2015 (1) TMI 1121 - HC - Income Tax

Constitutional validity of section 133(6) of the Income Tax Act, 1961 to the extent the words enquiry or have been added thereto, also incorporating second proviso - Held that - The fact that the petitioners Bank is a society registered under the Kerala Co-operative Societies Act/Rules and that there is a separate procedure for incorporation/registration/functioning/control and regulation including auditing of funds etc., are not at all germane to the course and proceedings to be pursued in terms of Section 133(6) of the Income Tax Act. The provisions of the Co-operative Societies Act/Rules may be relevant in so far as the day-to day activities of the Society are concerned . But scope of the enquiry under the Income Tax Act is entirely different and so also is the object/purpose to be achieved . The said enquiry is not in relation to the particulars of loans given, but in relation to the particulars of the deposits made by the depositors or as to the extent of interest received by them, to the extent it is relevant under the provisions of the Income Tax Act. In so far as Explanation (2) to Section 132 of the Income Tax Act, dealing with search and seizure, categorically states that the word proceeding includes a future proceeding as well; the inclusion of the word enquiry or under Section 133(6) of the Act, by the law makers as per the Finance Act, 1995, is having more significance and it is incidental to the scope and object to be achieved , which cannot be nullified. A Constitution Bench of the Apex Court has held in Vivian Joseph Ferreira and another v. Municipal Corporation of Greater Bombay and others 2002 (11) TMI 112 - SUPREME COURT OF INDIA) that, taxing statute will become valid, if it is within the legislative competence, if it is for public purpose and further, if it does not violate the fundamental right guaranteed under Part III of the Constitution of India. All the said three requirements are satisfied in the instant case and as such, the challenge raised by the petitioners cannot be held good; more so when the Apex Court has made it clear in R.K. Garg v. Union of India. 1981 (11) TMI 57 - SUPREME Court , that the laws relating to economic activities should be viewed with greater latitude, than the laws touching civil rights, such as freedom of speech or religion etc. Further, in view of the law declared by the Apex Court in Punjab Distilling industries Ltd. v. Commissioner of Income Tax, Punjab 1965 (2) TMI 6 - SUPREME Court , constitutional validity of an Act can be supported on the ground that it was enacted to prevent evasion of tax. The amendment brought about as per the Finance Act 1995, adding the words enquiry or and also the second proviso is quite incidental to the main provision and hence beyond challenge. The apprehension expressed from the part of the petitioners that, if the information as sought for is given to the respondent Department, there is a chance for misuse/abuse, is without any basis. The confidentiality of the information gathered by the Income Tax Department is well taken care of by Section 138 of the Income Tax Act.It is well settled that the taxation entry confers powers upon the legislature to legislate for matters ancillary or incidental , including the provisions for evasion of tax. This has been made clear by a Constitution Bench of the Apex Court in Commissioner of Commercial Tax v. R.S. Jhavar 1967 (8) TMI 37 - SUPREME Court . This Court finds that the petitioners have not succeeded in establishing any constitutional infirmity, to hold the statute/amendment as ultra vires to the Constitution. Accordingly, interference is declined and all the writ petitions are dismissed. - Decided against assessee.

Issues Involved:
1. Constitutional validity of Section 133(6) of the Income Tax Act, 1961.
2. Validity of notices issued under Section 133(6) to Co-operative Banks.
3. Alleged infringement of the right to privacy under Article 21 of the Constitution.
4. Alleged violation of the right to conduct business under Article 19(1)(g) of the Constitution.
5. Alleged arbitrariness and lack of guidelines in the exercise of power under Section 133(6).

Detailed Analysis:

1. Constitutional Validity of Section 133(6) of the Income Tax Act, 1961:
The petitioners challenged the constitutional validity of Section 133(6) of the Income Tax Act, 1961, specifically the words "enquiry or" and the "second proviso" added by the Finance Act, 1995. The court noted that the amendment allowed the Income Tax Department to call for information even when no proceeding was pending, with prior approval from the Director or Commissioner. This amendment aimed to tackle tax evasion effectively. The court held that the amendment was incidental to the main provision and necessary for collecting preliminary data to prevent tax evasion. The court found no constitutional infirmity in the amendment.

2. Validity of Notices Issued Under Section 133(6) to Co-operative Banks:
The petitioners, Co-operative Banks, contended that the notices issued under Section 133(6) were invalid as they were not governed by the Banking Regulation Act and did not fall under the term "any person" in Section 133(6). The court referred to the Apex Court's decision in Kathiroor Service Co-operative Bank Ltd. v. Commissioner of Income Tax, which upheld the validity of such notices against Co-operative Banks. The court reiterated that the power under Section 133(6) could be invoked against Co-operative Banks, and the notices were valid.

3. Alleged Infringement of the Right to Privacy Under Article 21 of the Constitution:
The petitioners argued that the notices intruded into the privacy of their members, violating Article 21 of the Constitution. The court acknowledged that the right to privacy is an integral part of Article 21 but emphasized that it could be restricted for compelling public interest, such as preventing tax evasion. The court noted that the information collected by the Income Tax Department would be kept confidential under Section 138 of the Income Tax Act, ensuring no misuse or abuse. Therefore, the court found no violation of the right to privacy.

4. Alleged Violation of the Right to Conduct Business Under Article 19(1)(g) of the Constitution:
The petitioners claimed that the notices infringed their right to conduct business as guaranteed under Article 19(1)(g) of the Constitution. The court found no merit in this argument, stating that the provision applied to all banking and non-banking financial institutions and was necessary for preventing tax evasion. The court held that the petitioners' fundamental right to conduct business was not violated by the impugned notices.

5. Alleged Arbitrariness and Lack of Guidelines in the Exercise of Power Under Section 133(6):
The petitioners contended that the provision vested unbridled discretion in the authorities, leading to arbitrariness. The court noted that the law required prior approval from the Director or Commissioner before invoking the power when no proceeding was pending, providing a check against misuse. The court also referred to various notifications and circulars issued by the competent authority, which provided guidelines for exercising the power under Section 133(6). The court concluded that the provision was not arbitrary and had sufficient guidelines to prevent abuse.

Conclusion:
The court dismissed all the writ petitions, upholding the constitutional validity of Section 133(6) of the Income Tax Act, 1961, including the amendments made by the Finance Act, 1995. The court found that the notices issued under Section 133(6) to Co-operative Banks were valid and did not violate the right to privacy or the right to conduct business. The court also held that the provision had adequate guidelines to prevent arbitrariness and misuse.

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