JUDGMENT

1. 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”, is under challenge in the main case and some of the connected cases. In general, the grievance is against the notices issued by the authorities of the Income Tax Department, asking the petitioners/Co-operative Banks to furnish details of cash deposit in ‘Savings Bank Accounts’, aggregating to Rs.5 lakhs during the financial years 2010-11, 2011-12, 2012-13 and also to furnish details of payment of interest exceeding Rs.10,000/- to the depositors including in the case of fixed deposits.

2. Petitioners are Co-operative Banks registered under the relevant provisions of the Kerala Co-operatives Societies Act/Rules engaged in banking business and in some cases members/depositors have also joined hands with the Bank to raise the challenge. W.P.(C).No. 10334 of 2014 is treated as the lead case, wherein a detailed counter affidavit has been filed from the part of the Department and the petitioners have filed a reply affidavit as well. It is stated that, no factual dispute is involved and the contentions raised in the lead case from both the sides are pressed into service in the other cases as well.

3. Mr. Mariarputham, learned Senior Counsel appearing on behalf of the petitioner in W.P.(C). No. 10334 of 2014 led the arguments on behalf of the petitioners, supported by other learned lawyers concerned. The arguments on behalf of the Department/Revenue were led by Sri. P.K.R Menon, learned Senior Central Government Counsel (Taxes), supported by Mr. Jose Joseph, the learned Standing Counsel.

4. History runs back to the time when steps were taken by the respondent/Income Tax Department (Department in short) to collect particulars of deposits made and interest paid by the Co-operative Banks, as part of some project/survey, issuing notice under Section 133 (6) of the Income Tax Act, 1961. Several Co-operative Banks approached this Court earlier, challenging the said proceedings, mainly contending that, the provisions did not enable the Department to have issued notice to the petitioners who were Co-operative Banks governed by the relevant provisions of the Kerala Co-operative Societies Act &Rules and further that, many of them were Primary Agricultural Credit Co-operative Societies having exemption from the operation of the relevant provisions of the Income Tax Act. In some cases, Certificates issued by the authorities under the Kerala Co-operative Societies Act/Rules were produced, as to the nature of the Society, to have the benefit of exemption. In some cases, it was contended that, the term “any person” under Section 133(6) did not relate to the petitioners’ Co-operative Banks. It was also contended that, no such notice could have been issued invoking the said power, as it was never part of any ‘enquiry’ or ‘proceeding’ under the Act and no specific insinuation was made against any individual or the Society. Yet another contention was raised to the effect that, notices were issued by the Income Tax officers or such other authorities who did not have the power, jurisdiction or competence to have invoked the said power, in view of the clear stipulation under the ‘2nd proviso’ to Section 133(6), to the effect that, in a case where no proceeding was pending, the power could have been invoked only with ‘prior approval’ of the Director or Commissioner as the case may be, simultaneously contending that no such prior permission was obtained, to have issued the notice. After detailed examination of the facts and figures, it was held by this Court (as per the judgment delivered by me in Chala Service Co-operative Bank Ltd. v. ITO [2010 (1) KLT S.N. 77, Case No.92]) that, the term “any person” included a Co-operative Bank as well. After meeting all the contentions, interference was declined and the writ petitions were dismissed.

5. Thereafter, the matter came to be considered by a Division Bench of this Court in another case, wherein interference was declined and ultimately the matter reached the Apex Court. The Apex Court declined interference, clearly holding that, the power under Section 133(6) could be invoked against Co-operative Banks as well, and that there was nothing wrong, arbitrary or illegal on the part of the Department in having issued the impugned notices. Accordingly, the cases before the Apex Court were dismissed as per the decision reported in Kathiroor Service Co-operative Bank Ltd. v CIT (CIB) [2014] 360 ITR 243/220 Taxman 41/[2013] 39 taxmann.com 49. On attaining finality, by virtue of the verdict passed by the Apex Court, the respondent Department proceeded with further steps in this regard. This made the petitioners herein to challenge the notices, mainly raising challenge against the constitutional validity of the amended provisions incorporating the words ‘enquiry or’ and the 2nd proviso to Section 133(6), pointing out that, constitutional validity of the provision was never under challenge before the Apex Court and hence that the Court had no need, necessity or occasion to have considered it while passing the judgment in Kathiroor Service Co-Operative Bank Ltd. case cited supra.

6. Coming back to the case in hand, admittedly, the petitioners are engaged in the field of Banking business, accepting deposits and extending loan facilities to the members under various heads, which are essentially stated as in relation to agricultural activities. There is a contention that, the petitioner Bank is an Agricultural Credit Society for the purpose of Banking Regulation Act, 1949 and by virtue of Section ‘3’, it is excluded from the purview of Banking Regulation Act (which will be dealt with in the due course). By virtue of Section 133(6) of the Income Tax Act, 1961, the Department has power to call for information in relation to such points or matters which would be useful for, or relevant to any proceeding under the Act, from ‘any person’ including a ‘Banking Company’ or ‘any Officer’ thereon. Later, an amendment was introduced as per the Finance Act, 1995 whereby, the words “enquiry or” were inserted before the word “proceeding” in Section 133(6), also adding the ‘2nd proviso’ to the said provision, with effect from 1.7.1995. The effect of the said amendment is that, the power to call for information under the unamended Act, which was confined only in relation to a ‘pending proceeding’ came to be widened, and even in a case where no proceeding was pending, such information could be called for as part of the enquiry, subject to the rider that, such power was not to be exercised by any income tax authority below the rank of Director or Commissioner without the prior approval of the Director or the Commissioner, as the case may be. The said amendment was brought about as a measure to tackle tax evasion effectively, as clarified by the Central Board of Direct Taxes (CBDT) vide Circular No. 717 dated 14.8.1995.

7. The main contention is that, it intrudes into ‘privacy’ of the members of the petitioner Banks and that the right of privacy is an integral part of Article 21 of the Constitution of India, which in turn is violated. The rights and interest of the petitioners to conduct free trade/business as guaranteed under Article 19(1)(g) are also stated as infringed. Unbridled power/discretion is vested with the authorities of the Income Tax Department and that the contents of the notice clearly reveal that, it has no nexus at all, with the object to be achieved under the Act, as no tax liability could be mulcted upon a person having a deposit of Rs.5 lakhs or in respect of a person to whom interest has been paid to an extent of Rs.10,000/-. This in turn, is cited as a clear instance of arbitrariness and patent violation of Article 14 of the Constitution of India.

8. Learned Senior Counsel for the petitioners submits that, the State cannot have any unrestricted access to seek information about the financial records maintained by the petitioner Banks without any reliable basis to seek such information. Though the right of privacy has not been explicitly incorporated in the Constitution or by way of any specific legislation, it has now been incorporated as part of Article 21, through various judicial precedents, including Govind v. State of Madhya Pradesh [1975] 2 SCC 148, MR.X v. Hospital ‘Z’. [1998] 8 SCC 296 and People Union for Civil Libertyv. Union of India [2003] 4 SCC 399. Thus, it is contended that, right to privacy is an integral part of fundamental rights guaranteed under part III of the Constitution of India and as such, the attempt made by the concerned respondent is liable to be intercepted by this Court.

9. Reliance is also sought to be placed on the decision rendered by the Apex Court in Ram Jethmalani v. Union of India [2011] 339 ITR 107/200 Taxman 171/12 taxmann.com 27 pointing out that the fundamental right to privacy cannot be subverted in the attempt to tackle the menace of curbing the problem of black money, which is cited as the motive for the drive. Reference is also made to the observation of the Apex Court in Ram Jethmalani’s case (supra) to the effect that, solution for the problem of abrogation of one zone of constitutional values, cannot be the creation of another zone of abrogation of other constitutional values.

10. Referring to the observation of the Apex Court in Sudheerchandra Sarkar v. Tata Iron & Steel Co. Ltd. [1984] 3 SCC 369 holding that, absolute discretion, uncontrolled by guidelines may permit denial of equality before law, which is anti-thesis of rule of law, the learned counsel points out that, there is absolutely no mechanism, as provided under the statute, to examine whether the wide discretion granted is exercised correctly or not. In the absence of any guidelines or criteria for the exercise of powers, the impugned provisions suffer from the wise of arbitrariness, is the crux of the contention. Various other decisions are also cited across the Bar, including the one rendered by the Apex Court in Maneka Gandhi v. Union of India [1978] 1 SCC 248 which will be dealt with later.

11. The concept of co-operative movement and setting up of Co-operative Societies/Bank play a very important role in providing credit and financial assistance to the marginal section including farmers. It is by virtue of the very nature of operations and object to be achieved, that the petitioners have been kept outside the purview of the Banking Regulation Act, 1949. It is also pointed out that, their activities are governed by the provisions of Kerala Co-operative Societies Act/Rules, which are the ‘special statutes’ as far as they are concerned, and it separately provides detailed procedure for incorporation, registration, functioning, control and regulation with proper power of superintendence by the concerned authorities, including the power of audit of accounts, besides the power for enquiry and inspection under Section 66A by the Vigilance Officer. When various measures are being taken by the Central/State Government, also in the light of the approval/recommendations by the Reserve Bank of India/NABARD to strengthen the Co-operative sector, the steps being pursued by the respondent Department on the other hand, virtually contribute to undermine the same; as furnishing of details of deposit to third parties will clearly violate the commercial secrecy that exists between the Bank/financial institution and its customer. While admitting in Ground ‘T’ of the writ petition that, even though Banks and other financial institutions can be required to share information regarding deposits, it is stated that the same can be done only when the concerned authority shows some reason for suspicion or material based on which they are seeking information.

12. Since Section 133(6) of the Income Tax Act expressly uses the words “for the purpose of this Act..” in the opening paragraph, it is contented that the same must relate to a specific tax payer/assessee; otherwise, it would not serve any purpose and as such, the impugned notices are arbitrary and illegal having no nexus to the scope and object of the Income Tax Act, 1961.

13. The averments and allegations raised by the petitioners have been rebutted by the 1st respondent by filing a detailed counter affidavit. It is pointed out that, there is absolutely no basis for the challenge raised by the petitioners against validity of the provision. With reference to the challenge against the impugned notice, it is stated that the matter has become final, by virtue of the law declared by the Apex Court in Kathiroor Service Co. Operative Bank Ltd. case (supra). It is also pointed out that the version of the petitioners that they are not governed by the Banking Regulation Act is not at all correct, and that the position has undergone a substantial change after the amendment brought about in the statute, whereby Co-operative Banks/Co-operative Societies have also been included as coming within the purview of the Banking Regulation Act. As per Section ‘5A’ of the Banking Regulation Act and the ‘non-obstante clause’ therein, the provisions of the Banking Regulation Act override the provisions of the Bye-laws, Agreements etc. of the Co-operative Societies. Reference is made to various other provisions (amending provisions/amended provisions) as well, including sub-section (2) of section 22 of the Banking Regulation Act, whereby it is stipulated that all Co-operative Societies carrying out Banking business have to apply and procure a licence from the Reserve Bank of India as well, within three months of the commencement of the Banking business. It is also stated that addition of the words “enquiry or” and the ‘second proviso’ as per the amendment brought about by the Finance Act, 1995 is only incidental to the main provision (which is not under challenge) adding that, the powers under Section 133(6) are in the nature of survey and general enquiry, to identify persons who are likely to have taxable income and to ascertain whether there is compliance by them with regard to payment of tax.

14. With reference to the plea of arbitrariness/alleged harassment, it is stated in paragraph ‘9’ of the counter affidavit that notice to the Co-operative Societies/Banks in Kerala, calling for information under Section 133(6) was issued to implement a ‘project’ conceived and approved by the Honourable Minister for Finance, to be executed by the Officers of the ‘CBDT’ – the apex body of tax administration in the country, under the Ministry of Finance, Department of Revenue. As a matter of fact, the project was initiated in the Country on 17.6.2013; but it could not be initiated in the State, because of intervention of the Court, which came to be cleared only on 27.8.2013, i.e., on finalization of the issue as per the decision rendered by the Apex Court in Kathiroor Service Co.-operative Bank Ltd. case (supra). It is also pointed out that, there is absolutely no basis for the apprehension expressed from the part of the petitioners with regard to the steps to be conducted to furnish the data in the prescribed form, as the Department, even as per their 1st notice under Section 133(6) issued to the petitioner on 06.09.2013, had conveyed the undertaking to assist the petitioner Co-operative Societies/Banks, also giving the telephone number of the officer concerned, to be contacted, in case any difficulty was experienced; besides undertaking that, the Department was ready to depute the Inspector of Income Tax to the Banks/Societies to render necessary assistance to enable the Banks to comply with the terms of notices issued under Section 133(6) of the Act, a copy of which has been produced as Ext.R4 (A). It is further pointed out that, as many as 44 seminars/awareness campaigns were organized by the Department in various Districts in Kerala, for Co-operative Societies/Banks, to educate and equip them to comply with the statutory notices issued in this regard, thus asserting that, there was no threat at all from the part of the respondents as alleged by the petitioners. It is stated that, by virtue of the stipulation under the ‘2nd proviso’ to Section 133(6) of the Act, prior approval of the Director/Commissioner is necessary while seeking for information when no proceeding is pending and as such, there is an in-built mechanism/control with regard to the use of power. The objective is to get information for curbing the menace of black money and to stabilize the economic base of the country.

15. Mr. P.K.R Menon, learned Senior Counsel for the respondents submits with reference to the pleadings on record that, the attempt of the petitioners is only to capitalize the passing remarks made by the Apex Court in different decisions rendered at different points of time, dealing with the particular/ different set of facts and circumstances, which cannot have any application to the challenge raised by the petitioners with reference to the constitutional validity of the provisions. More so, when the scope of power and authority of the Department in having issued notice under Section 133(6) stands answered in favour of the Revenue, as per the Kathiroor Service Co.-Operative Bank Ltd case (supra). It is also pointed out that, there is absolutely no basis for the contention raised by the petitioners that there is no procedure under the scheme to gather information under Section 133(6) of the Income Tax Act, 1961.

16. The information required to be furnished by the petitioners/Co-operative Banks as per the impugned notices issued by the respondent Department, invoking the power under Section 133(6) of the Income Tax Act, 1961 is to the following effect:

17. As mentioned already, the said information was sought to be collected by the Department to implement the project conceived and approved by the Minister for Finance, to be executed by the officers of the CBDT (Central Board of Direct Taxes)- apex body of the tax administration under the Ministry of Finance, for curbing the menace of black money. The challenge raised from the part of the petitioners and other similarly situated persons stating that they stand on a different footin, being governed by the relevant provisions of the Kerala Co-operative Societies Act and Rules; that they do not come within the purview of the term “any person” contemplated under Section 133(6) of the Income Tax Act; that the power under Section 133(6) cannot be invoked in the absence of any pending proceedings ; that there was no prior approval/sanction of the Director/Commissioner, as the case may be ( in cases where no proceeding is pending); the scope of calling for such information as beyond the competence of power and jurisdiction of the authorities of the Department etc., no more remain res integra (except the question of constitutional validity of the provisions) by virtue of the law declared by the Apex Court , affirming the decision rendered by this Court, in Kathiroor Service Co-operative Bank Ltd. (supra) .

The observation made by the Apex Court in paragraph 17 of the said judgment is relevant in the context of the plea set up by the petitioners referring to the alleged fishing/roving enquiry, which reads as follows:

“The legislative intention was to give wide powers to the officers, of course with the permission of the CIT or the Director of Investigation to gather general particulars in the nature of survey and store those details in the compute so that the data so collected can be made use of for checking evasion of tax effectively. The assessing authorities are now empowered to issue such notice calling for general information for the purpose of any enquiry in both cases: (a) where a proceeding is pending and (b) where proceedings is not pending against the assessee. However, in the latter case, the assessing authority must obtain the prior approval of the Director or the Commissioner, as the case may be before issuance of such notice. The word “enquiry” would thus connote a request for information or questions to gather information either before the initiation of proceedings or during the pendency of proceedings; such information being useful for or relevant to the proceedings under the Act.”

From the above, it is very clear that the enquiry, invoking the power under Section 133 (6) of the Act, is in the form of a survey, calling for general information to prepare and maintain sufficient data-base, to be cross checked with further data to be collected in the due course, if any incriminating circumstance is noted and to provide measures to check tax evasion.

18. Coming to the constitutional validity of the provision, it is to be noted at the very outset, that the petitioners have not chosen to challenge the entire provision, i.e. Section 133(6). The grievance is only with regard to incorporation of the words “enquiry or”(preceding the word “proceedings’) and also the ‘second proviso’, by way of amendment as per the Finance Act, 1995.

19. The prayers raised by the petitioner in W.P(C)10334 of 2014 are extracted for convenience of reference:

20. The provision for calling for information in a ‘pending proceedings’ was very much there in the Statute even before 1995 and the said power/authority is not under challenge in this writ petition. The inadequacy of the provisions, to meet the need of the hour, was felt by the law makers in the year 1995. It was felt necessary to obtain data by way of enquiry, though no proceeding was pending, so as to take remedial measures to curb the menace of black money and to prevent tax evasion. Even otherwise, if at all effective steps have to be taken against any individual/establishment, collection of preliminary data is very much essential, without which no proceedings can be pursued, as made clear by the Apex Court on many an occasion. Data collection is an elementary step/course to be completed before proceeding against anybody and such a step will be necessitated only in the case of a person who is not prepared to abide by the provisions of law.

21. The contention of the petitioners that there is absolutely no insinuation against the petitioners to have proceeded against, is not at all relevant, nor is there any significance in this regard. For the time being, it is true that there is no insinuation against the petitioners to the effect that they are accepting clandestine deposits involving black money or that they are effecting payment of interest enabling the petitioners to enjoy the same without meeting the tax burden. The attempt of the Department is to see whether any undue benefit is being enjoyed by any of the depositors without meeting the tax obligation and it is in the said context, that necessary data has been decided to be collected.

22. The version of the petitioners, that the information sought to be collected ( i.e. particulars of deposits of Rs. 5 lakhs or more in the years 2010-11, 2011-12 and 2012-13 or payment of interest exceeding Rs.10000/- to the fixed deposits ) will not attract any tax liability and as such, there is no purpose or nexus with the object of the Act, is rather puerile. This is for the reason that the petitioners’ society may not be aware of the transactions being pursued by the members/depositors, who may be having similar deposits in some or other Scheduled Banks or Co-operative Banks. If such a depositor is having similar deposits and is drawing interest from other Banks/Co-operative Banks, still not satisfying tax on the total receipt of income/interest, is a person to be proceeded against, in terms of the relevant provisions of law. Unless the requisite data is collected from different Banks/institutions, it may not be possible for the respondent/Department to create sufficient data- base to be cross checked, whenever they get sufficient material/information as to the instance of tax evasion. Viewed in the above perspective, there cannot be any genuine heart burn for the petitioners in furnishing the data as required by the respondents and it cannot cause any prejudice in this regard. Their apprehension that there is a chance for withdrawal of deposits by depositors, draining out the financial base of the Society/Bank, is also devoid of any merit, for the reason that data is being collected by the respondent Banks as part of implementation of the project from all the available sources and no Co-operative Bank is exempted or spared in this attempt.

23. Yet another contention raised by the petitioners is that, for meeting the requirement, the petitioners may have to deploy several employees to furnish the information, virtually for no return, and thus incurring huge expenses. This Court is not much impressed with the above contention, for the reason that the petitioners being establishments doing banking business, are supposed to maintain all the relevant records and there is a ‘public duty’ cast upon them as well, to see that they are not made instrumental by any unscrupulous individual, who wants to pursue tax evasion, undermining the economic backbone of the country. The plea with regard to hardship in this regard had already come up for consideration before the Apex Court in Sardar Baldeo v. CIT AIR 1961 SC 736, wherein it has been categorically held that in the case of any enactment preventing evasion of tax, consideration of hardships is irrelevant for deciding the questions of legislative competence.

24. With regard to the contention of the petitioners that there is no nexus for the information to be furnished as per the impugned notices, with the purpose sought to be achieved, the observation made by a Division Bench of this Court in M.V. Rajendran v. ITO [2003] 260 ITR 442 is very relevant and hence extracted below:

“The Society by itself cannot have any grievance against the notice because the notice does not contemplate any action against the society.. Since, it is a settled position that, authority empowered to do a thing will have auxiliary and necessary power to achieve the objective, none can have a doubt that the Income Tax authority whose duty it is to trace tax evaders and to bring them to book and compel them to pay tax can ask for details on deposit. Therefore, a survey or investigation conducted to trace black money is absolutely within the powers of the income-tax authorities and co-operative societies or banks cannot claim any immunity for hoarding black money. Even though not specifically conceded by the petitioners , their case is that unless societies enjoy immunity from section 133(6) proceedings and information on deposits and depositors is kept out of reach of the Income-tax Department, they will not get deposits, or the existing depositors will withdraw the deposits leading to liquidity problem for them. I do not think this is a ground to resist a notice under section 133(6). If co-operative banks and co-operative societies are allowed to maintain deposits beyond the scrutiny of the Income-tax Department, then the societies will become safe havens for hoarding black-money in the country which is opposed to public policy. Besides this, the statutory authority vested with the responsibility to levy tax on income will be prevented from achieving their objective and that will defeat the very purpose of the Income Tax Act.”

25. It is contended by the petitioners that ‘nexus’ is not revealed from the impugned notices and that there cannot be any tax liability in respect of an instance as specified in the notice. But, it is not for the petitioners/Banks to contend that the respondent Department should satisfy the petitioners as to the requirement in respect of the taxable event. Section 133(6) does not cast any such obligation, to have the information extracted from the petitioners. On the other hand, it casts an obligation on the part of the petitioners to furnish information sought for, in tune with the requirement of Section 133(6). Even otherwise, the petitioners cannot dictate terms to the Income Tax Department to satisfy them first, whether there is a taxable event, if the information sought for is furnished. Further, there is no basis for the plea set up in paragraph 12 of the writ petition with reference to the total figure of Rs. 5 lakhs, to be divided by ‘three’ years and to contend that it will not attract any tax liability. The position has been clarified by the respondents in paragraph ‘8’ of the counter affidavit, that the threshold limit of Rs.5 lakhs has been fixed for each financial year and not for the three financial years added together.

26. What should be the extent of enquiry to be conducted, fixing an appropriate ceiling, is a matter for the IT Department to consider, taking note of the factual scenario in the field of tax evasion. It could be said that, fixation of ceiling as Rs. 5 lakhs (in the case of deposits) and Rs.10000/- (as interest being paid) while seeking for the particulars in this regard, is as a measure at the first step. After getting particulars in this regard and preparing the database, it is still open for the Income Tax Department to seek for further information to widen the net and to prevent the possible pilferage, if any, reducing the base/ceiling to such appropriate extent. The question to be considered is, whether such exercise being pursued by the Department is having the support of law or not, which cannot but be answered in the positive. It is for the Department to work out the strategy, device the tools and measures and to achieve the goal in a phased manner, which cannot be deprecated by this Court.

27. With regard to the alleged infringement of ‘right to privacy’, the petitioners place much reliance on the observations made by the Apex Court in Ram Jethmalani (supra). The following are the extracts sought to be relied on by the petitioners:

“We understand and appreciate the fact that the situation with respect to unaccounted for monies is extremely grave. Nevertheless, as constitutional adjudicators we always have to be mindful of preserving the sanctity of constitutional values and hasty steps that derogate from fundamental rights, whether urged by Governments or private citizens, howsoever well meaning they may be, have to be necessarily very carefully scrutinised. The solution for the problem of abrogation of one zone of constitutional values cannot be the creation of another zone or abrogation of constitutional values.

The revelation of details of bank accounts of individuals, without establishment of prima facie grounds to accuse them of wrongdoing, would be a violation of their rights to privacy. Details of bank accounts can be used by those who want to harass, or otherwise cause damage, to individuals. We cannot remain blind to such possibilities, and indeed experience reveals that public dissemination of banking details, or availability to unauthorised persons, has led to abuse. The mere fact that a citizen has a bank account in a bank located in a particular jurisdiction cannot be a ground for revelation of details of his or her account that the State has acquired. Innocent citizens, including those actively working towards the betterment of the society and the nation, could fall prey to the machinations of those who might wish to damage the prospects of smooth functioning of society. Whether the State itself can access details of citizens’ bank accounts is a separate matter. However, the State cannot compel citizens to reveal, or itself reveal details of their bank accounts to the public at large, either to receive benefits from the State or to facilitate investigations, and prosecutions of such individuals unless the State itself has, through properly conducted investigations, within the four corners of constitutional permissibility, been able to establish prima facie grounds to accuse the individuals of wrongdoing.

It is only after the State has been able to arrive at a prima facie conclusion of wrongdoing, based on material evidence, would the right of others in the nation to be informed enter the picture.”

28. It was a case where, investigation was sought to be made with regard to the unaccounted wealth acquired through unlawful activities by the concerned persons in violation of national/international laws. The Apex Court concurred with the formation of a ‘High Level Committee’ to act as a Special Investigation Team under the Chairmanship of an Hon’ble Judge of the Supreme Court and gave specific directions as to the course to be pursued. The portion extracted by the petitioners itself reveals that the Apex Court was considering the request to reveal/divulge the particulars of the persons/individuals and details of their bank account to the public, at large. The necessity to collect necessary materials by the State through properly conducted investigations, to establish prima facie grounds, to accuse the individuals of the wrongdoing was highlighted. This is revealed from the observation : “only after the State has been able to arrive at a prima facie conclusion of wrongdoing, based on material evidence, would the right of others in the nation to be informed, enter the picture.”

29. Coming to the case in hand, it is only the first stage of the action that is being pursued by the respondent Department, i.e., as to the collection of data/material, before anybody is indicted. In so far as the said power is exercised to identify the culprits if any, it need not cause any headache to the petitioners. That apart, the information being collected by the Income Tax Department cannot be made use of by them, for any other purpose and the statute itself takes care of such situation, by virtue of the mandate under Section 138 of the Income Tax Act.

The said provision reads as follows:

“S.138.[(1)(a) The Board or any other income-tax authority specified by it by a general or special order in this behalf may furnish or cause to be furnished to—

(b) Where a person makes an application to the Chief Commissioner or Commissioner in the prescribed form for any information relating to any assessee received or obtained by any income-tax authority in the performance of his functions under this Act, the Chief Commissioner or Commissioner may, if he is satisfied that it is in the public interest so to do, furnish or cause to be furnished the information asked for and his decision in this behalf shall be final and shall not be called in question in any court of law.

(2) Notwithstanding anything contained in sub-section (1) or any other law for the time being in force, the Central Government may, having regard to the practices and usages customary or any other relevant factors, by order notified in the Official Gazette, direct that no information or document shall be furnished or produced by a public servant in respect of such matters relating to such class of assessees or except to such authorities as may be specified in the order.”

30. With regard to the contention of the petitioners that there is absolutely no mechanism in the Statute, nor is there any guideline to govern the proceedings for invoking the power under Section 133(6), it is to be noted that the law makers were vigilant enough to ensure that the power is not misused under any circumstance. It was accordingly stipulated that, if no proceeding was pending, the power shall not be exercised by any assessing officer not below the rank of Director/Commissioner unless prior approval of the Director/Commissioner, as the case may be, was obtained. This, of course, acts as a check measure, to provide transparency in the proceedings. It involves various steps for getting ‘prior approval’ of the Director/Commissioner. The file has to move through different levels, till it reaches the approving authority, who has to be told of the situation under which circumstance, the enquiry is necessitated. After applying the mind, appropriate orders are to be passed by the said authority and if approval is granted, there is a further downward communication, causing the file to be taken through the same levels to reach it back, enabling the concerned officer to proceed with the enquiry. This ensures proper invocation of the power to see that nobody invokes the power based on his own whims and fancies and this acts as an inbuilt mechanism/guideline. Further, procedure in this regard is stipulated as per various notifications/Circulars issued by the competent authority, copies of which have been produced as Exts.R4 (C), (D) and (E). As it stands so, the challenge raised against the constitutional validity for the alleged absence of guidelines, is not liable to be entertained.

31. The case set up/moulded by the petitioners as above, with reference to the unbridled discretion stated as objectionable by the Apex Court as per the decision in State of Punjab v. Khan Chand[1974] 1 SCC 549, is also of no avail for the reason stated above. The decision in Maneka Gandhi case (supra) holding that the ‘Triple test’ stipulated therein (that it must prescribe a procedure; that the procedure must withstand the test of one or more fundamental rights under Article 19, which may be applicable in a given situation and it must also be liable to be tested with reference to Article 14) with reference to infringement of personal liberty does not come to the rescue of the petitioners. In Maneka Gandhi’s case (supra), the denial of issuance of passport to the petitioner therein was deprecated, highlighting the golden rule of personal liberty. But at the same time, the enabling provision, to have the passport impounded, was not intercepted by the Court.

32. 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.

33. The petitioners have no dispute with regard to the legislative competence of the Parliament. The dispute is only with regard to the alleged intrusion into the right to privacy. Petitioners have attempted to equate the right to privacy with right to life guaranteed under the Constitution of India and have sought to picturize the same as part of fundamental right, contending that there is violation of Article 19(1)(g). Article 19(1)(g) of the Constitution of India stipulates that all citizens shall have the right to practise any profession or to carry on any occupation, trade or business. In what way the impugned notice issued by the respondent Dept. violates the fundamental right of the petitioners to conduct business/trade is not discernible; more so when the provision of law is applicable not only to the petitioners herein, but also to all other banking/non-banking financial institutions having a bearing on the tax liability of the depositors. That apart, in the words of the Honourable Supreme Court as per the decision in Govind (supra), even assuming that the right to privacy is itself a fundamental right, such fundamental right must be subject to restriction, on the basis of compelling ‘public interest’. There is no prohibition on the State in gathering information for preventing tax evasion and curb black money. The petitioners cannot field the wrongdoers, if any, and unless necessary information is furnished, the data collection will become impossible and no proceedings can be pursued against wrongdoers to guard economy of the country.

34. A Constitution Bench of the Apex Court has held in Vivian Joseph Ferreira v. Municipal Corp. of Greater Bombay [1972] 1 SCC 70 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] 4 SCC 675, 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. CIT AIR 1965 SC 1862, 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.

35. In testing the validity of a statute, particularly fiscal statute, the Court has to maintain more self- restraint, as held in Government of Andhra Pradesh v. Laxmi Devi [2008] 4 SCC 720. 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, as discussed already.

36. The further contention of the petitioners that conferring of absolute powers on the officers of the Government is rather arbitrary, is not correct as such. With reference to the provisions of the KGST Act, particularly Section 29A, a Division Bench of this Court in P.K. Aboobacker v. State of Kerala [1979] 44 STC 250 has held that a mere possibility of abuse by the official on whom power is conferred is not a ground to strike down the statutory provision.

37. 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 CCT v. R.S. Jhavar [1967] 20 STC 453. 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.

Miraj D. Shah, AR for the Appellant. Pinaki Mukherjee, JCIT (DR) for the Respondent.

ORDER

M. Balaganesh, Accountant Member – This appeal of the assessee arises out of the order of the Learned CITA in Appeal No. 306/CIT(A)-XXXVI/Kol/Cir.- 2. Hgl./11-12 dated 3.10.2012 against the order of assessment framed for the Asst Year 2009-10 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

2. The only issue to be decided in this appeal is as to whether the assessee is entitled for claiming exemption u/s 11 of the Act in the facts and circumstances of the case.

3. The brief facts of this issue are that the assessee is a society registered under the West Bengal Societies Act and is also registered u/s 12A of the Act with effect from 1.4.2003. Registration u/s 12AA of the Act was also granted on the application of the assessee vide order of the DIT (Exemptions ) Kolkata dated 7.10.2009 with retrospective effect from 1.4.2009 for various public charitable purposes as enumerated in the Memorandum and By-Laws of the Society. The assessee society is running St.Joseph’s Convent School, St. Anthony High School, St. Anthony Primary School, Nanette Nursery School, St.Mary’s Social Service Centre and St.Joseph’s Dispensary. The Learned AO during the course of assessment proceedings found that a sum of Rs. 6,76,132/- was received by the assessee society as donation from Society of St. Joseph of Cluny, Kolkata for building construction at Kanchrapara and the assessee society gave donation of Rs. 18,30,000/- to the said Society of St. Joseph of Cluny, Kolkata.

The Learned AO observed that the assessee had contravened the provisions of section 13(1)(c ) of the Act and accordingly brought the Excess of Income over Expenditure amounting to Rs. 77,39,624/- to tax. He also disallowed the donation paid by the assessee society to another society (St.Joseph of Cluny, Kolkata) in the sum of Rs. 18,30,000/- and determined the total income at Rs. 95,69,620/- and taxed the same at maximum marginal rate.

4. On first appeal, the Learned CITA held that donations made by the assessee trust to another registered trust is a transaction falling under the ambit of section 13(3)(b) of the Act. He held that according to section 13(3)(b) of the Act, any person who has made a substantial contribution to the trust or institution exceeding Rs 50,000/- in any previous year, would be treated as interested persons. Accordingly he also held that the assessee had violated the provisions of section 13(1)(c ) (ii) of the Act and upheld the order of the Learned AO in denying exemption u/s 11 of the Act on the entire surplus of the assessee and disallowing the donation paid of Rs. 18,30,000/- to another trust. Aggrieved, the assessee is in appeal before us on the following grounds :—

5. We have heard the rival submissions and perused the materials available on record. We find that the assessee trust is a registered charitable trust enjoying registration u/s 12AA of the Act. It is not in dispute that the objects of the trust are charitable in nature. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. The following issues are to be adjudicated in this appeal :—

5.1. First, the donation given by one trust to another trust is to be construed only as an application of income. The Charitable trust is constituted for charitable purposes with a philanthropic mind to give donation. The payment made for benevolent cause is always a charity. Inter-charity donation given will be treated as income applied for charitable or religious purposes and application within the meaning of section 11(1)(a) of the Act. In this regard, it would be relevant to get into the amendments in the provisions of section 11 of the Act by Finance Act 2002 and 2003 as below. The Finance Act 2002 has inserted an Explanation to sub-section (2) of section 11. This Explanation prohibits donations to other charitable organizations out of the accumulated funds. The new amendment puts restriction on donations to other charities only out of accumulated funds. In other words, funds once accumulated under section 11(2) of the Act can only be applied for charitable purposes directly by the concerned organization and any inter- organisational transfer would not be possible.

5.1.1. The Finance Act 2003 has inserted another proviso to sub-section (3A) of section 11 which provides that inter-charity donation out of accumulated funds will be permissible in case of dissolution of a charitable organization. This amendment has been made to reduce the hardship of charitable organizations on the brink of dissolution.

5.1.2. There is no apparent bar on payment or credit to such other organizations out of previous year’s income subject to the provisions of section 11(1) of the Act. In this regard, it would be pertinent to refer to the clarificatory Circular No. 8 dated 27.8.2002 issued by the CBDT. The relevant operative portion of the said circular is reproduced hereinbelow:—

“21. Restriction on the application of accumulated income of the charitable or religious trusts.

21.1 Through Finance Act, 2002, an Explanation has been inserted below sub-section (2) of section 11 so as to provide that any amount paid or credited out of income from property held under trust referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, either during the period of accumulation or thereafter, shall not be treated as application of income for charitable or religious purposes. Thus, payment to other trusts and institutions out of income from property held under trust in the year of receipt will continue to be treated as application of income. However, any such payment out of the accumulated income shall not be treated as application of income and will be taxed accordingly.

21.2 Through Finance Act, 2002, a new clause (d) has also been inserted in sub- section (3) of section 11 so as to provide that if any income referred to in sub-section (2) of the said section, is paid or credited to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub- clause (iv) or (v) or (vi) or (via) of clause (23C) of section 10, such payment or credit shall be deemed to be the income of the person making such payment or credit, of the previous year in which such payment or credit is made.

21.3 A proviso in sub-section (3A) has also been inserted so as to provide that the Assessing Officer shall not allow application of accumulated income by way of payment or credit made for the purposes referred to in clause (d)of sub-section (3) of section 11. This takes away the discretion of the Assessing Officer provided in sub- section (3A) to allow the trusts to apply the accumulated income for payment or credit to other charitable or religious trusts and institutions.”

From the above, it could be safely concluded that the donation by one trust to another trust out of current year’s income is very much permissible as per section 11 of the Act. The following decisions also support the proposition laid down herein:-

(a) Decision of the Hon’ble Calcutta High Court in the case of CIT v. Hindustan Charity Trust [1983] 139 ITR 913  wherein it was held that :-

Donation having been made to another trust under belief that donee was charitable trust and the Tribunal found the donee trust to be charitable , assessee was entitled to exemption under section 4(3)(i) of the Income Tax Act, 1922.

(b) Decision of the Hon’ble Bombay High Court in the case of CIT v. Trustees of the Jadi Trust [1982] 133 ITR 494:—

“The Bombay High Court in this case made the following pertinent observations on the scope of s 11 of the Act with regard to inter-charity Donations:

So far as the provisions of s. 11 of the Act which was in force at the material time is concerned, we do not think that the legal positions is in any way different. As already pointed out when a trust which holds Property for charitable or religious purposes hands over a donation to another trust which is also a trust made for the application of its funds for charitable or religious purposes there can hardly be any doubt that it would amount to an application of income for charitable or religious purposes by the donor trust. As already pointed out it would be permissible for a trust either to directly apply the income for charitable purposes or to a charitable work in the field as put by Slade J., or the same funds or income could be utilised through the medium of another charitable institution which applies its funds or income to charitable purposes. The Tribunal is, in our view, right in holding that the assessee was entitled to relief under s. 11 (1) (a) of the I.T. Act, but the propriety of the direction given by the Tribunal need not be dealt with in this reference.”

(c) Decision of the Hon’ble Gujarat High Court in the case of CIT v. Sarladevi Sarabhai Trust No. 2 [1988] 172 ITR 698:—

“In this case, question came up if the payment made by donation is an application. The court held it as application. The observation of the court is as follows:

“‘The word ‘applied’ is not defined by the Act. The dictionary meaning of the term ‘apply’ as given in Chambers 20th Century Dictionary, amongst others is ‘to put to use.”

In this context, court held that where the assessee trust had donated the amount to the donee trust towards corpus is an application of income.”

5.2. Now we proceed to answer the second question raised hereinabove by us. For the sake of convenience, the provisions of section 13(1)(c ) (ii) are reproduced hereunder:—

“13(1) – Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof –

(a) — — — — –

(b) — — — — –

(c) In the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof-

(i) — — — –

(ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3 ).”

For the sake of convenience, the provisions of section 13(3) are reproduced hereunder:—

“13(3) – The persons referred to in clause (c ) of sub-section (1) and sub-section (2) are the following, namely :-

We find that the provisions of section 13(3)(b) of the Act refers to payment made by the assessee trust to any person who has contributed more than Rs 50,000/- (i.e substantial contribution) to the assessee trust. It does not refer to payment made by one trust exceeding Rs. 50,000/- to another registered charitable trust . In fact the payment made by one trust to another trust as donation does not fall in any of the categories mentioned in section 13(3) supra. We find that it only refers to payment made to any individuals or their relatives or to any concern in which they have substantial interest. Admittedly, the donee trust is a registered public charitable trust and there is no question of any individual holding substantial interest in the said trust. Hence the case does not fall in clause (e) of section 13(3) of the Act also.

We hold that when the donation given by one trust to another trust out of current year’s income is permitted in section 11 of the Act as an application of income, the same cannot be curtailed by another provision of the Act (i.e section 13(1)(c ) (ii) read with section 13(3) of the Act) as it would defeat the very purpose of such provision. It is not the case of the revenue that the funds of the trust have been applied /diverted for the private benefit of the trustees, settlors or any individuals /relatives. This is what is the true intention of section 13(1)(c ) of the Act. In the instant case, it is a case of simple donation by one public charitable trust to another public charitable trust, wherein no individual could hold any substantial interest. In view of the above findings, we hold that the payment of donation by assessee trust to another registered public charitable trust is not in violation of section 13(1)(c) of the Act as the said payment is not made for the benefit of any person either directly or indirectly referred to in section 13(3) of the Act.

5.3 The Learned AR argued that even assuming without conceding, that the donation paid by assessee trust to another trust is to be treated as violation of provisions of section 13(1)(c ) of the Act, he argued that still the income could be taxed at maximum marginal rate only to the extent of violation of section 13(1)(c ) as admittedly the said section in 13(1)(c )(ii) uses the expression ‘if any part of such income’ . According to him, the entire surplus cannot be brought to tax in any event. In support of this argument, he placed reliance on various judgments and circular no. 387 dt 6.7.1984. We find that the third question raised by us hereinabove need not be answered in view of our decision for second question wherein, we have held that there is no violation of provisions of section 13(1)(c ) of the Act in the facts of the instant case. Hence we refrain to give our opinion /findings for the third question raised hereinabove. Accordingly, the grounds raised by the assessee are allowed.

6. In the result, the appeal of the assessee is allowed.