To verify violations of Section 269ST of the Income Tax Act concerning cash transactions of ₹2,00,000 and above, the Supreme Court has mandated that Courts notify the jurisdictional Income Tax Department upon the filing of such suits. The Court stated, “A suit claiming ₹75,00,000 paid in cash raises substantial suspicion regarding the transaction and indicates a legal violation.” The Supreme Court overturned the Karnataka High Court’s decision, which had dismissed the Revision Petition from the Appellant against the Trial Court’s rejection of an application filed under Order VII Rule 11(a) and (d) of the CPC, seeking the dismissal of the plaint.
A Bench led by Justice JB Pardiwala and Justice R Mahadevan remarked, “It is important to recall that Section 269ST of the Income Tax Act was established to combat black money by digitalizing transactions exceeding ₹2,00,000 and it imposes equivalent penalties under Section 271DA of the Act. While the provisions target the recipient, plaintiffs must also reveal the source of such substantial cash sums. The Central Government aimed to limit cash transactions and promote a digital economy to diminish the shadow economy, which adversely impacts the nation’s economy.”
Counsel Asmita Singh represented the Appellant, while Advocate Abraham Mathews represented the Respondents.
Case Background
The Respondents initiated a suit seeking a permanent injunction based on an agreement to sell. The Appellant countered by filing an application under Order VII Rule 11 of the CPC, arguing that the agreement to sell did not grant the respondents proprietary rights. Initially, the Trial Court dismissed the Appellant’s application, but a revision petition to the High Court achieved partial relief, prompting a reconsideration. Upon review, the Trial Court again rejected the application, leading to the dismissal of the subsequent Civil Revision Petition by the High Court.
Court’s Rationale
The Supreme Court observed, “Moreover, the respondents/plaintiffs assert they have paid the entire ₹75,00,000 consideration in cash, despite the implementation of Section 269ST of the Income Tax Act in 2017 and the corresponding update to Section 271DA. As we have determined, the agreement solely establishes rights against the proposed vendors and not against third parties like the Appellant.” The Bench concluded, “Given the aforementioned points, we strongly believe the plaint should have been dismissed under Order VII Rule 11(a) and (d) CPC. Therefore, the orders from both the High Court and the Trial Court, which rejected the Appellant’s application, cannot be upheld legally and must be annulled.”
Consequent Directions
The Court provided clear directives:
- In instances where a suit is filed claiming cash payments of ₹2,00,000 or more, the courts are obliged to notify the jurisdictional Income Tax Department to verify the transaction and check for any violations of Section 269ST of the Income Tax Act.
- Upon receiving any such information from the Court or other sources, the jurisdictional Income Tax authority is to take appropriate legal action.
- When ₹2,00,000 or more is claimed as cash payment for the conveyance of any immovable property in documentation submitted for registration, the jurisdictional Sub-Registrar must inform the jurisdictional Income Tax Authority, which will follow due legal process before any actions are taken.
- Whenever an Income Tax Authority discovers a cash consideration of ₹2,00,000 or more has been acknowledged in any transaction relating to immovable property, whether from any source or revealed during searches or assessments, the negligence of the registering authority should be reported to the Chief Secretary of the State/UT for necessary disciplinary action against the responsible officer who failed to report such transactions.