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| SPECIAL STORY | Finance Bill, 2015 |
Natasha Mangat, Advocate
Proposals Relating to Transactions in Cash
1.
Introduction
The Finance Bill, 2015 proposes to expand the
ambit of the prohibitory sections 269SS and
269T along with the punitive sections 271D and
271E of the Income-tax Act, 1961 by including
speciſed sums or advances receivable or accepted
respectively in relation to transfer of an immovable
property, whether or not the transfer takes place.
The proposed amendment overrules the judgment
of Gujarat High Court in the case of CIT v.
Madhav Enterprise Pvt. Ltd. 2014 (2) TMI 564.
2.
Current provisions
2.1 To counter taxpayers explaining away
unaccounted cash found in the course of searches
as loans or deposits made by various persons,
Finance Act, 1984 inserted Section 269SS in Income
Tax Act, 1961. In its current form, Section 269SS
prohibits any person to take or accept from any
other person any loan or deposit 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 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 aggregate
amount remaining unpaid; or (c) the amount or
the aggregate amount referred to in clause (a)
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together with the amount or the aggregate amount
referred to in clause (b), is twenty thousand rupees
or more. The section provides of certain exceptions
and deſnes ‘loans or deposits’ to mean ‘loans or
deposits of money’.
2.2 Prior to the above insertion of Section
269SS, Income-tax (Second Amendment) Act,
1981 inserted Section 269T in Income Tax Act,
1961 in order to curb the proliferation of black
money which was allegedly being deposited by
tax evaders with banks, companies, co-operative
societies and partnership ſrms either in their own
names or in benami transactions. In its current
form, Section 269T prohibits any branch of a
banking company or co-operative bank and other
company or co-operative society and ſrm or other
person to 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
or by use of electronic clearing system through
a bank account if (a) the amount of the loan or
deposit together with the interest, is 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 loan or deposits is twenty
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thousand rupees or more. This section too provides
for certain exceptions and deſnes ‘loan or deposit’
to mean 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.
2.3 Further, Direct Tax Laws (Amendment) Act,
1987 inserted Sections 271D and 271E providing for
penalty on non-compliance of Sections 269SS and
269T respectively. In their current form sections
271D and 271E provide for penalty equal to the
sum of such loan or deposit so taken or repaid.
3.
CIT v. Madhav Enterprise Pvt. Ltd.
Gujarat High Court, in the case of CIT vs. Madhav
Enterprise Pvt. Ltd.( ITA.No. 561 of 2013) adjudicated
in favour of the assessee who was in the business
of construction activity and had paid a sum of
` 13,91,330/- to 25 different parties not through
cheques and in excess of ` 20,000/- each. The
Assessing Officer took the transactions to be
hit by section 269T and levied a penalty under
section 271E on the assessee. The Assessee stated
that the amounts were advances from parties for
booking of immovable property which were later
cancelled and the advances were returned to the
parties without interest. The amounts were neither
loans nor deposits, hence they were not covered
by section 269T. Both CIT(A) and ITAT held in
favour of the assessee. On Revenue’s appeal to
High Court, the court held that ‘Section 269T
contains an explanation which define the term
“loan or deposit” to mean 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. What the respondent received from the
prospective buyers was advance money simpliciter
which was neither a loan nor a deposit even within
the meaning of the said term assigned to under
section 269T of the Act. When such amount is
returned that too without interest, we do not ſnd
any applicability of section 269T of the Act.’ In
this way, the Hon’ble High Court made it clear
that advances received in relation to immovable
property did not fall within the meaning of
deposits or loans as deſned under section 269SS
or 269T of the Act.
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4.
Brief about
amendment
the
proposed
4.1 With the view to overrule the above
mentioned judgment and take into its sweep
dealings in cash in relation to immovable property
transactions, Finance Act, 2015 proposes to amend
Section 269SS so as to prohibit any person to
take or accept from any other person 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 speciſed sum or the aggregate amount
of such loan, deposit and speciſed sum; or (b) on
the date of taking or accepting such loan or deposit
or speciſed sum, any loan or deposit or speciſed
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 aggregate amount referred to in clause
(a) together with the amount or aggregate amount
referred in clause (b), is twenty thousand rupees
or more. The Section, other than providing for the
same exceptions as before also provides for the
meaning of the term “speciſed sum” to mean any
sum of money receivable, whether as advance or
otherwise, in relation to transfer of an immovable
property, whether or not transfer takes place.
4.2 Similarly, Section 269T is proposed to be
amended to include the term “speciſed advances”
along with loan or deposit prohibiting any branch
of a banking company or a co-operative bank and
other company or co-operative society and firm
or other person from repayment of 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 if
(a) the amount of the loan or deposit or speciſed
advance together with the interest, if any payable
thereon, or the aggregate amount of the loans or
deposit held by such person or speciſed advance
received by such person either in his own name or
jointly with any other person on the date of such
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| SPECIAL STORY | Finance Bill, 2015 |
repayment together the interest, if any payable
on such loans or deposits or such advances
respectively. The Section, other than providing for
the same exceptions as before also provides for the
meaning of the term “speciſed advances” to mean
any sum of money in the nature of advances, by
whatever name called, in relation to transfer of any
immovable property, whether or not the transfer
takes place.
4.3 Accordingly, the consequential amendment
of penalty Sections 271D and 271E is proposed to
include the terms “speciſed sums” and “speciſed
advances” respectively after the words “loan or
deposit” to levy a penalty of a sum equal to the
amount of the loan or deposit or speciſed sum/
advance so taken or accepted or repaid.
5.
Purpose
The Finance Minister has shown his intention to
‘disincentivise’ cash transactions. In pursuance he
has proposed the amendment of sections 269SS
and 269T along with sections 271D and 271E of
the Act so as to include transactions specifically
in immovable property and prohibit and penalise
acceptance and repayment of sums or advances in
cash of ` 20,000/- or more. The relevant provisions
in their current form only mentioned ‘loans and
deposits’, by the proposed amendment ‘advances’
with relation to immovable property have also
been taken into the ambit of Sections 269SS
and 269T. The purpose is shown to be to curb
generation of black money by way of dealings in
cash in immovable property transactions.
6.
Impact
It is now imperative for every transaction
(payment or repayment) in relation to
immovable property, above the amount of
` 20,000/- to be made through banking channels
(cheque/draft/transfer). It is undisputed that the
evils of black money are required to be tackled
stringently and at the earliest not only in the real
estate market but in all markets. But at the same
time it is necessary to understand the exigencies
in business and the need of immediate and ready
finance at appropriate times. Where on one
hand, our Finance Minister has chosen to focus
on facilitate the ease of doing business, at the
same time he purports to prohibit and penalise
cash transactions in the immovable property
sector in enthusiasm of curbing black money
transactions. Perhaps the new amendments would
narrow the noose on illegal transactions and
take away the often used justification of loans/
deposits/advances for unaccounted cash in search
cases, but it would also put undue hardship on
genuine parties and may curtail growth in the
real estate sector due to procedural requirements.
Secondly, the proposed amendment does not
envisage any raise in limit of the amount of
` 20,000/-, which in the given times of inflation
is a negligible amount, especially in the property
market. It has also been proposed that a new
and more comprehensive Benami Transaction
(Prohibition) Bill will be introduced in the current
session of Parliament which would enable the
conſscation of Benami property and also provide
for prosecution in relevant cases. Further, the Act
already did not deſne ‘loan or deposit’ adequately,
the new amendment does little justice to the
deſnition of ‘speciſed sum or advances’.
7.
Conclusion
Whether the proposed amendment would provide
for curbing proliferation of black money in the
relation to transactions involving immovable
property or become a dampener on the real estate
business will be revealed within a span of few
months. However, the current amendments have
failed to address the more pressing need of clarity
in cases involving the sections 269SS, 269T and
penalty sections 271D and 271E where the Revenue
has invoked these section if only journal entries are
made, or the question as to what actually comes in
the ambit of loans or deposits. Furthermore, clarity
to the revenue on cases where section 273B comes
into play to due to ‘reasonable causes’ so penalty
shall not be imposed. These areas of concern have
led to frequent and long drawn litigation causing
inconvenience and financial stress on assessees
and perhaps need further speciſcation and clarity
for the revenue authorities may be by issuing
Circulars/Notiſcations by CBDT.
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