);]

        ¹²[(viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A.] 

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Notes :-

6. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.

7. Inserted by the Taxation Laws (Amendment) Act, 2006, w.r.e.f.1-4-2006.

8. Substituted by the Finance Act, 2007, w.r.e.f.1-4-2005. Earlier clauses (e) to (f) were inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f.13-7-2006.

9. Inserted by the Taxation Laws (Amendment) Act, 2006, w.e.f.1-4-2007.

10. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009

11. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009

12. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-4-2010

13. in clause (vii), For sub-clause (b), the following sub-clause has been substituted and shall be deemed to have been substituted with effect from the 1st day of October, 2009, vide Finance Act, 2010 before this it was read as, " (b) any immovable property,—

                         (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

                         (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration".

14. In the Explanation, in clause (d),  in the opening portion, for the word "means—", the words "means the following capital asset of the assessee, namely:—" has been substituted and shall be deemed to have been substituted with effect from the 1st day of October, 2009 vide Finance Act, 2010.

15. In sub-clause (vii), the word "or" has been omitted with effect from the 1st day of June, 2010 vide Finance Act, 2010.

16. In sub-clause (viii), the word "or" has been inserted at the end with effect from the 1st day of June, 2010 vide Finance Act, 2010.

17. After sub-clause (viii), the following sub-clause has been inserted with effect from the 1st day of June, 2010 vide Finance Act, 2010.

18. After clause (vii), the clause (viia) has been inserted with effect from the 1st day of June, 2010 vide Finance Act, 2010.

Cash credits.

68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the ¹[Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. 

Unexplained investments.

69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the ¹[Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

Unexplained money, etc.

69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.]

 Amount of investments, etc., not fully disclosed in books of account.

69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the ²[Assessing] Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the ³[Assessing] Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.]

 Unexplained expenditure, etc.

69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year :]

Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.]

Amount borrowed or repaid on hundi.

69D. Where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be :

Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be the income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.

Explanation.—For the purposes of this section, the amount repaid shall include the amount of interest paid on the amount borrowed.]

¹[CHAPTER XX-B

REQUIREMENT AS TO MODE OF ²[ACCEPTANCE, PAYMENT OR] REPAYMENT IN CERTAIN CASES TO COUNTERACT EVASION OF TAX

³[Mode of taking or accepting certain loans and deposits.

269SS.   No person shall, after the 30th day of June, 1984, take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,—

(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit ; or

(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid ; or

(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b),  is ⁴[twenty] thousand rupees or more :

Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,—

(a) Government ;

(b) any banking company, post office savings bank or co-operative bank ;

(c) any corporation established by a Central, State or Provincial Act ;

(d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956) ;

(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notifyin this behalf in the Official Gazette :

⁵[Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act.]

Explanation.—For the purposes of this section,—

⁶[(i) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949), applies and includes any bank or banking institution referred to in section 51 of that Act ;]

(ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949) ;

(iii) "loan or deposit" means loan or deposit of money.] 

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Notes :-

1. Chapter XX-B inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981.

2. Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

3. Inserted by the Finance Act, 1984, w.e.f. 1-4-1984.

4. Substituted for "ten" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

5. Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

6. Substituted by the Finance Act, 1985, w.e.f. 1-4-1986.

[Mode of repayment of certain loans or deposits.

269T. No branch of a banking company or a co-operative bank and no other company or co-operative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit if—

(a) the amount of the loan or deposit together with the interest, if any, payable thereon, or

(b) the aggregate amount of the loans or deposits held by such person with the branch of the banking company or co-operative bank or, as the case may be, the other company or co-operative society or the firm, or other person either in his own name or jointly with any other person on the date of such repayment together with the interest, if any, payable on such loans or deposits, is twenty thousand rupees or more:

Provided that where the repayment is by a branch of a banking company or co-operative bank, such repayment may also be made by crediting the amount of such loan or deposit to the savings bank account or the current account (if any) with such branch of the person to whom such loan or deposit has to be repaid :

²[Provided further that nothing contained in this section shall apply to repayment of any loan or deposit taken or accepted from—

(i) Government;

(ii) any banking company, post office savings bank or co-operative bank;

(iii) any corporation established by a Central, State or Provincial Act;

(iv) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956);

(v) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette.]

Explanation.—For the purposes of this section,—

(i) "banking company" shall have the meaning assigned to it in clause (i) of the Explanation to section 269SS;

(ii) "co-operative bank" shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(iii) "loan or deposit" means any loan or deposit of money which is repayable after notice or repayable after a period and, in the case of a person other than a company, includes loan or deposit of any nature.] 

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Notes :-

1. Substituted by the Finance Act, 2002, w.e.f. 1-6-2002. Prior to its substitution, section 269T was inserted by the Income-tax (Second Amendment) Act, 1981, w.e.f. 11-7-1981 and later on amended by the Finance Act, 1984, w.e.f. 1-4-1984, Finance Act, 1985, w.e.f. 1-4-1986 and Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

2. Inserted by the Finance Act, 2003, w.r.e.f. 1-6-2002.

Two parties in deals but one party who make compliance is caught :

On reading of the above provisions we find that though in each transaction there are at least two parties. However, the provision try to deal with only one party and not the other party. By applying the provision as a means to enquire about other party and tracing the other party the revenue can   really curb the black money. However, unfortunately the parties who are genuine party and have recorded transaction in the books of account is caught and other party is usually left un-assessed (unless he has made voluntary compliance of tax payment). For example in case of cash payments exceeding prescribed limit duly recorded in books of account, there is no concealment of income so far person who paid money is concerned – he has paid his disclosed money. However, in his hands expenses are disallowed, and the party who received money in cash generally is not enquired. Similarly in case of cash credit, person who has credited the sum of money in his books is caught whereas the person who paid or invested money is not enquired about- he may have made undisclosed investment. In case of loan or deposit received or repaid otherwise than a/c payee cheque or draft, the party who has recorded transaction is caught and the other party is not effected, even if he has recorded transaction in his books of account, though the ground reality is that many times payment is made in cash on request  or insistence of loan creditor / depositor.This shows that there is possible misuse of provisions, where unintended deeming provisions to levy tax are applied,