Sec 269ST– Cash receipts

1. Section 269ST as per budget 2017, makes acceptance of Rs. 3,00,000/- in cash as an offence. There are no caveats like it is applicable only for business receipt etc.

2. Before I elaborate the section, I want to highlight that, there are restrictions on making payment otherwise than by cash – say for dis-allowance of expenditure [section 40A(3)] or loan transactions referred in [Section 269SS / 269T.]
Take away points

3. Section 269ST as being proposed in the budget 2017 to curb transactions in cash, the way the section has been drafted, it appears to be too stringent.

4. Though the object is noble, the manner in which it is drafted and having regard to the situation is absolutely draconian.

5. I will be happy if I go wrong in my interpretation if the objective of curbing black money is achieved without troubling honest tax payers’.

269ST. Mode of undertaking transactions
‘269ST. No person shall receive an amount of three 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:
Comments

6. It is on receipt side. The section is unfettered. The character of receipt is irrelevant i.e. exempt income / taxable income etc. There is no exemption even for sale of agricultural produce.
Refer clause (a)

7. so one person one day – above 3 lacs – not allowed even though he may be paying for various transactions which individually are below 3 lacs.
Refer clause (b)

8. in respect of single transaction e.g. the transaction is for 5 lacs you can-not pay above 3 lacs.
Refer clause (c )

9. One event / occasion – marriage is one occasion and the most important thing being the occasion has to be interpreted occasion for recipient.

10. For example, gift in marriage is tax free. But marriage is one occasion and a person can not receive on his / her marriage even say Rs. 100 from 3000 people as it will amount to Rs. 3,00,000/- [100 X 3000]. in the example you can change any combination of figures the multiplication of which comes to Rs. 3,00,000/-. Also it does not have restriction of days because the per day is linked to per person.

11. It extends to transactions, events and even covers occasion. The word used is “Amount” and not “sum”. In other sections, the word “sum” has been used. The word “Sum” means “sum of money”. The word “Amount” includes cash and kind. Also it has nothing to with whether that exchange of money is chargeable to tax or not.

12. On a literal meaning it may mean that, if I borrow a car from my friend of Rs. Say 15 lacs, the violation is already done. The fact that I duly return the car in the same condition to my friend does not / can not undo the violation.

13. Thus it may cover following items
• cash withdrawal from Bank by any personal
• gift in cash or in kind.
• Gift at the time of marriage
• amount to be paid to hospital
• any barter exchange the value of which exceeds Rs. 3,00,000/-
• Sale proceeds – Imagine it is a violation even for an honest / bonafide tax-payer who otherwise is maintaining correct books of account and paying correct taxes.
Refer the penalty clause i.e. proposed section 271DA

14. It requires penalty of 100% of amount of transaction. The exception requires a “good and sufficient reason”. The proviso reads as follows
Provided that no penalty shall be imposable if such person proves that there were good and sufficient reasons for the contravention.

15. Normally the criteria used in penalty provisions is “reasonable reason”

16. Also this penalty section does not have cover of section 273B which reads states that, in case the assessee is able to show a “reasonable cause” for the said failure, there will be no penalty.

17. There is a significant difference between the words “reasonable cause” vis-a-vis “ good and sufficient reasons”

18. It is possible that a particular cause may very well be a reasonable cause but not a “good and sufficient reasons”

19. Consider an example where it may fulfill the criteria of “good and sufficient reasons”
• An assessee living with his better half, both of whom are above 75.
• Both are suffering from Alzheimer. The level of alzheimer may be differing.
• They are making payment in cash to a hospital when either of them is admitted on a SOS [ save our sole] or medical emergency basis.
• In this case, the hospital may be able to prove that it has good and sufficient reasons to accept the cash.
• At the cost of repetition, I would like to highlight that the onus will be on hospital to prove the merits and not the old couple.
Some academic points-:

20. If you carefully read the section, it does not have guard of rule 6DD which is there for section 40A(3) i.e. payment for expenditure for Rs. 20,000/- [ revised 10,000] and above.

21. If one decides to make a literal interpretation, anything otherwise than below will get attracted for violation
a) by an account payee cheque or
b) an account payee bank draft or
c) use of electronic clearing system through a bank account:

22. A digital payment e.g. payment by various e-wallets or say payTM which is popular now a days is also hit by this section because these e-wallets / pay-TM are not banks where a clearing system is there as mentioned above.

23. Various payment schemes authorised by RBI whereby other person does not have a bank account and is able to get money with his identity being validated by say – AADHAR with mobile etc. Will also not be covered by the term “use of electronic clearing system through a bank account”

24. Technically even a payment by credit card / debit card . Rupay-card may not amount to clearing system through Bank account.[very very literal interpretation]
Text of Proposed Section

269ST. Mode of undertaking transactions
‘269ST. No person shall receive an amount of three 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.’.

Penalty for violation of section 269ST
271DA – Penalty for failiure to comply with provisions of section 269ST.
“271DA. (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.
Memorandum to Finance Bill, 2017

Restriction on cash transactions
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 stored and used in form of cash.

In order to achieve the mission of the Government to move towards a less cash economy to reduce generation and circulation of black money, it is proposed to insert section 269ST in the Act to provide that no person shall receive an amount of three lakh rupees or more,—
(a) in aggregate from a person in a day;
(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 account payee bank draft or use of electronic clearing system through a bank account.

It is further proposed to provide that the said restriction shall not apply to Government, any banking company, post office savings bank or co-operative bank. Further, it is proposed that such other persons or class of persons or receipts may be notified by the Central Government, for reasons to be recorded in writing, on whom the proposed restriction on cash transactions shall not apply. Transactions of the nature referred to in section 269SS are proposed to be excluded from the scope of the said section.

It is also proposed to insert new section 271DA in the Act to provide for levy of penalty on a person who receives a sum in contravention of the provisions of the proposed section 269ST. The penalty is proposed to be a sum equal to the amount of such receipt. The said penalty shall however not be levied if the person proves that there were good and sufficient reasons for such contravention. It is also proposed that any such penalty shall be levied by the Joint Commissioner.

It is also proposed to consequentially amend the provisions of section 206C to omit the provision relating to tax collection at source at the rate of one per cent. of sale consideration on cash sale of jewellery exceeding five lakh rupees.
These amendments will take effect from 1st April, 2017.
[Clauses 71, 83 & 84]

Source : Taxguru/Yogesh S.Limaye

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