In a significant directive aimed at curbing black money and ensuring compliance with the Income Tax Act, a Division Bench of the Supreme Court comprising Justice J.B. Pardiwala and Justice R. Mahadevan has mandated that all courts and sub-registrars must report cash transactions exceeding ₹2,00,000 in civil suits and property registrations to the jurisdictional Income Tax Department. The Court issued these directions while allowing a civil appeal and rejecting a suit based on an unregistered agreement to sell.
Background of the Case
The case stemmed from a civil suit filed by B. Gunashekar and another against RBANMS Educational Institution, a 148-year-old charitable trust, seeking a permanent injunction. The plaintiffs alleged that they had entered into an agreement to purchase a property for ₹9 crore and had paid an advance of ₹75 lakh in cash. The appellant, in possession of the property since 1905, challenged the maintainability of the suit, arguing that a mere agreement to sell did not confer any enforceable right, particularly against third parties.
The trial court and the Karnataka High Court had dismissed the appellant’s application for rejection of the plaint under Order VII Rule 11(a) and (d) CPC, prompting the appeal to the Supreme Court.
Court’s Findings on Cash Transactions
The Supreme Court took serious note of the plaintiffs’ claim of having made a ₹75 lakh payment in cash, especially since such transactions are restricted under Section 269ST of the Income Tax Act, 1961. The Court held that the transaction on the face of it violated tax law and raised suspicions of illegality and concealment.
Quoting the Finance Bill, 2017 and the Budget Speech introducing Section 269ST, the Court emphasized that the statutory cap on cash transactions aims to:
“…curb black money by digitalising transactions above ₹2,00,000 and contemplating equal amount of penalty under Section 271DA of the Act.”
The Court observed:
“When a suit is filed claiming ₹75,00,000 paid by cash, not only does it create suspicion on the transaction, but also displays a violation of law.”
Mandatory Directions Issued by the Court
In a path-breaking move, the Court issued binding directions under Paragraph 18.1 of the judgment, making it obligatory for judicial and registration authorities to cooperate with tax enforcement:
(A) Whenever a suit is filed with a claim that ₹2,00,000 or more has been paid by cash towards any transaction, the courts must intimate the same to the jurisdictional Income Tax Department.
(B) Whenever any such information is received, the jurisdictional Income Tax authority shall take appropriate steps in accordance with law.
(C) Whenever a cash payment of ₹2,00,000 or above is claimed in a document presented for registration, the jurisdictional Sub-Registrar shall inform the Income Tax Department.
(D) If an Income Tax Authority discovers a cash transaction above the threshold during assessment or search, and the registering authority failed to report it, such failure must be brought to the notice of the Chief Secretary of the State/UT for disciplinary action against the concerned official.
Systemic Compliance and Communication
To ensure effective implementation, the Court directed that the judgment be circulated by the Registrar (Judicial) of the Supreme Court to:
- Registrars General of all High Courts
- Chief Secretaries of all States and Union Territories
- Principal Chief Commissioner of Income Tax Department
These authorities must communicate the directions to district judiciary, registration officials, and tax officers for strict compliance and periodic audits.
Citation: The Correspondence, RBANMS Educational Institution vs. B. Gunashekar & Another, Civil Appeal No. 5200 of 2025
