Existing Section 269SS provides that, subject to specified exceptions, a person shall not take or accept any loan or deposit from any other person otherwise than by the prescribed banking channels that is by an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account so that the aggregate of loan or deposit from one person together with aggregate of existing loans and deposits from such person is R20,000/- or more. In simplified terms, cash loan or deposit from same person of R20,000/- or more is not allowable for the purpose of Section 269SS.
Contravention of the above provision attracts penalty under the provisions contained in Section 271D, which provides that the person shall be liable to pay by way of penalty a sum equal to amount taken or accepted in contravention of Section 269SS. The above provisions are not applicable inter alia in a case when the accepter of the loan or depositor as well as the person giving the loan or deposit have agricultural income and neither has any income chargeable to income tax.
Now by the Finance Bill, 2015, it is proposed to expand this provision by adding the sums received in relation to transfer of immovable property whether as advance or otherwise and whether or not ultimately the contemplated transfer takes place or not. Read on to know more...
MEANING OF IMMOVABLE PROPERTY
The term used in the proposed amendment is “immovable property”, which has not been defined for the purpose of the Income-tax Act. The meaning assigned to the term “immovable property” in Section 269UA(d) is restricted for the purpose of Chapert XX-C only while the provisions of Section 269SS and 269T are contained in Chapter XXB.
Whether recourse is taken to the said Section 269UA(d) or the to the General Clauses Act, 1897, Transfer of Property Act, 1882 or to the Registration Act, 1908, in any case, the term immovable property would certainly include land, building and may include rights in land or building.
EFFECT OF NEW PROPVISIONS
It is pertinent to recollect and co-ordinate here that the Finance Act, 2013 introduced a provision in Section 43CA whereby for the limited purpose of date of stamp valuation, the agreement for transfer
of land or building or both not held as capital asset involving only cash consideration is disregarded till the agreement is registered that is to say that when the consideration is paid only in cash instead of date of agreement, the date of registration thereof is taken for stamp valuation.
The implication of the proposed amendment would be that a transaction in immovable property otherwise than by prescribed banking channel will attract harsh penalty under Section 271D to the
transferor of immovable property being the recipient of money.
Section 269SS is being substituted by a newly drafted section 269SS. After enactment, the proposed new Section would become operative w.e.f. 01-06-2015.
On the same lines, Section 269T is being amended to provide that no repayment of any advance received in relation to a transfer of immovable property would be made except by the said prescribed banking channels, if such advance together with other specified sums in the section in aggregate on the date of payment is R 20,000/- or more.
Whether the transfer takes place or not is irrelevant. The specified sum being repaid might have been received by cheque or cash or any other mode is not relevant here as for the purpose of Section 269T the mode of repayment is only the relevant subject. Contravention of this provision would invite penal provisions of Section 271E making the person making such repayment liable to pay, a sum equal to advance so repaid. This amendment will also take effect from 01-06-2015.
LANGUAGE OF NEW PROPOSAL
Although amendments in both the Sections are made with the same intent and with reference to same subject manner, but it is observed that the new words being inserted in Section 269SS and 269T are not the same.
While 269SS introduces the key words “advance or otherwise” in relation to transfer
whereas Section 269T introduces the words “advance by whatever name called”.
Therefore, for the purpose of Section 269T, the specified sum is restricted to repayment of advance only as distinguished from the proposed amendment to Section 269SS whereby receipts whether as advance or otherwise are being prohibited. If the sum being repaid is not in the nature of advance then the provisions of Section 269T will not be attracted.
For example, a transaction in immovable property is executed and for some reasons the transaction is cancelled and money becomes repayable then whether the repayment is of the sum received earlier is of advance or not will be a question of fact and circumstances of the case.
PURPUSE OF NEW SECTION
The Explanatory Memorandum states that the amendments are proposed in order to curb generation of black money by way of dealings in cash in immovable property transactions. However, the writer submits that in reality the cash portion of the transaction is not accounted at all and therefore to that extent the proposed amendment will not have the desired effect. Further, under the existing provisions contained in Sections 50C and 43CA read with Section 56(2), the transactions in land or buildings or part thereof are taxed at stamp valuation or stated consideration, whichever is higher.
Therefore, in a transaction where the stated consideration is lower than the stamp valuation, the difference is already getting taxed and to an extent while Section 50C or Section 43CA invite taxation, the proposed provision attracts penalty.
WRITER'S VIEWS & CONCLUSION
The proposed amendments will certainly deter the transactions from being back dated by use of cash consideration.Hitherto, for the purchase of immovable property as an asset, any quantum of cash could be paid and repayment of advance for immovable property could be paid in cash without attracting any penal provisions under the income tax law. Now, for cash consideration or repayment in cash the penal provisions will get attracted. At the same time, cash consideration or repayment per se will not affect the validity of the transactions or will not affect the date of the transfer under the property laws concerning transfer or will not affect even the date of transfer under the provisions of the income tax law more particularly with reference to provisions contained in clauses (v) and (vi) of sub Section (47) of Section 2 of the Act.
The exact effects as well as limitations of the proposed amendment read with existing provisions may be visualised as follows:
- i. Harsh penal provisions for taking or accepting specified sum or for repayment thereof;
- ii. Transaction would continue to be valid under the laws concerning properties as well as under the contract law;
- iii. The transaction would continue to be valid under the income tax law;
- iv. The date of transfer will remain unaffected by the proposed amendment as well as by the existing provisions of Section 43CA;
- v. The taxation of income out of such cash transaction except for the limited purpose of date of stamp valuation as provided in Section 43CA would also continue to be as before.
CA TARUN GIA