Restriction on cash transactions (Section 269ST) w.e.f. 1-4-2017

Restriction on cash transactions [Section 269ST]

1. Restriction on cash transactions

Section 269ST has been inserted, with effect from 1-4-2017, to provide for restriction on undertaking cash transactions. It provides that no person shall receive an amount of two 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. (“permissible modes”)

The aforesaid restriction shall not apply to the following:
(a) Government,
(b) any banking company,
(c) post office savings bank or co-operative bank,
(d) transactions of the nature referred to in section 269SS;
(e) such other persons or class of persons or receipts, as may be specified by the Central Government by notification in the Official Gazette.
For the aforesaid purposes,
(a) banking company shall have the meaning assigned to it in Explanation (i) to section 269SS.
(b) co-operative bank shall have the meaning assigned to it in Explanation (ii) to section 269SS.
Explanations (i)/(ii) of section 269SS read as follows:
“(i) “banking company” means a company to which the provisions of the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act;
(ii) “co-operative bank” shall have the same meaning as assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949);”
The objective behind insertion of section 269ST as spelt out in Memorandum explaining the provision of the Finance Bill is as follows:
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.
The restriction is on the recipient and not on the payer.

The Notes on Clauses mention that the restriction under section 269ST shall not apply to “any receipt from sale of agricultural produce by any person being an individual or HUF in whose hands such receipts constitute agricultural income“. No such exception is found in the text of the provision.

2. Meaning of word “Receive”

The section applies if a person “receives” an amount. The term receipt has been judicially explained as follows:
(a) “The word “receive” has been interpreted:
“To receive means to get by a transfer, as to receive a gift, to receive a letter, to receive money.”
Ballentine’s Law Dictionary, 1093.
Webster’s New International Dictionary (2d ed.), 2076, gives the following definition:
“To come into possession of, get, acquire, or the like, from any source outside of oneself.”
In other words, to “receive” seems to imply the taking into actual possession of some object which may be real or personal property.
As a matter of fact, the results obtained in the statutes, using the words “received” and “transferred,” are identical.”
[In re McCullough’s Estate, 193 Wash. 145, 74 P.2d 877 (1928)]
(b) “To receive means to get by a transfer, as, to receive a gift, to receive a letter, or to receive money and involves an actual receipt.”
(The Major Law Lexicon by P. Ramanatha Aiyar, 4th Edn., Vol. 5; College Law Dictionaries by Dr. Avtar Singh, 2nd Edn.)
(c) “Property is “received” when it is within the power of its receiver to appropriate it, even though some definitive understood and determined act is still to be done. Taxon Oil & Land Co. of Texas v. U. S., C.C.A.Tex., 115 F.2d 647, 650.”
(Permanent Edition of Words & Phrases)
(d) “The ‘receipt’ of income refers to the first occasion when the recipient gets the money under his own control.
[Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC)]
3. Meaning of word “Amount”

The restriction is on receipt of amount. The term “amount” has been explained as follows:
(a) “1. Aggregate sum; 2. Quantity; 3. To come up to, resulting; 4. Equalling in effect.”
[Legal Glossary published by the Government of India (1992 Edition)]
(b) “Aggregate sum; quantity; to come up to; resulting; equalling in effect.”
(College Law DictionarybyDr. Avtar Singh, 22nd Edn.)
(c) “The substance, or result of a thing; the total or aggregate sum. Quantity; to come up to, resulting; equalling in effect.”
(P. Ramanatha Aiyar’s The Law Lexicon, 3rd Edn., 2012)
(d) “1. The sum, total of two or more quantities or sums; aggregate. 2. the sum of the principal and interest of a loan. 3. quantity; measure a great amount of resistance.”
(Random House Compact Unabridged Dictionary, 2nd Edn.)
Further, the Explanatory Memorandum refers to cash transactions, suggesting that the emphasis is in respect of cash transactions.
In view of the above, receipt in kind may not be regarded as receipt of amount within the meaning of section 269ST.

4. Applicability on Charitable Trusts

Section 269ST applies to all persons, including charitable and religious trusts.

5. Search & seizure

It is not necessary that the restriction is to be based on the entries in books of account alone.
An entry or record found during search under section 132 or survey under section 133A may also show that the recipient has received more than the specified sum in non-permissible mode.

6. Receipts otherwise than by a specified form

Section 269ST refers to receipts otherwise than by a specified form. On a literal reading, it would cover receipts pursuant to
(a) takeover of business;
(b) demergers;
(c) amalgamations;
(d) conversion of sole proprietor firms into partnership firm;
(e) conversion of loans into equity shares.
This is because in all the above transactions, the transferee does not receive money by way of specified instruments. It appears that such literal reading is not warranted :
(i) The Explanatory Memorandum refers to restrictions on cash transaction. Obviously, there is no cash transaction in the aforesaid cases.
(ii) the Explanatory Memorandum also refers to a “less cash economy to reduce generation and circulation of black money”. It is obvious that the aforesaid transactions do not result in generation and circulation of black money.
(iii) It is now a well settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even ‘do some violence’ to it, so as to achieve the obvious intention of the legislature and produce a rational construction, Vide: Luke Inland Revenue Commissioner. The Court may also in such a case read into the statutory provision a condition which, though not expressed, is implicit as constituting the basic assumption underlying the statutory provision. [K.P. Varghese v. ITO [1981] 7 Taxman 13 (SC)]
In view of the above, to avoid absurd consequences, the section should be regarded as applicable to cash transactions and not the transactions in aforesaid forms.
(iv) In CIT v. Bakhear Ahamed Co. [1996] 221 ITR 574 (Mad), the assessee borrowed certain amount by account payee cheque, but the repayments were made only by account payee crossed demand drafts. The ITO treated it as income of the assessee under section 69D. On the ground that section 69D covers only account payee cheque. On a reference the Court observed as follows :
. . . the two differences between the cheque and draft are not really germane to the object with which section 69D was enacted, viz., the unearthing of black money and preventing its proliferation.
. . . Further, even though the casus omissus cannot be readily inferred, it has to be inferred when a literal construction of a particular section leads to manifestly absurd results which could not have been intended by the Legislature.
. . . In the present case, admittedly the amount repaid represented the amount earlier borrowed and, therefore, it could never be treated as income. Such an absurd conclusion cannot be the intention of the Legislature when it introduced section 69D.
. . . The different phraseology used in the other abovereferred to sections, viz., section 40A(3), section 269T and section 269SS by itself will not lead to the conclusion that the Legislature, when it enacted section 69D, deliberately intended to exclude account payee crossed bank drafts.
Thus, the Court read account payee demand draft in section 69D. Applying the principle, the aforesaid modes of receipts should be read into section 269ST and regarded as permissible modes for the purpose of section 269ST.
So far as statutory conversion of firm or LLP into companies under section 366 of the Companies Act, 2013 is concerned, it may be argued that there is a statutory vesting not involving “receipt” and hence may not fall within clause 269ST.

7. Section 40A(3) vs. Section 269ST

The provision may be applicable to the receipt, although, the payer may not be covered by section 40A(3), which provides for disallowance of expenditure in excess of Rs. 10,000.

8. Irrelevant considerations

Section 269ST will apply even if the receipt is
(a) fully disclosed; or
(b) a personal receipt and not a business receipt.
(c) not a loan or deposit but other type of receipt, say, share application money.
(d) from a relative
(e) the money received is deposited into the bank on the same day.

There is no exception on the lines of Rule 6DD.

9. Take or accept vs. Receive

It is pertinent that section 269ST uses the expression “receive” as against the wider expression “take” or “accept” in section 269SS.

A person cannot “receive” Rs. 2 lakhs or more. For this purpose does the term “receive” cover an agent or person acting in a fiduciary capacity?

To illustrate, suppose, “A” an employee is given Rs. 2.5 lakhs by his employer for onwards distribution amongst the workers. Is “A” covered by section 269ST?

In Asstt. CIT v. Sahara India [2006] 100 ITD 93 (Luck. – Trib.), the Court had to decide whether penalty under section 271D for failure to comply with section 269SS was leviable or not. The assessee-firm was working as agent on behalf of various companies and was collecting deposits under various financing or mutual benefit schemes run by such companies. It had received certain cash deposits above Rs. 20,000 from various depositors on behalf of various companies.

The contention of the assessee was that it was only an agent and was taking loans and deposits on behalf of its principals and not in its own account and as such the entire deposits collected by the assessee were in fiduciary capacity and hence the same did not belong to the assessee-firm as the assessee-firm was not carrying on any business of para banking in its own account but was carrying the business of an agent on behalf of other companies. The Assessing Officer rejected this contention and levied penalty under section 271D.

The Court observed as follows:
“A close examination of the provisions shows that the prohibition postulated in this provision applies to a person who accepts from another person any loan or deposit otherwise than by an account-payee cheque or account-payee bank draft. The provisions are not absolute. Whereas the first proviso, attached to the section, excludes government, banking companies, post office savings bank; corporations established by a Central or State Governments; the second proviso exempts persons having agricultural income, whose income is not chargeable to Income-tax Act. The category of exemptions is also not exhaustive. By implication there may be certain cases in which the provision may not apply. For example, if a servant or agent accepts the deposits or receives the loan on behalf of his master or principal then such agent or servant cannot be treated to be a person receiving the deposit because such agent or servant is working only in fiduciary capacity or intermediary. The amount is actually deposited on behalf of the master or the principal as the case may be and thus the violation of section 269SS is to be considered in the case of the master or the principal for whom and on whose behalf of the deposit was received. There may be other similar circumstances.
Thus, applying the above analogy we can say that the liability on account of the violation of section 269SS cannot be fastened on the servant or the agent.”
Further, the section is applicable only if an amount is “received”. A sum could be said to be received when it is transferred and it is within the power of the receiver to appropriate it. In this case, the employee does not have any power to appropriate it.

Finally, it is a common practice for banks to engage external agencies to transfer money from one location to another. If the other view is accepted as correct, then, all these agencies would be regarded as having contravened section 269ST! Obviously, such an interpretation is not warranted.

In view of the above, it appears that a sum received by an agent or a person acting in a fiduciary capacity may not be covered by section 269ST.

10.  Receipt by journal entries

Whether receipts through journal entries are restricted by section 269ST?

Section 269ST restricts receipts otherwise than through specified modes. Does this mean that receipts through journal entries say, settlement of debt by book entry are also restricted?

A similar provision regarding loans and deposits exists in section 269SS/section 269T. In this connection, Courts are divided as to whether receiving loans and repayments through journal entry is hit by section 269SS/section 269T.

In CIT v. Triumph International Finance (I) Ltd. [2012] 22 138 (Bom.) (followed in Lodha Builders (P.) Ltd. v. Asstt. CIT [2014] 163 TTJ 778 (Mum. – Trib.)), it was held that where loan/deposit has been repaid by merely debiting account through journal entries, it must be held that assessee has contravened provisions of section 269T.

On the other hand, the High Court/Tribunal has held as follows:

(a) CIT v. Worldwide Township Projects Ltd. [2014] 48 118 (Delhi)
Object of section 269SS is to prevent transaction in currency; it is not intended to affect cases where a debt or a liability arises on account of book entries.
(b) Asstt. CIT v. Vardaan Fashion [2015] 60 407 (Delhi – Trib.)
Where there was no monetary transaction between assessee and creditor, rather by mere journal entry liability was created, it could not be said that loan or deposit accepted by assessee from creditor was in violation of section 269SS.
(c) Asstt. CIT v. Gujarat Ambuja Proteins Ltd. [2004] 3 SOT 811 (Ahd. – Trib.)
Further, as mentioned above the objective of the section is to discourage “cash receipts” and not “journal entries”. Hence, it may be argued that receipts through journal entries are not covered by section 269ST. However, such receipts may result in protracted litigation.

11.  Receipt not pursuant to a ‘transaction’

This restriction applies even if the receipt is not pursuant to a “transaction”. On this basis, a person cannot receive gift exceeding Rs. 2 lakh although a gift may not be a transaction.
On a literal interpretation, it also applies to donations received by temples. So far as receipts in donations boxes of temples are concerned, generally speaking, it would be virtually impossible for the temple to ascertain whether a particular person has given Rs. 2 lakhs or more on a single day. It may be contended by revenue that the trust has received an amount of Rs. 2 lakh or more from a person in a day. However, based on facts, the Trust may be able to counter it. Further, since this is a penal provision, it has to be strictly construed and the onus of proving a violation is on the officer who alleges that the receipt is from a person and that also in a day.

12. Cash withdrawal from bank

On a literal reading, cash withdrawal of Rs. 2 lakh or more from a bank is also covered by section 269ST.
It appears that such literal view does not reflect the correct interpretation:
(a) In common parlance, a person “withdraws” money from the bank and not “receives” money from the bank. In the absence of receipt, section 269ST cannot apply.
(b) To avoid absurd consequences, the section should not be regarded as applicable to cash withdrawals from bank.
A consequence of receipt in excess of Rs. 2 lakhs is exposure to penalty under section 271DA. Obviously, a person cannot be penalized for withdrawing his own money from the bank.

13.  Bona fide situations

Suppose, “B” has in the past issued cheque which has bounced. “A” therefore does not trust him anymore. In such an event, if “B” is willing to pay cash, should “A” accept the cash or not? On a literal reading, “A” would be violating the provision of 269ST. However, if “A” is able to establish that there are “good and sufficient reasons” for the violation, he may not be penalized under section 271DA.

14. Scope of restrictions under section 269ST

As mentioned above, section 269ST provides for restriction in three situations. Each of these are discussed in the subsequent paragraphs.

a. Restriction relating to aggregate receipt in a day (Situation 1) : A person shall not receive an amount of Rs. 2 lakhs or more in aggregate from a person in a day by impermissible modes.
The receipts should not exceed the limit in a “day”. A legal day commences at 12 o’clock midnight and continues until the same hour the following night [see Prabhu Dayal Sesma v. State of Rajasthan, AIR 1986 SC 1948].
The restriction is applicable even if the different receipts are in relation to distinct transactions entered into on same day or different days. To illustrate, “A” sells to “B” product “C” for Rs. 1.0 lakh and subsequently, during the same day or another day sells product “D” for Rs.1.5 lakhs. The aggregate of receipts from “B” on a single day against both transactions cannot exceed Rs. 2 lakhs.

b.  Restriction on receipt in respect of a single transaction (Situation 2) – A person cannot receive Rs. 2 lakh or more in respect of a single transaction by impermissible modes.


For the purposes of section 2(xxiv) of the Gift-tax Act, 1958, it has been held that the term transaction refers to a bilateral transaction but not to a unilateral transaction. [Dr. A. R. Shukla v. CGT [1969] 74 ITR 167 (Guj.); CGT v. Jer Mavis Lubimoff [1978] 114 ITR 90 (Bom.), CGT v. Ebrahim Haji Usuf Botawala [1980] 122 ITR 62 (Bom.)] . Hence, a gift may not be covered under this limb.

Even if the receipt by impermissible modes is not made in a day and is made over a number of days, it would still be a tainted receipt. To illustrate, suppose “A” has sold goods worth Rs. 2.5 lakhs to “B” who has paid in cash as follows:

April 2017 1 lakh
May 2017 .5 lakhs

If subsequently “B” approaches “A” for making further payment in cash, “A” cannot accept any amount in excess of Rs. 49,999.

Since the aggregate of receipts over a period has to be considered, the recipient will have to maintain proper records.

It appears that the restriction applies to transaction already effected before 1-4-2017. Suppose, “A” has sold goods of Rs. 2.5 lakhs to “B” in March, 2017 against which “B” has not made any payment till 31-3-2017. It appears that this transaction is covered by section 269ST and “A” cannot receive Rs. 2 lakhs or more by impermissible modes.

Further, suppose “B” has already paid Rs. 1.5 lakhs in cheque up to 31-3-2017. In this situation, it is not clear whether “A” can receive a sum of Rs. 50,000 or more from “B” after 31-3-2017.

The said clause does not refer to “from a person”. Hence, even if the receipt is from different persons, so long as it is in respect of a single transaction, the recipient ought not receive Rs. 2 lakhs or more. To illustrate, suppose “A” has sold goods to “B”. If “C” offers to make payment to “A” on behalf of “B”, then this payment would also be covered by the restriction.

c.  Restriction in respect of transaction relating to one event or occasion from a person (Situation 3) – This restriction refers to transactions in plural. Hence, even if there are multiple transactions, relating to one event or occasion from a person they would be covered under the restriction.
The term “event” has been defined as follows:
“Something that occurs in a certain place during a particular interval of time”
(Random House Compact Unabridged Dictionary, 2nd Edn.)
The term “occasion” has been explained as follows:
(a) “A special or important time, event, ceremony, celebration, etc.”
(Random House Compact Unabridged Dictionary, 2nd Edn.)
(b) “An opportunity; the time at which something happens; a particular time marked by some occurrence or by its special character [section 56 of Indian Contract Act] “
[Legal Glossary published by the Government of India (1992 Edition)]
To illustrate, suppose, “A” is the event manager in respect of a marriage in “B” family. Suppose, “B” has agreed to hold multiple functions on the occasion of marriage. It may be argued that each function is a separate event or occasion.

However, if in respect of the same function, suppose “B” has to be make payment to say, decorator, caterer and music party, and if all payments are routed through “A”, the aggregate should not exceed Rs. 2 lakhs otherwise than by permissible modes.

Receipts by banking company, post office saving bank or co-operative bank are not covered. Hence, the aforesaid banks may accept cash deposit of Rs. 2 lakh or more

15.  Transaction of the nature referred to in section 269SS

Any transaction of a nature referred to in section 269SS is not covered. Section 269SS prohibits a person from taking or accepting any loan or deposit of Rs. 20,000 or more. However, no such exception is made in respect of transactions referred to in section 269T. Hence, in case of cash of repayment of loan or deposit, the borrower could be penalized under section 269T and the recipient could be penalized under section 269ST.

16.  Penalty for failure to comply with provisions of section 269ST [Section 271DA]

Section 271DA provides for levy of penalty. 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. However, penalty shall not be imposable if such person proves that there were good and sufficient reasons for the contravention. Penalty under this section shall be imposed by the Joint Commissioner.

Refer extract of section 269ST on link

Refer Income tax daily updates on link

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