Courts must intimate IT authorities about suits involving cash payments above ₹2 lakh: Supreme Court

The Supreme Court on Thursday directed that if a suit involves claims of cash payment of ₹2 lakh or more, the court concerned must inform the local Income Tax Department to check the transaction and see if it violates Section 269ST of the Income Tax Act [The Correspondence RBANMS Educational Institution vs. B. Gunashekar & Another]..Section 269ST of the Income Tax Act, was introduced to curb black money by digitalising the transactions above ₹2 lakh and provides levy of penalty in case of contravention of the same.The Bench of Justice JB Pardiwala and Justice R Mahadevan also directed that if a property registration document shows cash payment of ₹2 lakh or more, the sub-registrar concerned must inform the Income Tax authority about the same.The Court added that if an Income Tax Authority finds—through any source or during proceedings—that ₹2 lakh or more was paid in a property deal and the registering authority failed to report it, the matter must be reported to the Chief Secretary of the relevant State or Union Territory..In a nutshellThe Bench issued the following directions in this regard:- Whenever, a suit is filed with a claim that ₹2 lakh 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 ₹2 lakh 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 ₹2 lakh 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..The Court was hearing a plea from RBANMS Educational Institution, a public charitable trust established in 1873 in Bangalore, which has been serving marginalized communities through educational and sporting initiatives. The trust was granted leasehold rights to a parcel of land in 1905, which was formally conveyed in 1929. Since then, the institution has been in continuous, undisputed possession, using the land for public and educational purposes.The legal dispute arose in 2018 when the respondents filed a civil suit seeking a permanent injunction to prevent RBANMS from creating third-party interests in the property. Their claim was based on an agreement to sell, dated April 10, 2018, executed by them (respondents) and Ramesh S Reddy with one Maheshwari Ranganathan and others for ₹9 crores, with ₹75 lakhs allegedly paid in cash. However, the agreement was not with the RBANMS which had held lawful possession since 1929.In response, RBANMS filed an application to reject the plaint under Order VII Rule 11(a) and (d) of the Code of Civil Procedure (CPC), arguing that the respondents had no legal right or title to the property and that a mere agreement to sell does not create an enforceable interest in immovable property under Section 54 of the Transfer of Property Act, 1882..The trial court rejected this application in June 2020. Aggrieved, RBANMS moved the High Court, which partially allowed the petition and directed the trial Court to reconsider the application. Upon reconsideration, the trial Court again rejected the application in June 2021. This led the appellant to file a second revision petition, which was also dismissed by the High Court in June 2022.This led to the appeal before the Supreme Court by RBANMS..The apex court observed that the respondents lacked privity with the appellant, had no title or legal right to the property, and could not maintain a suit based on an agreement to sell executed by third parties."First, there is no privity between the respondents and the appellant. The agreement to sell, is not between the parties to the suit. According to Section 7 of the Transfer of Property Act, 1882, only the owner, or any person authorized by him, can transfer the property. We have already held that an agreement to sell does not confer any right on the proposed purchaser under the agreement. Therefore, as a natural corollary, any right, until the sale deed is executed, will vest only with the owner, or in other words, the vendor to take necessary action to protect his interest in the property," Court said..Therefore, the Court proceeded to allow the appeal and rejected the plaint under Order VII Rule 11(a) and (d) CPC.The Court emphasized that permitting such speculative and baseless litigation would amount to abuse of the judicial process and obstruct the functioning of charitable institutions. Therefore, the suit was dismissed, with a caution to the respondents against similar misuse of the legal process in future..The Court noted that the payment of ₹75 lakhs in cash raised serious legal and financial concerns, including potential violations of income tax laws."Further, 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. It is pertinent to recall that Section 269ST of the Income Tax Act, was introduced to curb black money by digitalizing the transactions above Rs.2,00,000/- and contemplating equal amount of penalty under Section 271DA of the Act. As per the said provisions, action is to be taken on the recipient. However, there is also an onus on the plaintiffs to disclose their source for such huge cash. The Central Government thought it fit to cap the cash transactions and move forwards towards digital economy to curb the dark economy which has a drastic effect on the economy of the country," Court said.Hence, it proceeded to issue directions to the civil courts to intimate Income Tax authorities when suits are filed with claims of payment of ₹2 lakh or more. .Advocate Asmita Singh appeared for the petitioner.Advocates Abraham Mathews, S Shivaprasad and Nishe Rajen Shonker appeared for the respondent..[Read Judgment]