Circular No. 479 — 1275. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000

What this is

Circular No. 479 was issued by the Central Board of Direct Taxes on 16 January 1987. Its subject is 1275. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000 would attract the provisions of section 269T.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Holds that periodical interest paid in cash is caught by section 269T. That section forbids a company, co-operative society or firm from repaying a deposit otherwise than by an account payee cheque or account payee bank draft where the deposit, or the deposit together with interest, is Rs. 10,000 or more. On the Indian Banks' Association's question whether a cash payment of periodical interest alone exceeding Rs. 10,000 attracts the section, the Board, advised by the Ministry of Law, says it does: interest of Rs. 10,000 or more must be paid in the manner section 269T prescribes, because interest accrued on the deposit and credited to the account, periodically or otherwise, partakes of the character of a deposit and becomes a deposit itself. Where the repayment of principal together with interest comes to Rs. 10,000 or more, the Board says there was never any doubt that the section applies.

Why it was issued

The Indian Banks' Association had asked whether a cash payment of interest by itself, without any repayment of principal, was within the section.

Who it reaches

Companies, co-operative societies and firms repaying deposits
Banking companies paying interest on deposits in cash
Depositors expecting interest in cash
Assessing Officers examining contraventions of section 269T

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.269T	s.2, s.188, s.189

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1275. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000 would attract the provisions of section 269T
1. Indian Banks’ Association had sought a clarification as to whether the payment in cash of periodical interest amount along exceeding Rs. 10,000 would attract the provisions of section 269T. This section provides that no company, co-operative society or firm shall repay any deposit otherwise than by an account payee cheque or account payee bank draft where the amount of deposit or the aggregate of the amount of deposit together with any interest is Rs. 10,000 or more.
2. The matter has been examined in consultation with the Ministry of Law. The Board has been advised that the payment of interest of Rs. 10,000 or more, will have to be made in the manner provided in section 269T. So far as the repayment of deposit together with any interest is concerned, there is no room for doubt. If the amount of repayment after including the interest is Rs. 10,000 or more, the provisions of section 269T would be attracted. This is because the interest accrued on the deposit and credited to the account periodically or otherwise partakes of the character of a deposit and as such becomes a deposit itself.
Circular: No. 479 [F. No. 225/47/86-IT(A.II)], dated 16-1-1987.

What to watch

The interest need not be paid with the principal; interest alone of Rs. 10,000 or more must go by account payee cheque or draft.
The reasoning is that credited interest becomes a deposit in its own right, which is what carries interest into the section.
The section as the circular sets it out reaches a company, a co-operative society or a firm; other payers are not within the text quoted.
The threshold in the text before you is Rs. 10,000, being the figure in the section as it then stood.

Where you meet it

In a penalty proceeding for contravention of section 269T where interest on a deposit was paid over the counter in cash.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Circular No. 556 — 1277. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with 23 February 1990

← Circular No. 480 · Circular No. 478 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.