Amendment of S.269SS and 269T may be made retrospective, and limits of 20K may be increased to 50K.

[CA DEV KUMAR KOTHARI]

Links:

Section 269SS and 269T of Income Tax Act, 1961.

Request and suggestions for the FM in brief:

1. Transfer- repayment of loan or deposit by way of transfer to registered accounts in same bank, in name of depositor be allowed (this does not require clearing). Repayment through Debit card and credit cards can also be allowed.
2. Make the proposed and suggested amendment as retrospective or as existed always to avoid litigation.
3.  Receiving loan or deposit by a/c payee cheque drawn by the depositor on his own bank account be made compulsory. This will put check on circulation of black money in reality.
4. Limits in both section be raised  to at least ₹ 50000/-, if not Rs. one lakh.

Section 269SS and 269T of Income Tax Act, 1961 – a brief note:

Section 269SS and 269T are very popular and in practical use of readers. Therefore, they are not reproduced or analyzed, for sake of brevity. Readers may read the same with help of link provided above or in other books.

Limit of Rs. Twenty thousand need to be revised:

The limit of  amount to Rs. twenty thousand in these sections  were  increased  w.e.f.01.04.1989 that is more than twenty five years ago. These sections put restrictions on receiving and repaying deposit or loan by A/c payee cheque or A/c payee draft. In case of repayment the repayment should be by a/c payee cheque or  A/c payee draft in the name of person from whom loan or deposit was received. While receiving loan or deposit, a third party cheque is also permissible.

Methods of receiving and repaying which are similar in effect to A/c payee cheque or draft:

1. Transfer from one account to other account by way of instructions (instead of cheque) was one of way for transferring funds from one account to other account in the same bank and same branch
2.  With advent of  internet banking, new methods of payment by way of on line transfer of funds to other accounts through:

1. internet banking- fund transfer,
2. e-cheque payment by way of NEFT,
3. e-cheque payment by RTGS,
4. payment by way of debit card and credit cards etc.  have become possible. In such systems payment will be credited to a duly registered account though without issue of a physical A/c payee cheque or draft.

Litigation:

There are confusions and ambiguity as to whether payment by such new  methods of internet banking satisfy requirement of S. 269SS and S. 269T. In case of S.40A (3) read with relevant rules and clarifications, payments made by such modes are considered as allowable.

In some cases litigation is going on as to whether payment by way of electronic banking amount to payment by a/c payee cheque or draft or not and whether payment by such methods satisfy requirement of S. 269SS and 269T and do not violate conditions of these sections.

Desired amendment:

The amendment to provide the payment by way of all methods of internet banking in which sum is to be transferred or credited in a particular account are similar to payment by A/c payee cheque or A/c payee draft.Therefore, all such modes must be recognized for the purpose of these provisions also.

Such amendments should also be in nature of clarificatory amendment and with retrospective effect by specific mention so that un-necessary litigation is avoided.

Proposed amendments:

In the THE FINANCE (No. 2) BILL, 2014 vide clasues 63 and 64 amendments are proposed in these two sections as follows:

63. In section 269SS of the Income-tax Act, in the opening portion, after the words “cheque or

account payee bank draft”, the words “or use of electronic clearing system through a bank account”

shall be inserted with effect from the 1st day of April, 2015.

64. In section 269T of the Income-tax Act, in the opening portion, after the words “cheque or account payee bank draft drawn in the name of the person who has made the loan or deposit”, the words “or by use of electronic clearing system through a bank account” shall be inserted with effect from the 1st day of April, 2015.

The explanatory notes for these amendments reads as follows:

clasue 63 of the Bill seeks to amend section 269SS of the Income-tax Act relating to mode of taking or accepting certain loans and deposits. The existing provisions of the aforesaid section provide that no person shall take from any other person any loan or deposit otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit or aggregate of such loans or deposits is twenty thousand rupees or more.

It is proposed to amend the aforesaid section so as to provide that no person shall 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, the amount of such loan or deposit or the aggregate amount of such loans or deposits is twenty thousand rupees or more. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent years.

Clause 64 of the Bill seeks to amend section 269T of the Income-tax Act relating to mode of repayment of certain loans and deposits.The existing provisions of the aforesaid section provide that no loan or deposit shall be repaid otherwise than by an account payee cheque or account payee bank draft, if the amount of such loan or deposit together with interest or the aggregate amount of such loans or deposits together with interest, if any payable thereon, is twenty thousand rupees or more.  It is proposed to amend section 269T so as to provide that no person shall 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, the amount of the loan or deposit together with interest or the aggregate amount of such loans or deposits together with interest, if any payable thereon, is twenty thousand rupees or more. This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent years.

From budget speech:

In the budget speech the honorable Finnace Minister has stated that “ This Government will not ordinarily bring about any change retrospectively which creates a fresh liability” (from para 10)

From para 13:

 As an administrative measure, I propose to set up a High Level Committee

to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws is required. Based on the recommendations of the Committee, the Central Board of Direct Taxes and the Central Board of Excise and Customs shall issue appropriate clarifications, wherever considered necessary, on the tax issues within a period of two months.

Suggestion for amendment of S. 269SS and 269T:

As discussed above the amendemtn of S. 269SS and 269T are in keeping with era of e-banking , banking from home or office, anywhere banking etc. which are result of internet banking. The transfer of funds from one account to another registered account is just like transfer of funds by a/c payee cheque. The limit of Rs twenty thousand is very old and need to be revised. Therefore it is suggested and requested to honorable Finance Minister to incorporate amendment to cover:

5. repayment of loan or deposit by  transfer to registered accounts in name of depositor  which does not require clearing but transfer is from one a/c to other a/c which is duly registered and amount is credited only to such account.
6. Raise the limit to at least ₹ 50000/- in keeping with time leg in last revision and inflation during the intervening period.
7. Make the above amendment retrospective or as existed always to avoid litigation.
8. An amendment can also be made that in case of receiving loan or  deposit  the same should also be made by way of A/c payee cheque drawn by depositor on his own account. This will really put a check on black money because in case of demand draft, it can be purchased by anyone and not necessarily the person who is depositing money.