National

SC ruling on person-to-person loans, deposits

By T. Padmanabha Rao

NEW DELHI MAY 3. The Supreme Court today upheld the constitutional validity of Section 269SS of the Income Tax Act, 1961, debarring persons from taking or accepting "from any other person any loan or deposit otherwise than by account-payee cheque or account-payee bank draft if the amount of such loan or deposit or the aggregate amount of such loan or deposit is Rs. 20,000 or more''.

The provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by the Government, any banking company, post office savings bank or cooperative bank or any Government company etc., as specified in the section.

Delivering the judgment, Justice K.G. Balakrishnan set aside the verdict of a single judge of the Madras High Court which held that Section 269SS was invalid being violative of Article 14 of the Constitution (equality before law) and quashed the related criminal proceedings initiated against the respondent (borrower-tax payer) by the authorities concerned (appellant).

The Bench, which included Justice R.P. Sethi, said "the object of introducing Section 269SS is to ensure that a tax payer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same, the main object being to curb this menace''.

In a connected appeal from a borrower-tax payer, the Bench upheld the validity section 271D of the Income Tax Act, which provides for penalty by way of fine equal to the amount of loan or deposit accepted for failure to comply with the provisions of section 269SS and dismissed the tax payer's appeal with costs.

In this context, the Bench noted that "undue hardship is very much mitigated by the inclusion of section 273B in the Act'', according to which "if there was a genuine and bona fide transaction and if for any reason the tax payer could not get a loan or deposit by account-payee cheque or demand draft for some bona fide reasons, the authority vested with the power to impose penalty has got discretionary power''.

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