To promote a cashless economy and digital mode of accepting payment, the government of India has introduced section 269SU under Income Tax 1961. Section 269SU recommends a certain electronic mode of accepting payment as prescribed in addition to other electronic modes. The said provision is made applicable from 1st January 2020.
Section 269SU provides that
Every person, carrying on business, shall provide a facility for accepting the payments from the customers through electronic modes prescribed, in addition to the facility for other electronic modes (Cheque, NEFT, etc.), of payment, if any, being provided by such person, if his total sales, turnover or gross receipts, as the case may be, in business exceeds Rupees Fifty Crore (50Cr.) during the immediately preceding previous year.
Section 269SU refers to prescribed modes which are provided in Rule 119AA namely
(i) Debit Card powered by RuPay;
(ii) Unified Payments Interface (UPI) (BHIM-UPI); and
(iii) Unified Payments Interface Quick Response Code (UPI QR Code) (BHIM-UPI QR Code
From above, it is apparent that section 269SU applies to every person who is carrying business if his total sales, turnover or gross receipts, as the case may be, in business exceeds Fifty Crore Rupees (50Cr.) during the immediately preceding previous year. Therefore, such persons need to have the above-mentioned facilities to accept payment.
On perusal of said provision, there arise few important questions as to
- Can Income Tax Act which is an act for taxing income provide for provisions on the facility to be provided as modes of accepting payment?
- Are such provision applicable to foreign companies?
- Constitutional Validity of section 269SU
The term Preamble according to Black Law dictionary is
“A clause at the very beginning of a constitution or statute explanatory of the reasons for its performance and the objects sought to be accomplished”
The preamble of the Income Tax Act reads as
“An Act to consolidate and amend the law concerning to income-tax and super-tax”
Thus it is an act relating to the law of Income Tax which means it is the law of taxing income, managing taxes and administer the collection of taxes.
In this connection, it is important to note that the Hon’ble Supreme court in the case of Kum. A.B. Shanthi held that:
“If any Legislature makes any ancillary, secondary or subsidiary provision which incidentally transgresses over its jurisdiction for attaining the object of such legislation, it would be a valid piece of legislation. The entries in a legislative list should be given their fullest meaning and the broadest amplitude and be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in them.”
Thus, any provision enacted to achieve objects of Income tax is valid. The object of income tax is taxing all income and avoid or curb black money so that the country gets it fair share of revenue/taxes.
In order to understand the intention of the legislature for bringing section 269SU it is important to refer the memorandum explaining Finance Bill, 2019 which provides as follows:
“In order to achieve the mission of the Government of India to move towards a cashless economy to reduce generation and circulation of black money and to promote digital economy, it is proposed to insert a new Section 269SU in the Income Tax Act 1961 so as to provide that every person, carrying on business, shall, provide facility for accepting payment through the electronic modes prescribed, in addition to the facility for other electronic modes (Cheque, NEFT, etc.), if any, being provided by such person, if his total sales, turnover or gross receipts in business exceed fifty crore rupees (50Cr.) during the immediately preceding previous year”.
Thus, on apparent reading, we may find that section 269SU makes a valid attempt to curb black money. However, on deeper analysis, it would be important to note that the legislation enacted in the form of section 269SU does not mandate the non-payment of cash. Also, 269SU does not mandate mandatory acceptance of payment electronically.
It only mandates providing a few facilities even if such similar facilities are in place. Such a facility in three modes is neither superior to other modes of accepting electronic payment nor does it act in any better way to achieve the object of countering black money or getting a fair share of taxes.
Moreover, separate legislation viz. The Payment and Settlement Systems Act, 2007 in its preamble provides that
“it is an act to provide for the regulation and supervision of payment systems in India”
Thus, when there is separate legislation for such purposes, it becomes more pertinent to understand that an income tax enters or overlap jurisdiction of other activities with an intent to curb black money which apparently seems weak or being negated. Had it been a general provision of providing any facility to accept payment electronically, it would have provided more support to the constitutional validity of such a section.
Also, it is important to note that through BHIM UPI/QR transaction limit is INR 40,000 per transaction per day. With such small amounts as limit and target being large business i.e. business with turnover or gross receipt exceeding INR 50 crores, it eventually turns out to be a more burdensome requirement to businesses in India.
From the above, it can be deduced that it would be difficult to make such specific modes under the Income Tax act constitutionally valid. A generic provision would have been constitutionally more powerful as compared to current section 269SU
- Whether section 269SU is applicable to foreign companies?
Section 269SU is applicable to every person carrying business and there are no exceptions to it. Thus, where section does not provide exception it would be applicable to foreign companies as well subject to a monetary limit of 50 crores as turnover or gross receipt in the preceding financial year provided in the section. However, if foreign companies don’t have a permanent establishment in India, it can be said that they are not carrying business in India for which said section does not apply.
Conclusion
Government at one instance is targeting to achieve “ease of doing business in India” and such provisions being enacted becomes a hindrance to important economic targets. It is important to clarify various doubts surrounding such section and exempt entities which are pure cost centers, having receipts only from outside India, foreign companies and companies already having similar facilities to obtain funds electronically from the requirement of section 269SU. This would provide much relief to business especially B2B segment industries with large operations in India.
