The numerous amendments made by the Finance Act 2017 to curb the usage of cash in business transactions has serious implications for taxpayers. CA Jyoti Gupta has conducted a systematic analysis of these provisions with special emphasis on sections 269ST and 271DA and explained all of their nuances
Cash forms the base for any business or profession. There is always continuous cash cycle to keep a business moving and enter all daily transaction. However, cash transactions many times becomes means for tax evasion or generation of black money.
NDA government to curb cash transaction & to push digital payments to make India a cashless economy has made superabundant amendments in Finance Act 2017. Example: Limit under Sec.40A(3), reduced to Rs.10,000/- from Rs.20,000/-; U/s 44AD, on the total turnover which is received via banking channel, the rate of presumptive tax rate is reduced from 8% to 6% etc…
In this article an attempt has been made to analyze the provisions of section 269ST & section 271DA and its impact on taxpayers. Snooping curiosity is created by this new section including the 100% penalty clause vide sec.271DA amongst the taxpayers.
Provisions of section 269ST:
‘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—
(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.’.
On perusal of section 269ST, it can be observed that, this section covers the payee / recipient of cash, under its ambit and not the payer. Vide the section, following three situations are covered:
(i) Receipt of Rs. 2 Lakhs or more from a person in a day in aggregate:
Section 269ST relates to payments received in aggregate from ‘a person’ in ‘a day’. Attention is to be given to words ‘a person’ and ‘in a day’. This section will get attracted if a sum of Rs. 2 Lakhs or
more is received in aggregate from the same person in a single day.
However, there will be no violation of section 269ST, if payments are received from different persons in a single day and none of such payments exceeds the specified limit of Rs. 2 Lakhs. For example, in a single day Mr. Ram received payments from four different persons namely, Q, R, S and all these payments are within the specified individual limit, then even though in aggregate total receipts exceeded the limit of Rs. 2 Lakhs, the section would not be attracted.
It is to be remembered that the section uses the word ‘receives’, it does not use the words sale consideration or debtor realization or any sort of fees etc. Accordingly, it would covers under its scope all the receipts on any account.
(ii) Receipt of Rs. 2 Lakhs or more in respect of a single transaction:
The second coverage of section 269ST is receipt of Rs. 2 Lakhs or more in respect of a single transaction. It envisages to cover the receipt of Rs 2 lakhs or more which is split into various dates in respect of a single transaction although not in aggregate on a single day.
To illustrate, if Mr. A receives a sum of Rs. 8 Lakhs in respect of a single transaction, in four installments of Rs. 2 Lakhs each, on different dates, then apparently, this would be covered under the purview of second condition. Accordingly, this condition prohibits the splitting of payments over period.
(iii) Receipt of Rs. 2 Lakhs or more in relation to one event or occasion from a person:
This is the third coverage of section 269ST and perhaps the wider of the earlier two and also litigation prone. This condition is certainly of widest amplitude as it seeks to cover all receipts from a person in relation to transactions in respect of single event or occasion. It would cover all transactions relating to one event or occasion such as cash gifts on the occasion of marriage, birthday, anniversary etc.
So this condition would impact the people from all walks of society. Under the income tax law, though gifts received from ‘relatives’ are exempt without any capping. But with the introduction of section 269ST cash gift even from relatives to the tune of Rs. 2 Lakhs or more towards single event or occasion, would attract consequences u/s 271DA .
Nitty-Gritty involved in section
Now, the most important question, which comes into play is, whether this section would also be attracted in cases, where one withdraw a sum of Rs. 2 Lakhs or more from his own bank account. Going by the language of Section, answer to this question is YES, since the language of the section says: No person shall receive an amount of two lakh rupees or more.
Accordingly, if cash of Rs.2 Lakhs or more is even withdrawn from one’s bank account, provisions of
Sec.269ST would be attracted.
However, the section advocates, that, Rs.2 Lakhs or more is received in aggregate from ‘a person’, that would further imply, that, a person can although withdraw higher amount than Rs.2 Lakhs in cash, provided, from different banks. Attention is drawn towards the point that, even different bank accounts maintained with a particular bank cannot be used for withdrawing money above the specified limit, as the same would attract the condition of ‘a person’ and corresponding consequence of Sec.269ST. However, there still lies many questions considering the practicality of various transactions involved in Indian business culture.
Penal provisions for contravention of Sec.269ST:
Also, a new section 271DA is inserted under Income Tax Act after Sec.271D. As per section 271DA of Income Tax Act, if a person receives any sum in contravention any of the provisions and rules of section 269ST, he shall be liable to pay penalty of amount sum equal to the amount of such receipt received in cash. Thus in simple words the penalty amount would be 100% of the amount received in contravention of this section.
Further the section, also provides a proviso, which states that, penalty shall not be imposable if the person proves that, there were good and sufficient reasons for contravention.
Now, the words used in Income Tax Act, like sufficient / good reasons are always most vulnerable to litigation, Example: Sec.14A (A.O is not satisfied with correctness of claim of assessee), Sec. 40A(2)(a) (A.O. is of opinion that such expenditure is excessive or unreasonable) and many more. As a sufficient reason/cause as per the assessee, may, rather, mostly, do not satisfies to the reasonable criteria of tax department and result into excessive litigation.
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