Circular No. 556

1277. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with commission agents

What this is

Circular No. 556 was issued by the Central Board of Direct Taxes on 23 February 1990. Its subject is 1277. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with commission agents.

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

Takes sale proceeds of agricultural produce lying with a kachcha arhatiya outside section 269T. The Board's view is that where a kachcha arhatiya sells goods belonging to an agriculturist, the proceeds remaining with him are not a deposit made by the agriculturist, and the part he has not remitted does not become one either, so repayment need not be by account payee cheque or draft. The one exception is where the amount is retained on the agriculturist's own direction: then it is a deposit and section 269T applies, whatever account it is held in and whether the direction calls it a deposit or merely asks that it be kept for future payment.

Why it was issued

The Direct Tax Laws (Amendment) Act, 1987 widened the definition of deposit in section 269T to include, for a person other than a company, a deposit of any nature, and a number of references reached the Board asking whether unremitted sale proceeds with kachcha arhatiyas were caught.

Who it reaches

Kachcha arhatiyas holding sale proceeds of farmers' produce
Agriculturists selling through commission agents
Firms and co-operative societies in the commission agency trade
Assessing Officers proposing penalty for cash repayment

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.

1277. Clarification regarding applicability of section 269T to amounts kept by agriculturists out of sale proceeds with commission agents
1. Section 269T of the Income-tax Act provides that no company, co-operative society or firm shall repay to any person any deposit otherwise than by any account payee cheque or account payee bank draft where the amount of deposit and interest thereon, if any, is Rs. 10,000 or more.
2. The Direct Tax Laws (Amendment) Act, 1987 has amended the definition of "deposit" for the purpose of section 269T of the Income-tax Act. Under the amended definition, the said term has been defined to mean "any deposit of money which is repayable after notice or repayable after a period and, in case of a person other than a company, includes deposit of any nature".
(The italicised portion has been added by the said Amendment Act.)
3. A number of references have been received by the Board seeking clarification whether the sale proceeds of agricultural commodities, left over by the agriculturists with their ‘Kachcha Arhatiyas’, would also come within the ambit of deposit of any nature necessitating its payment by an account payee cheque as provided under section 269T of the Act.
4. The Board is of opinion that where a ‘Kachcha Arhatiya’ sells goods belonging to an agriculturist, the sale proceeds thereof which remain with him cannot be regarded as a deposit made by the agriculturists with the ‘Kachcha Arhatiya’. Further, whether the ‘Kachcha Arhatiya’ remits only a part of the sale proceeds to the agriculturist, the unremitted part of the sale proceeds would also not assume the character of a deposit. Therefore, the repayment of such sale proceeds does not fall within the purview of section 269T of the Act.
5. However, such unremitted sale proceeds would assume the character of a deposit if the amount is retained by the ‘Kachcha Arhatiya’ in pursuance of a direction in this regard by the agriculturist, irrespective of whether the amount is retained in the same account or transferred to different accounts and irrespective of whether the directions are to call it a deposit or just to retain the same for future payment. The repayment in such cases will be covered under section 269T of the Act.
Circular: No. 556, dated 23-2-1990.

What to watch

The dividing line is a direction from the agriculturist to retain the money; once that exists the amount is a deposit and cash repayment is barred.
Moving the sum to a different account, or not calling it a deposit, does not help if the retention was directed.
The threshold recited is Rs. 10,000 for the deposit with interest, the figure in section 269T as it then stood; that limit has since been changed.
Section 269T has itself been widened since 1990 to cover loans and specified advances as well as deposits.

Where you meet it

A penalty notice under section 271E on an arhatiya who paid a farmer his sale proceeds 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. 479 — 1275. Whether the payment in cash of periodical interest amount alone exceeding Rs. 10,000 would attract the provisions 16 January 1987

← Circular No. 557 · Circular No. 555 →

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.