IS THE INTENT OF GOVERNMENT TO BRING DOWN BLACK MONEY AND AVOID TAX EVASION BEST SERVED WITH LOPSIDED PROVISIONS.

[KUMAR JAGADEESAN]

AN ANALYSIS OF SECTION 269 SS , 269 ST

Chapter XXB : requirement as to the mode of  acceptance, payment or repayment in certain cases to counteract evasion of tax- CHAPTER HEADING AS PER THE IT ACT 1961

This Chapter contains four  sections vz. Section 269SS, 269ST, 269T and 269TT. We are confining our discussion  to the first three sections and to see whether the purpose of the legislation is served or whether the Government has to have a relook at the same.

Mode of taking or accepting certain loans, deposits and specified sum.

269SS. No person shall take or accept from any other person (herein referred to as the depositor), any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, if,-

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

(b)  on the date of taking or accepting such loan or deposit or specified sum, any loan or deposit or specified sum 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 twenty thousand rupees or more:

 We are more concerned with the term “Specified Sums” which is explained in the same section as follows

(iv)  "specified sum" means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place.

[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.

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 or any specified advance received by 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 or paid the specified advance, or by use of electronic clearing system through a bank account if-

(a)  the amount of the loan or deposit or specified advance 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, or

(c)  the aggregate amount of the specified advances received by such 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 specified advances,

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 :

It can be seen from the above sections Section 269 SS and ST places some restriction on the receiver of cash beyond the specified limit Section 269 T pertains to the payer/ remiter.

Moreover Section 269 ST exempts from its operation such of those transactions that are covered under Section 269 SS.

The other day  one of my clients came to my office and stated that he wished to sell his property but as is the current practice ( however objectionable) but the buyer is willing to pay  a part of the sale price in cash. The whole country is aware that real estate  industry is where a lot of black money operates. We are not intending to go into the legality or otherwise of the transactions in the industry but limit our focus on the client’s problem. I told him that the law says  he can not receive more than 20,000/- in cash for any transaction relating to immovable property whether such sum is advance or any other sums and whether the transfer of property has taken place or not , practically meaning that all sums received in relation to sale of property would be covered in its ambit. He was in a dilemma . He stated that he was willing to declare the entire sale value (including cash) in his IT returns and was ready to pay the applicable tax on capital gains. He was in need of funds for his daughter’s marriage and he could never find a party who would be willing to pay the entire consideration through Banking channels. I explained that the Income Tax Act, 1961 provides for a penalty if Section 269 SS is not complied and the section reads as follows.

Penalty for failure to comply with the provisions of section 269SS.

271D. (1) If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner

The client asked a direct question as to the purpose of the section 269SS and I replied with a straight face that the intent is to check tax evasion and to reduce the quantum of  black money in circulation. I also explained the various measures the Government has been taking in this regard including the demonetisation that happened in 2016.

The client wondered how he can be faulted and fined a sum equivalent to the amount of cash receipt when he is ready to deposit the entire cash pertaining to the transaction with his Bank thereby brining in part of the black money in circulation . With the  law  as it stands now, he shall be forced to accept the cash and keep it in cash further feeding to the black money market and meanwhile  hoping the next demonetisation does not happen soon. Why he should be penalised for being truthful and when  willing to pay the tax on the transaction , I am unable to understand

I did not have any proper explanation. If  any of you friends have an answer to his queries please share the same. I can only hope that the Tax Administration  takes note and bring out appropriate legislative changes understanding the harsh reality  and to promote honesty and integrity of the genuine tax payers.

J.KUMAR, ADVOCATE

HYDERABAD

Discussions to this article

[ANIL ANIKHINDI]

Mr. Kumar,

You have mentioned that your client is ready to declare full sale price and pay capital gain tax. Whether the purchaser is also ready to accept full sale price on paper as per purchase/sale deed ? If yes, there is no issue. If no, this is the issue. There are cases where purchase/sale deeds are showing X amount. Then seller adds his own black money in cash (on which he has already evaded 33% tax) to the sale price and declares to Income tax full sale price and pays only 20% capital gain tax. This is why the legal provision.

[KUMAR JAGADEESAN]

Dear Mr.Anil

As you rightly obesrved there is no issue if the buyer agrees to mention and pay the entire consideration as per the agreement and the problem arises only when one party is not yet ready to disclose the correct value. My query is the whole section 269SS has not been rightly enacted to attain the true purpose of bringing out the black money into the circulation and actually promotes and perpetuates the existing or deepening the black money market by penalising both the buyer and the seller. If one of the contracting partries decides to disclose truthfully and brings the unaccounted money , he should be encouraged and not penalised. The department with the help of the disclsoure made by the seller can always trace the buyer and bring him under tax net that too without any penalty but may be with interest on capital gains suppressed. This is a win win situation for the seller, department and to some extent the buyer. There is also the stamp and registration acts of the states concerned and should be taken care off while legislating.

The bottom line of my article is that with stiff penalties the desired objective of bringing back the unaccounted cash into circulation , is self defeated and the authorities should take corrective action to encourage truthfulness and not deive away even a few tax abiding citizens to resort to wrong practices.

Regards