The author, Kunal Sharma, is in the final semester of the Law program at Modern College of Law, Ghaziabad.
Brief Outline:
Since taxes can only be levied on income whose record was available with the Income tax Department, cash transactions were made promptly to escape the eye of banking system and essentially, escape from tax rigours. In order to prevent this, Section 269ST was introduced to prohibit any person from receiving an amount of Rs. 2,00,000 or more in cash for a single transaction, or in aggregate from a person in a day, or for transactions relating to one event/occasion. This amendment was made to curb black money by digitalising the transactions above Rs. 2,00,000/- and contemplating equal amount of penalty under Section 271DA of the Income tax Act.
The only permissible modes for such transactions are account payee cheque/bank draft, or electronic clearing system (bank transfer, UPI, etc.), and only transactions involving government, banks, post offices, and co-operative banks are exempted from the purview of Section 269ST.
Recently, the provision of Section 269ST came to limelight, whereby observing that failure of officials to report cash transactions will lead to disciplinary action by the Chief Secretary of the State/Union Territory, the Supreme Court had directed courts and registration authorities to report cash transactions exceeding Rs.2 lakhs to the Income Tax Department. This decision came in wake of the fact that although Section 269ST was introduced in good faith, it had not brought the desired change in law.
Facts of the case:
The case involved a property dispute concerning a charitable trust and individuals claiming rights over a property in Bangalore. The Appellant Trust was in possession of the disputed property since 1929, utilizing it for educational and sporting purposes. However, the Respondent and another individual claimed to have entered into a sale agreement in 2018 with the alleged owners of the property, asserting rights over it, and claiming that they had paid Rs.75 lacs as consideration in cash as an advance for an agreement to sell. The Respondent's filing of the permanent injunction suit against the Appellant-trust led it to file an application under Order VII Rule 7 CPC seeking dismissal of the suit on the grounds of lack of cause of action and the suit being barred by law.
The trial court dismissed the Appellant's application, leading it to file a Civil Revision Petition, which was also dismissed by the Karnataka High Court. Following this, the trust appealed to the Supreme Court.
Submissions of Appellant:
The counsel for the appellant submitted that the alleged agreement to sell, which forms the fundamental basis of the suit, cannot create any interest in the suit schedule property as per Section 54 of the Transfer of Property Act, 1882. The counsel also emphasized the suspicious circumstances surrounding the alleged agreement to sell i.e., the purported vendors have not been made parties to the suit, their addresses were conspicuously absent in the plaint, and the entire advance payment of Rs.75 lakhs was claimed to have been made in cash without any documentary proof.
Contentions of Respondent:
The counsel for the respondents contended that at the stage of considering an application under Order VII Rule 11 CPC, the court must confine itself to the averments in the plaint without examining the defense or other external materials. The counsel added that the suit was filed to protect the respondents' legitimate interests over the property in question under the agreement to sell, apprehending alienation of the property by third parties. The counsel further submitted that rejection of plaint is a drastic remedy that should be exercised sparingly, only when the plaint is manifestly vexatious and meritless; and that, the proper course would be for the appellant to file a written statement and contest the suit on merits, rather than seeking rejection of the plaint at the threshold.
Observations of Apex Court:
The Apex Court set aside the findings of the High Court, observing that it was erroneous on the part of the Respondent to seek a permanent injunction against the Appellant, instead of seeking the same from the vendor to whom they un-reportedly paid Rs. 75 lacs in cash as an advance sum in violation of Section 269ST of the Income tax Act.
The Supreme court said that an action is to be taken on the recipient/vendor as well as there is also an onus on the Respondent-plaintiffs to disclose their source for such huge cash. Through the averments made in the plaint and in the agreement, the respondents/plaintiffs have claimed to have paid huge sum towards consideration by cash, they should have resorted to Section 269ST and Section 271DA, as per which, action is to be taken on the recipient. At the same time, there is also an onus on the plaintiffs to disclose their source for such huge cash.
To combat black money and tax evasion, the Apex Court ruled that whenever any suit is filed claiming that a consideration of Rs.2 lacs or above is paid towards a transaction, then it becomes obligatory upon the Court to intimate the jurisdictional Income Tax Department for verification whether there's a violation of Section 269ST of the Income Tax Act, 1961.
Further, the Apex Court directed the Registering authorities that if any document is presented for registration like a sale agreement mentions a cash payment of Rs.2 lacs or more, the Sub-Registrar must inform the Income Tax Department to prevent unreported cash transactions in real estate deals. Accordingly, the Apex Court passes the under-mentioned directions:
- Whenever, a suit is filed with a claim that Rs. 2,00,000/- and above is paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department to verify the transaction and the violation of Section 269ST of the Income Tax Act, if any;
- Whenever, any such information is received either from the court or otherwise, the Jurisdictional Income Tax authority shall take appropriate steps by following the due process in law;
- Whenever, a sum of Rs. 2,00,000/- and above is claimed to be paid by cash towards consideration for conveyance of any immovable property in a document presented for registration, the jurisdictional Sub-Registrar shall intimate the same to the jurisdictional Income Tax Authority who shall follow the due process in law before taking any action;
- Whenever, it comes to the knowledge of any Income Tax Authority that a sum of Rs. 2,00,000/- or above has been paid by way of consideration in any transaction relating to any immovable property from any other source or during the course of search or assessment proceedings, the failure of the registering authority shall be brought to the knowledge of the Chief Secretary of the State/UT for initiating appropriate disciplinary action against such officer who failed to intimate the transactions.
In this context, the Apex Court fixed the liability of the Courts and registration authority to report the cash transaction above Rs.2 Lacs to the Income Tax Authorities for verification if there's a violation of Section 269ST of the Income Tax Act, failing which an appropriate action would be taken against the erring official.
Case Title: Correspondence RBANMS Educational Institution vs B. Gunashekar
Case Number: Civil Appeal No.5200 of 2025
Citation: 2025 Latest Caselaw 368 SC
Coram: Hon'ble Mr. Justice J.B. Pardiwala and Hon'ble Mr. Justice R. Mahadevan
Advocate for the Appellant: Adv. Asmita Singh
Advocate for the Respondent: Adv. Nishe Rajen Shonker
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