Sections 269SS and 269T

Requirement as to mode of acceptance or repayment of loans/deposits in certain cases

SECTIONS 269SS AND 269T l MODE OF TAKING OR ACCEPTING/
REPAYING CERTAIN LOANS AND DEPOSITS

1283. Housing Development Finance Corporation Ltd., notified under clause (e) of proviso to the section, being institution to which provisions are not to apply

In exercise of the powers conferred by clause (e) of proviso to section 269SS of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies Housing Development Finance Corporation Limited, Bombay, in respect of its Home Savings Plan Scheme, Loan Linked Deposit Scheme and Certificate of Deposit Scheme, including Cumulative Interest Scheme for the purpose of the said section.

Notification : No. SO 3607, dated 18-7-1986 as modified by SO 3828/4250, dated 28-10-1986.

1284. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000 would attract the provisions of section 269T

1. Indian Banks’ Association had sought a clarification as to whether the payment in cash of periodical interest amount along exceeding Rs. 10,000 would attract the provisions of section 269T. This section provides that no company, co-operative society or firm shall repay any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of deposit or the aggregate of the amount of deposit together with any interest is Rs. 10,000 or more.

2. The matter has been examined in consultation with the Ministry of Law. The Board has been advised that 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. This is because the interest accrued on the deposit and credited to the account periodically or otherwise partakes of the character of a deposit and as such becomes a deposit itself.

Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-1-1987.

1285. Clarification regarding date of applicability of amendments to sections 40A(3), 269SS and 269T by Direct Taxes Laws (Amendment) Act, 1987

1. Provisions of sections 40A(3), 269SS and 269T of the Income-tax Act, 1961 have been amended by the Direct Tax Laws (Amendment) Act (Act No. 4 of 1988) and consequently the monetary ceilings prescribed under the aforesaid sections have been raised from Rs. 2,500 to Rs. 10,000, Rs. 10,000 to Rs. 20,000 and Rs. 10,000 to Rs. 20,000 respectively. As per provisions of section 1(2) of the Direct Tax Laws (Amendment) Act, these changes have been made effective from 1-4-1989.

2. Board have received a number of representations regarding the date of applicability of the abovementioned amended sections of the Income-tax Act. It is hereby clarified that the amendment provisions of sections 269SS and 269T will apply to payments or repayments made on or after 1-4-1989. In respect of disallowance of payments made under section 40A(3), the amendment will apply to payments made in the previous years relevant to the assessment year 1989-90 and subsequent years.

Circular : No. 522, dated 18-8-1988.

Judicial analysis

Explained in - In Vir Sales Corporation v. ACIT [1994] 121 CTR (Trib.) (Ahd.) 46, the Tribunal observed as follows :

“In the instant case, the assessing authority has levied penalty with reference to the transactions of loans and deposits of Rs. 20,000 and above. It is clear from the aforesaid circulars that the monetary limit of Rs. 10,000 earlier provided in sections 269SS and 269T were raised to Rs. 20,000 w.e.f. 1st April, 1989 and the Board in the above referred circular has categorically clarified that the higher monetary limit will cover the transactions on and after 1st April, 1989. It would, therefore, necessarily follow that the penal provisions of sections 271D and 271E were also intended to be operative prospectively from 1st April, 1989 in respect of transaction done on or after 1st April, 1989 exceeding the monetary ceiling of Rs. 20,000 prescribed in the provisions of sections 269SS and 269T. It is an admitted fact that all the impugned transactions, for which penalties in question have been levied were done before 1st April, 1989, which falls in assessment year 1989-90. In view of the aforesaid clarifications issued by the Board also, the said penal provisions contained in sections 271D and 271E cannot be invoked in the case of the assessee in relation to the impugned transactions pertaining to assessment year 1989-90.” (pp. 62-63)

Explained in : Jaipur Carpet Mfg. (India) (P.) Ltd. v. Dy. CIT  [2000] 113 Taxman 227 (Mag.) (Jp. - Trib.), in following words :

“It is clear from the Board’s Circular Nos. 522, dated 18-8-1988 and 651, dated 23-11-1990 that the monetary limit of Rs. 10,000 earlier provided in sections 269SS and 269T, was raised to Rs. 20,000 with effect from 1-4-1989 and the Board in the above-referred Circular has categorically clarified that the higher monetary limit will cover the transactions on or after 1-4-1989.” (p. 228)

1286. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with commission agents

1. Section 269T of the Income-tax Act provides that no company, co-operative society or firm shall repay to any person any deposit otherwise than by any account payee cheque or account payee bank draft where the amount of deposit and interest thereon, if any, is Rs. 10,000 or more.

2. The Direct Tax Laws (Amendment) Act, 1987 has amended the definition of “deposit” for the purpose of section 269T of the Income-tax Act. Under the amended definition, the said term has been defined to mean “any deposit of money which is repayable after notice or repayable after a period and, in case of a person other than a company, includes deposit of any nature”.

(The italicised portion has been added by the said Amendment Act.)

3. A number of references have been received by the Board seeking clarification whether the sale proceeds of agricultural commodities, left over by the agricultu-rists with their ‘Kachcha Arhatiyas’, would also come within the ambit of deposit of any nature necessitating its payment by an account payee cheque as provided under section 269T of the Act.

4. The Board is of opinion that 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.

5. 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.

Circular: No. 556, dated 23-2-1990.

Judicial analysis

n The above circular was relied upon in Harpal Singh Jaswant Singh v. ITO [1995] 126 Taxation 12 (Trib.), and it was held that the provisions of sections 269SS and 269T were not attracted to the facts of the case. (pp. 20-21)