9911796707
TMI Blog2003 (5) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... ods. Its registered office is at New Delhi. It started commercial operation in May, 1998. The first respondent is the Union of India and the second respondent is the Deputy Director of Income-tax (Investigation)-II Ernakulam South, Cochin. The petitioner seeks to issue a writ of certiorari calling for the records and proceedings leading to exhibits P3 and P6 summons as modified by exhibit P8 letter dated August 10, 2001, and to quash the same and for a direction to the second respondent to forbear from taking any further steps pursuant to exhibits P8 and for other reliefs. Exhibit P1 is a letter dated June 6, 2001, issued by the second respondent to the managing director of the petitioner Amway India Enterprises, New Delhi, as per which the petitioner was requested to furnish the true and complete details of all payments made by them to their distributors in Kerala, during the period from April 1, 1996, to March 31, 2001, with the names and complete addresses of the respective payees and the amount paid in each financial year, etc., and any other relevant details. This letter is issued in lieu of summoning the petitioner under section 131 of the Income-tax Act. Exhibit P2 is a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steps to impose penalty of Rs. 10,000 per day of default, from July 2, 2001, onwards up to July 31, 2001, besides prosecution under the general law. By exhibit P6 dated August 2, 2001, the second respondent informed the managing director of the petitioner-company at New Delhi, that his presence is required on August 10, 2001, to give evidence or to produce the books of account and other documents. This is a summon issued under section 131 read with section 131(1A) of the Income-tax Act, 1961, to which the petitioner, as per exhibit P7 submitted a detailed reply the gist of which is to inform the authorities that the notice suffers from the vice of vagueness as complete details of all payments are called for without any specific detail or transaction. According to them, requisition of books of account which run into a truckload, is neither proportionate nor legitimate but in the case of identification of any person or class of persons for whom there is reason to suspect, once the identity is disclosed they can provide the details of such person. The standard contract entered into between the distributors and the company is enclosed along with the basis of calculation of remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it P3 that the petitioner was required to be present to produce the books of account and other documents containing the particulars of all commission/batta in Kerala during the period from April 1, 1996, to March 31, 2001. By the subsequent correspondence with the parties ending with exhibit P8, it can be seen that what is sought to be enforced is exhibit P8 and what is required to be produced by the petitioner is not the entire records relating to the transaction in India, but only regarding the commission or remuneration paid to its distributors in Kerala for the period from September 1, 1999, to August 31, 2001. Therefore, it is not necessary to consider the validity or otherwise of the summons issued requiring the petitioner to produce the books of account for the period April 1, 1996, onwards as exhibit P8 finally issued only requires the petitioner to produce the details of payments of commission or remuneration paid by the petitioner to their distributors in Kerala limiting the period from September 1, 1999, to August 31, 2001. If the petitioner complies with exhibit P8 it is unnecessary to comply with any other previous requests made in this behalf. Hence, the question as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Delhi authorities of the Income-tax Act. In other words, according to the petitioner, only the specific particulars regarding any particular distributor or distributors could be sought for and since the petitioner had more than 50,000 distributors in Kerala, there cannot be a basis or material before the second respondent for any cause to suspect concealment of income but only in the nature of roving enquiry. Before we proceed to consider the contentions raised in this original petition, it is necessary to refer to the relevant provision under which the summons were issued. The summons were issued under section 131 read with section 131(1A) of the Income-tax Act. The relevant provisions read thus "131. Power regarding discovery, production of evidence, etc.--(1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner, Commissioner (Appeals) and Chief Commissioner or Commissioner shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:- (a) discovery and inspection; (b) enforcing the attendance of any person, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduce any such books of account or that any person in possession of any money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed, then the Director General or Director or the Chief Commissioner or Commissioner, etc., can enter and search at the place where he has reason to suspect that such books of account and other documents are kept. Thus, before any action is proceeded to be taken under section 132, if the officer mentioned under sub-section (1A) of section 131 has reason to suspect that any income has been concealed or likely to be concealed by any person or class of persons then, for the purpose of such enquiry or investigation, it will be open for him to exercise the powers under section 131 notwithstanding that no proceedings with respect to such person are pending before him. Thus, it can be seen that section 131 empowers the Assessing Officer, during the course of assessment proceedings, to issue summons for discovery or inspection or for production of books of account, as the case may be, as are vested in the civil court. On the other hand, section 131(1A) empowers the specific of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to be sustainable in law in the light of the clear provisions contained in section 131(1A) of the Income-tax Act which empowers the officers named therein to invoke the power under section 131, if there is any likelihood of concealment of income by any person or class of persons. Therefore, the distributors within the State of Kerala are the class of persons who are suspected to have concealed income or likely to conceal the income. It is in respect of such distributors alone, that an enquiry is conducted for which details are called for. In this connection, learned counsel for the petitioner relied on the decision of the Supreme Court in Barium Chemicals Ltd. v. A.J. Rana [1972] 42 Comp Cas 245. That was a case arising under the Foreign Exchange Regulation Act. Under section 19(2) of the said Act, an order was passed requisitioning documents for examination some of which were found to have no connection with the purpose for which documents would be called for under the relevant provision. The apex court held that there was no application of mind in respect of the remaining documents and, therefore, there is non-compliance of the requirements under the statute. There, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-section (1A) which was inserted with effect from October 1, 1975, and later amended on June 1, 1988, these five specified authorities were empowered to exercise powers under section 131(1). The clarificatory note issued by the Departmental Circular No. 551, dated January 23, 1990, also supports this view." There, the Deputy Director of Income-tax (Investigation) invoked his powers conferred on him under section 131(1A) of the Act and issued a commission as provided under section 131(1)(d) by which he directed the District Valuation Officer of the Income-tax Department to inspect the property under assessment. It was held that the Deputy Director was perfectly within his rights in independently exercising his powers in issuing a commission under section 131(1)(d) and that his act fell within the four comers of section 131(1A). In this connection, it is relevant to note the decision of the Madhya Pradesh High Court in Arjun Singh v. Asst. Director of Income-tax [2000] 246 ITR 363, wherein it was held as follows: "The purpose of the power under sub-section (1) of section 131 of the Income-tax Act, 1961, is in aid of action under some provision under the Act and it is a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Cochin, a letter was sent to the managing director of the petitioner, calling for certain details as evidenced by exhibit P1. It was reported to the Deputy. Director of Income-tax (Investigation) by the Inspector of Income-tax that the company has a very wide network of thousands of distributors in Kerala and that many of them are earning Rs. 2 lakhs and more per year as commission whereas no tax was being deducted and they are not filing any income-tax returns. Exhibits R2(A)--copy of the Income-tax Inspector's report dated June 6, 2001, is produced along with the counter-affidavit. It is averred that as per exhibit P8 the petitioner was required to furnish particulars of commission paid in Kerala for the period from September 1, 1999, onwards only in respect of those distributors to whom the total commission paid during the relevant accounting year and years amounted to Rs. 50,000 and above. It was further averred in para. 8 of the counter-affidavit as follows: "There was reason to suspect, in the light of the, Income-tax Inspector's report, that the petitioners distributors in Kerala, a class of persons, had taxable income and were potential taxpayers, by virtue of the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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