Analysis of Section 269T

Report
Analysis of Section 269T
of the Income Tax Act, 1961
Mode of repayment 
of certain
 Loans or Deposits
By : CA Sanjay Agarwal
Mb: 9811080342
Email id: [email protected]
• The section was introduced by Finance Act, 1984w.e.f. 1-
4-1984. Later substituted by the Finance Act, 2002, w.e.f.
1-6-2002(Circular No. 8/2002, dated 27-08-2002)
2
The section is applicable on:
• Branch of a banking company
• Branch of a co-operative bank
• other company
• co-operative society
• firm or
• other person
If
• Any person as specified above
• 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
in the following cases
• the amount of the loan or deposit together with the interest, if any,
payable thereon, is Rs. 20,000/- or above or
• the aggregate amount of the loans or deposits 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 is Rs.
20,000/- or more
3
• "loan or deposit" means 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
4
• 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.
5
The section shall not apply to repayment of any loan or deposit taken or
accepted from—
• Government;
• any banking company, post office savings bank or co-operative bank;
• any corporation established by a Central, State or Provincial Act;
• any Government company as defined in section 617 of the Companies
Act, 1956 (1 of 1956);
• such other institution, association or body or class of institutions,
associations or bodies which the Central Government may, for reasons
to be recorded in writing, notify in this behalf in the Official Gazette.
6
Circulars
7
• Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-11987]
• The payment of interest of Rs. 10,000/-* or more will have
to be made in the manner provided in section 269T. So far
as the repayment of deposit together with any interest is
concerned, there is no room for doubt. If the amount of
repayment after including the interest is Rs. 10,000/-* or
more, the provisions of section 269T would be attracted.
• * Monetary ceilings Raised to Rs. 20,000/- - Circular: No.
522, dated 18-8-1988]
8
• The payment of interest of Rs. 10,000/-* or more will have to
be made in the manner provided in section 269T. So far as the
repayment of deposit together with any interest is concerned,
there is no room for doubt. If the amount of repayment after
including the interest is Rs. 10,000/-* or more, the provisions
of section 269T would be attracted.
• * Monetary ceilings Raised to Rs. 20,000/- - Circular: No.
522, dated 18-8-1988]
9
•
Where a ‘Kachcha Arhatiya’ sells goods belonging to an agriculturist, the sale proceeds thereof which
remain with him cannot be regarded as a deposit made by the agriculturists with the ‘Kachcha Arhatiya’.
Further, whether the ‘Kachcha Arhatiya’ remits only a part of the sale proceeds to the agriculturist, the
unremitted part of the sale proceeds would also not assume the character of a deposit. Therefore, the
repayment of such sale proceeds does not fall within the purview of section 269T of the Act.
•
However, such unremitted sale proceeds would assume the character of a deposit if the amount
is retained by the ‘Kachcha Arhatiya’ in pursuance of a direction in this regard by the agriculturist,
irrespective of whether the amount is retained in the same account or transferred to different accounts
and irrespective of whether the directions are to call it a deposit or just to retain the same for future
payment. The repayment in such cases will be covered under section 269T of the Act
•
The above circular was relied upon in Harpal Singh Jaswant Singh v. ITO [1995] 82 TAXMAN 81
(ASR.)(MAG.)(SMC)
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• Penalty of a sum equal to the amount of the loan or deposit
so repaid in case of contravention of the provisions of this
section.
• Penalty shall be imposed by the Joint Commissioner
11
Issues
12
•
Repayment of loan/ deposit by debiting the account through journal entries
amounts to contravention of the provisions of section 269T of the Act.
However, where the assessee has shown reasonable cause, the penalty
cannot be imposed under section 271E of the Act. CIT v. Triumph
International Finance (I) Ltd. [2012] 345 ITR 270 (Bom.)
•
Where amounts have been received or paid in cash were mere book entries
and were part of transactions on behalf of family members, it could not be
said that there was violation of sections 269SS and 269T so as to attract
penalty. CIT vs Natvarlal Purshottamdas Parekh [2008] 303 ITR 5
(GUJ.)
13
•
Where the amount received is only for the purpose of allotment of shares
and it is not a deposit or loan. In this case, the reasonable cause is that the
assessee was under the bona fide belief that the money received is only for
the purpose of allotment of shares and there was no material or evidence or
any compelling reason produced by the revenue to prove that the money
received was a deposit or loan; as such levy of penalty on the assessee under
section 271E was not justified. CIT v. Rugmini Ram Ragav Spinners
(P.) Ltd. [2008] 304 ITR 417 (Mad.)
14
•
Penalty under Section 271E for offences under section 269T could not be imposed if
the same were committed prior to April 1, 1989. Kothari & Co. v. CIT [2006] 157
Taxman 433 (MP).
•
Where assessee made repayment of loan in a manner other than by account payee
instruments before 1-6-2002, it did not result in violation of section 269T. CIT vs Jet
Life India Ltd. [2011] 16 taxmann.com 403 (Delhi) and ITO vs Sudesh Kumar Sareen
[2010] 005 ITR (Trib.) 829 (Del- Trib.)
•
Expenditure incurred by assessee hostel which was reimbursed by managing trustee
of school would not be treated as deposit or loan so as to attract sections 269SS and
269T. ITO vs VS Hostel [2012] 27 taxmann.com 18 (Guj.)
15
•
Amount of loan or deposit re-paid in parts not exceeding Rs. 20,000 on a single
day would not absolve the assessee from rigour of section 269T of the Act as is
clear from the section itself. Since the repayment on various dates is the
repayment out of the amount of Rs. 2,00,000, though in part, the repayment is
squarely covered by the provisions of section 269T of the Act. Ajay Goel vs
Asstt. CIT [2010] 1 ITR (Trib.) 569 (Delhi- Trib.)
16
•
Where the assessee was merely acting as a conduit between group concern and
contractors by receiving money for the purpose of paying the contractors and thus
enabling them to carry on the work. The amounts could not be considered as loans
or deposits even in the general sense. It was an arrangement whereby the
responsibility for supervising the contract work was entrusted to the assessee
whose responsibility was to make payments to the contractors out of the amounts
received. Since the amounts received by the assessee could not be considered as
loans or deposits, there was no violation of section 269T when the assessee made
payments in cash to the contractors for and on behalf of group concern.
Accordingly, there was no justification for the penalty. Canara Housing
Development Co. vs Addl. CIT [2010] 1 ITR (Trib.) 165 (Bang.)
17
•
Repayment of of loan by partners to firm does not attract provisions of Section
269T and penalty could not be imposed as the firm and the partners are not
independent of each other. CIT vs Lokhpat Film Exchange (Cinema) [2008] 304
ITR 172 (Raj.)
18
•
The use of word ‘any deposit’, has been used to cover all sorts of deposits and includes
‘trade deposit’ also. If a restricted meaning is given to exclude the trade deposit, if any,
within the purview of the words ‘any deposit’, the very object of the enactment of section
269T would be frustrated. Not only that, every time a vexed question as to whether the
deposit in question is a ‘trade deposit’ or is a ‘deposit’ simpliciter would arise and will have
to be adjudicated upon by the authorities concerned which will lead to uncertainty as well
as amount to colossal wastage of time and energy, both of the assessee as well as of the
taxing authorities.
•
Section 269T provides a definite mode of repayment which is also otherwise very
convenient in day-to-day transaction as the payment/repayment by a crossed cheque or a
bank draft evidences the payment itself. It is easy to establish any payment/repayment if it
is made through a bank draft or by crossed account payee cheque. Chaubey Overseas
Corpn. Vs CIT [2008] 170 Taxman 9 (All.)
19
•
Repayment of amount out of capital remaining with the assessee-firm could
not be said to be repayment out of loan or deposits and, therefore, was not
covered the provisions of Section 269T of the Act. ITO vs Shree Mahaveer
Industries [2004] 82 TTJ (Jodh.) 549
20
•
The penalty proceedings under sections 271D and 271E could be initiated
even after completion of regular assessment proceedings. CIT vs Emeskay
Financial Services Ltd. [2010] 124 ITD 435 (VishakhapatnamITAT)
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By : CA Sanjay Agarwal
Mb: 9811080342
Email id: [email protected]
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