“In India, the quantum of domestic black money is huge which adversely affects the revenue of the Government creating a resource crunch for its various welfare programmes. Black money is generally transacted in cash and large amount of unaccounted wealth is store and used in form of cash.”

With above observation in the explanatory memorandum to the Finance Bill – 2017, section 269ST is incorporated in the Income Tax Act -1961. Section 269ST reads as under:

 ‘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.’.

 Section 269ST is a step to promote less cash economy & restricts the cash transactions in excess of Rs. 2 Lakh from a person in a single day or in respect of any single transaction or in respect of transactions relating to one event or occasion from any person.  The way the section has been drafted, outcome would be very stringent, at least till the time government provides certain genuine exclusion by notification. Even genuine Transactions in Cash would be affected by Section 269ST.

Though the wording of the new law is simple, the outcome would not be so. Though the object is noble, its implications would be draconian. There are no exceptions as such and penalty would be imposable whether the recipient is a businessmen or a salaries assessee, whether it is a trust of company, whether recipient is a society or HUF, whether its partnership firm or a company.

The section is unfettered & it places restriction on the recipient (& not on payer). The nature & character of receipt is irrelevant i.e., exempt income or taxable income etc. There is no exemption even for sale of agricultural produce.

Let us try to understand the implications of the new law. Section 269ST restricts the cash acceptance in three ways, as under:

First Part (in aggregate from a person in a day):

The first limb of the sections places restrictions on acceptance of Rs. 2 Lakh or more in a day. Obviously, the focus is on the receipt on any single day. It means that even though the transaction of each sale/ service bills on different dates are below Rs. 2 Lakh, the recipient cannot receive more than Rs. 2 Lakh in a day.

For example: If Mr. X has sold to Mr. Y goods of Rs. 1.50 Lakh on 1^st March, Rs. 1.50 Lakh on 2^nd March, he cannot receive Rs. 2 Lakh or more against outstanding bills in any single day even though each bill is below Rs. 2 Lakh. In short, Rs above 2 Lakh or more per person per day is not allowed even though payer may be paying for various transactions which are individually below Rs. 2 Lakh.

Second Part (in respect of a single transaction):

The second limb of the provision places the restriction on acceptance of cash of Rs. 2 Lakh or more in respect of a single transaction. Obviously, focus here is on a single transaction. For example, Mr. X is purchasing a second hand car from Mr. Y for Rs. 5 Lakh. Buying the second hand car here is a single transaction. So, at any point of time (in the current or subsequent financial year), Y cannot accept Rs. 2 Lakh or more in cash from Mr. X in respect of transaction related to the sale of second hand car.

Now Mr. Y can receive less than Rs. 2 Lakh in cash and balance amount has to be accepted only through an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account. Similarly, even gift from any person of an amount of Rs. 2 Lakh or more cannot be accepted by the donee. This part prohibits the splitting of payments over period.

Similarly, Suppose Mr. Y is an event organizer (Marriage). Mr. X approaches Mr. Y for organizing an event and Mr. Y raises an invoice of Rs. 5 Lakh on Mr. X. Now Mr. Y can only accept cash of less than Rs. 2 Lakh from Mr. X and the balance can be through account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account only.

Third Part (in respect of transactions relating to one event or occasion from a person):

One of the most controversial part that would contribute to highest litigation in section 269ST would be the third limb of it. It would impact citizens from all walks of the society & is prone to ample litigation. It places bars on receipt in respect of one event or occasion. In my view, occasion or event needs is to be looked in to from the angel of recipient.

Like. Marriage or birthday is an event/occasion for the recipient. Now, if the recipient receives Rs. 1000/- each from 201 persons (totaling Rs. 2.01 Lakh) , it would be violation of section 269ST as the receipt exceeds Rs. 2 Lakh in respect of one event or occasions.

Carefully note that the third limb does not have restriction of days because per day or per transaction have relevance in the first and second limbs only and nothing is there in this respect in the third limbs. It may sounds illogical but law and logic may not always co-exit. Further, even though gift received on occasion of marriage is tax free u/s 56(2)(vii), it could be penalized due to violation of section 269ST.

Section 269ST won’t be applicable to Government, any banking company, post office savings bank or co-operative bank. It means these entities can accept more than Rs. 2 Lakh in cash. Further, section 269ST is not applicable for receipt of money in respect of transactions of the nature referred in Section 269SS (Mode of taking or accepting certain loans, deposits and specified sum). The limit of loan acceptance u/s 269SS is only Rs. 20,000/- which is much lower than Rs. 2 Lakh u/s 269ST. Further, the limit of receiving cash above Rs. 2 Lakh will not be applicable on persons or class of persons which the central government will notify in the official gazette.

Contravention of section 269ST would result in levy of penalty under section 271DA, which reads as under:

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.

In short, if any person receives sum of Rs. 2 Lakh or more in contravention of the provision of section 269ST, an equivalent amount would be the amount of penalty.

For example, if Mr X, an event manager accepts from Mr. Y an amount of Rs. 5 Lakh in cash for organizing an event. As per section 271DA, Mr. X will liable to penalty of Rs. 5 Lakh

An illustrative list of cases & situations that may be hit by the provision of section 269ST broadly could be as under:

1. Sale of car in cash for an amount of Rs. 2 Lakh or more.
2. Hospital receiving cash of Rs. 2 Lakh or more from the patients
3. Marriage Hall, Lawn, Hotel receiving Rs. 2 Lakh or more against any booking of an event.
4. Event manager receiving against any event of Rs. 2 Lakh or more.
5. Person dealing in luxury items like cars, Jewellery, Furniture, high value consumer appliances, holidays package sale to single person by single bill aggregating to Rs. 2 Lakh or more in a day.
6. Government has clarified that receiving cash of Rs. 2 Lakh or more by way of withdrawals from bank would not attract section 269ST. However, there are more exemptions that are needed to exclude certain cases or transactions from the purview of section 269ST. Till such additional exemption is provided by the CBDT notification, the following transactions would be considered as violation of section 269ST:
   a] Introduction of Rs. 2 Lakh or more as capital by the partners in the partnership firm
   b] Withdrawals of Rs. 2 Lakh or more by the partners from the firm
   c] Even gift by husband to wife or by father to son or vice versa of Rs. 2 Lakh or more in cash would result in violation of section 269ST.
   d] Inheritance in cash of Rs. 2 Lakh or more by the legal heir.
   e] Acceptance of cash even if there exists the relationship of  Principal & Agent between two persons.

 

-CA Naresh Jakhotia

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