Old bank Notes-What if you do not have bank account? There are many issues along with peak credit theory which may be debated and litigated
With the withdrawal of old currency notes of Rs. 500/- and Rs. 1000/- and declaring them not to be “Legal Tender”, the long queues of persons can be witnessed everywhere in the Country, all struggling for three to four hours to reach the teller counter and hoping that bank server is not down.
As per the scheme of note withdrawal, two option have been given,
- To deposit old notes in bank account and withdraw as per limits as prescribed
- To exchange old notes at the bank where you have an account. This is also governed by the prescribed limits
It is evident that the whole philosophy of the Government is primarily founded on the assumption that every citizen of India ought to have/open a bank account which in turn would play a major role in curbing the exercise of demonetization of old notes.
Reserve Bank of India in FAQ No. 7 has made it clear that persons not having a bank account are required to open one.
Also, the Revenue Secretary has clarified that Income Tax Department shall not harass assessees for small cash deposits up to Rs. 1.50 – 2.00 lacs made in the bank account by the small businessmen, housewives, artisans and workers.
As obvious, Income Tax Department is going to be the key in the hands of the Government to unlock the hidden black money deposited in bank accounts during the 50 days window ending on 30th December, 2016.
It is well understood that actions/orders of the Income Tax Departments are appealable and open to judicial review by the competent court of Law. In this context, an interesting aspect to be watched is that as of now there is no law in the Country that requires that the assessee can not keep cash in hand or must open a bank account.
Meanwhile, few Petitions have also been filed in the Supreme Court and various High Courts. Primarily these writs have raised the issue of inconvenience caused to the common people and disruption of the daily life due to the ban on the old currency notes. The petition filed in the Bombay High Court has sought the relief on the ground that demonetization could not have been done by means of a Gazette Notification without an Ordinance. The challenge to the legality of the assumption of bank account by every individual Indian citizen probably has not found place in the petitions.
However, two recent judgments of the Income Tax Appellate Tribunal (ITAT) are worth mentioning here.
In one of the judgments pronounced in August, 2016, the Amritsar Tribunal held that it is not mandatory under any law that an individual has to keep his/her savings in the bank account only and not as cash in hand.
Secondly, ITAT Lucknow in its order pronounced in March, 2016 has accepted investment of Rs. 4-5 lakhs out of cash savings where the assessee’s plea was that she belonged to Muslim Religion which prohibits maintaining bank accounts due to bar on earning interest income under her Religion.
More than often, cash deposits in bank accounts are made out of cash in hand or cash withdrawn from the bank at an earlier date. In other words, Peak credit theory is applicable to such continuous deposits and withdrawals. It has been held in number of ITAT judgments that unless the Assessing Officer brings any material on record to show that the cash withdrawn at an earlier date was utilized/used for other purposes it could not be said that such withdrawals might not have been redeposited in the bank account.
What emerges that RBI FAQ might turn out to be lacking any legal force. Secondly, the limits prescribed by the Revenue Secretary are only illustrative and not limited to Rs. 1.50 to 2.00 lacs based on the facts and circumstances of the case. Thirdly, Government ought to have provided exchange facility for old notes within reasonable limits without any compulsion for having to open a bank account. Else, these issues may be very well debated and litigated at appropriate platforms based on the facts and circumstances of the individual case.