Power to call for general information u/s 133(6)

POWER TO CALL FOR GENERAL INFORMATION U/S 133(6) OF THE INCOME TAX ACT 1961- A STUDY

INTRODUCTION:

The Hon’ Supreme Court of India, in August 2013, pronounced its judgment in Kathiroor Service Cooperative Bank Ltd & Others V Commissioner of Income Tax (CIB) & ( SLP(c) No : 21114 of 2011) dated 27-08-2013( Hereinafter referred to as the “Kathiroor case”). Does the Income tax authorities have the power  to carry out general and roving inquiries under sec 133(6) of the Income Tax Act (Here in after referred to as ‘Act’) even if no inquiry or proceeding is pending under the Act?  The Hon court in the above decision has firmly affirmed their power to do so. We all know very well that power corrupts and absolute power corrupts absolutely. With due respect to the Hon’ Court and the Hon’ Judges who decided the case, it is submitted that the said decision requires reconsideration since the court stated the law rather widely. The judgment has got far reaching consequences in so far as it enables possession of unbridled powers by the authorities. Let us discuss the issues in detail to find out whether there is a need for review of the decision in Kathiroor case.

FACTS  OF THE KATHIROOR CASE:

The detailed facts relevant for the case is set out in para 4 of the judgment referred above and may be referred to. The facts in brief are discussed here.

The assessee in the case is a service co-operative rural bank. A notice was issued under section 133(6) by ITO (CIB) calling for information relating to cash transactions above Rs 1 lakh in any account including time deposits. The assessee objected to the notice on the ground that such a notice can be issued only if some proceedings are pending against it. The ITO insisted compliance on the ground that the power is available under section 133(6) in view of the decision of the Hon High court of Kerala  in M.V .Rajendran v ITO reported in 260 ITR 442 and also two other decisions of the same high court reported in 186 CTR 310 and 263 ITR 161. The ITO took the view that section 133(6) grants the department with a power to carry out a general survey calling for information. But the section clearly provides that such a power of general enquiry can be initiated only with the prior permission of the Director or CIT in case no proceedings are pending. Thus the ITO specifically drew the attention of the assessee to the fact that he issued the said notice only after getting permission from Director since there are no pending proceedings against the assessee.  He also cited the following observations of the Hon High court of Kerala in M.V.Rajendran’s case.

“If co-operative banks and cooperative 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 authorities 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.”

Thus the ITO firmly defended his action and expressed his intention to proceed with the matter with a warning about the penal and other consequences that may follow upon non-compliance with the requirements of the notice.

CHALLENGE BEFORE THE SINGLE JUDGE IN THE HIGH COURT:

The above referred notice issued by the ITO(CIB)has been challenged under Article 226 of the Constitution of India before the Hon’ble High court of Kerala in writ petition No: 9737of 2009 and the learned single judged dismissed the petition on 27.03.2009 after discussing the issue relating to the powers u/s 133(6) of the Act in Extenso  and concluded that the notice is valid . Aggrieved by the said order a writ appeal was filed before the Division bench which met with the same fate.

BEFORE THE DIVISION BENCH IN WRIT APPEAL:

The Division bench of the High court took the view that the specified authorities under section 133(6) has got all the powers to make a general or fishing inquiries. The submission that power to seek information can be exercised only when “proceedings” are pending under the Act has been rejected. According to the Hon’ble Court the question is no longer Res Integra in view of the law laid down by the Hon’ble Supreme Court in Karnataka Bank Ltd  v  Secretary Government of India and ors (2002) 255 ITR 508 (SC) ( Hereinafter referred to as the “Karnataka Bank case”) and dismissed the appeal on 24.11.2009.

MATTER GOES TO THE SUPREME COURT:

A special leave petition under Article 136 of the petition was then filed before the Hon Supreme Court which ultimately resulted in passing the order dated 27.08.2013 affirming the Division Bench decision. The Hon court also approved its own decision in Karnataka Bank case (supra)

SUBMISSIONS BEFORE THE SUPREME COURT:

The Hon Supreme court   considered the submissions made by the counsel for the appellant co-operative societies. The counsel submitted that though the supreme court in Karnataka Bank  case dealt with the powers of the authorities under section 133(6) to issue notice but did not consider the question whether they are clothed with the power to make roving or fishing enquiries. The second submission was that in Karnataka bank case the Hon court was considering the power to collect information on “area specific” or “case specific” matters and this aspect was not appreciated by the Hon Kerala High court which led to the dismissal of the writ petition.

The Hon court then referred to the submissions of the counsel for the department who did not make fresh submissions but merely supported the impugned Kerala High court decision and made the plea that the authorities can issue notice u/s 133(6) for the purpose of “Inquiry”.

THE CONTROVERSY:

Thus the real issue involved in this case is whether the authorities under section 133(6) has got the powers to make general or fishing inquiries even though no proceeding or inquiry are pending against the assessee. The Hon’ Court took the view that such a power is available as the words used in the said section are very clear and unambiguous. The word “inquiry” as appearing in section 133(6) is wide enough to take care of the kind of information that has been required to be furnished in the Kathiroor case. The court approved the settled law that notice under the section cannot be issued if no proceedings are pending but after the amendment in 1995 adding the words “inquiry or” before the word “proceeding” clothed the department with the power “to inquire”   even though no proceedings are pending. But the third proviso to section 133(6) provides for a restriction on that power and no notice can be issued without the prior permission of the Director or CIT if no proceedings are pending. The Hon court approved its own decision in Karnataka bank  case that even though no “inquiry” is pending still a notice can be issued under section 133(6).

THE PROVISIONS OF SECTION 133:

In order to understand and appreciate the controversy it is necessary to have a look at the provisions of section 133 in full and is reproduced below.

Power  to call for information.

133. The Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals) may, for the purposes of this Act,--

(1)  require any firm to furnish him with a return of the names and addresses of the partners of the firm and their respective shares;

(2)  require any Hindu undivided family to furnish him with a return of the names and addresses of the manager and the members of the family;

(3)  require any person whom he has reason to believe to be a trustee,  guardian or agent, to furnish him with a return of the names of the persons for or of whom he is trustee, guardian or agent, and of their addresses;

(4)  require any assessee to furnish a statement of the names and addresses of all persons to whom he has paid in any previous year rent, interest, commission, royalty or brokerage, or any annuity, not being any annuity taxable under the head "Salaries" amounting to more than 79 [one thousand rupees, or such higher amount as may be prescribed], together with particulars of all such payments made;

(5)  require any dealer, broker or agent or any person concerned in the management of a stock or commodity exchange to furnish a statement of the names and addresses of all persons to whom he or the exchange has paid any sum in connection with the transfer, whether by way of sale, exchange or otherwise, of assets, or on whose behalf or from whom he or the exchange has received any such sum, together with particulars of all such payments and receipts;

(6)  require any person including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the [Assessing] Officer, the [Deputy Commissioner (Appeals)] [, the [Joint Commissioner] or the Commissioner (Appeals)], giving information in relation to such points or matters as, in the opinion of the [Assessing] Officer, the [Deputy Commissioner (Appeals)] [, the [Joint Commissioner] or the Commissioner (Appeals)], will be useful for, or relevant to, any [enquiry or] proceeding under this Act:

[Provided that the powers referred to in clause (6), may also be exercised by the Director-General, the Chief Commissioner, the Director and the Commissioner:]

[Provided further that the power in respect of an inquiry, in a case where no proceeding is pending, shall not be exercised by any income-tax authority below the rank of Director or Commissioner without the prior approval of the Director or, as the case may be, the Commissioner:]

Note: The words in bold italics “inquiry or” and the second proviso providing for prior approval of director/CIT were added by the Finance Act 1995 with effect from 01-07-1995(emphasis supplied by author).

ANALYSIS OF SECTION 133:

On a close analysis of the section it is clear that it provides for the following matters.

1. The section grants only a general power to collect information for the purposes of the Income tax Act.

2. The Act authorizes named authorities to require the information from various persons listed in subsections (1) to (6) of section 133. They are Assessing officer, Deputy Commissioner (Appeals), Commissioner (Appeals) and Joint Commissioner and the authorities specified in the first proviso ((hereinafter referred to as the “authorities”).

3. The subsections (1) to (5) grants power to the authorities to require a firm, HUF, Trustee/, any assessee,  dealers/brokers/agents  to furnish information relating to matters specifically mentioned therein.

4. The subsection (6) with which we are concerned gives power to require any person including a banking company to furnish information in relation to certain points or matters or to furnish statement of accounts duly verified etc.

5. However, in order to collect the such information, the authorities should be of the opinion that the information they require are useful for or are relevant to any inquiry or proceeding under the Income Tax Act. In other words, the authorities before requiring furnishing of information from various persons specified in subsections (1) to (6) of section 133 should form a definite opinion about its usefulness or relevancy in relation to any “inquiry” or “proceeding” under the Act.

6. It may be noted that the words “inquiry or” has been inserted before the word “proceeding” by the Finance Act 1995 with effect from 1-07-1995. Now, therefore, power to collect relevant or useful information is available not only for the purpose of any proceeding but also for purposes of any “inquiry”.

IMPACT OF THE 1995 AMENDMENT:

The 1995 amendment created a magical impact and really had a telling impact on the ultimate decision of Hon apex court. Before the 1995 amendment the word “proceeding” alone was there in subsection 6 of section 133. Now the words “inquiry or” inserted vide Finance Act 1995 give company to it.

The settled legal position prior to 1995 amendment was that there was no power to call for information unless a “proceeding” is pending against the person from whom information is to be collected. It is because of the clear provision in 133(6) that the information sought by the authorities should, in their opinion, be ‘useful’ or ‘relevant to’ any “proceeding” under the Act. The word “proceeding” has been interpreted to mean existing proceeding. It is therefore very obvious that unless such a proceeding is pending the authority cannot call for any information. A future proceeding is not at all envisaged in section 133.

Therefore the section do not clothe the authorities to make a roving or fishing enquiries so as to collect information for the purpose of enabling the authorities to come to a conclusion whether to commence proceedings or not.  Where ever power to collect information is required to be exercised in connection with future proceedings it is expressly provided for.  For eg Explanation 2 to section 132 defines a “proceeding” for the purpose of section 132 to mean not only a pending proceeding but a contemplated proceeding. Similar provisions can also be found in section 131(IA) pendency of proceeding is not a condition precedent for making an inquiry. Please see decision of the Bombay High court in D.B.S Financial services (p) Ltd v Smt.M.George, Second ITO (1994) 207 ITR 1077 (Bom).

CBDT CIRCULAR ON 1995 AMENDMENT:

The Hon court heavily relied on the views expressed in the circular No 717 dated 14-08-1995 issued by the CBDT the relevant portions of which are reproduced below.

“At present the provisions of sub-section (6) of section 133 empower income-tax authorities to call for information which is useful for, or relevant to, any proceeding under the Act which means that these provisions can be invoked only in cases where the proceedings are pending and not otherwise. This acts as a limitation or a restraint on the capability of the Department to tackle evasion effectively. It is, therefore, thought necessary to have the power to gather information which after proper enquiry, will result in initiation of proceedings under the Act.

With a view to having a clear legal sanction, the existing provisions to call for information have been amended. Now the income-tax authorities have been empowered to requisition information which will be useful for or relevant to any enquiry or proceedings under the Income-tax Act in the case of any person. The Assessing Officer would, however, continue to have the power to requisition information in specific cases in respect of which any proceeding is pending as at present. However, an income-tax authority below the rank of Director or Commissioner can exercise this power in respect of an inquiry in a case where no proceeding is pending, only with the prior approval of the Director or the Commissioner.”

The author is of the opinion that the views expressed by CBDT which is italicized in bold letters is clearly erroneous since the amendment did not produce such a legal effect which will be clear to us on the basis of the discussions to follow in this article. It is also interesting to note that the very same CBDT in the above Para which is italicized by the author expressed the contradictory view that after the amendment the authorities are empowered to requisition information which will be useful or relevant to any enquiry or proceeding under the Act in the case of any person.

DISCUSSION OF THE ISSUE BY THE APEX COURT:

The Hon court stated that the issue which arises before it for discussion is the possible construction or interpretation that could be placed on section 133(6) of the Act. The court then discussed the history of the said section and noted clearly that the said section provides for power of the authorities under the Act to call for information for the purposes prescribed therein.

The court noticed that sub Section (6) of Section 133 of the Act as it stood originally, had provided for calling 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 thereof. The court approvingly took notice of the settled law that unless a proceeding is pending, the powers under Section 133(6) could not be exercised by the Assessing Authorities. According to the court it was in these circumstances that the 1995 amendment was made inserting the words “inquiry or” before the word “proceeding”.

Then the court made the following most important observations which impacted its ultimate decision.

“The addition of the word “enquiry” expanded the ambit of exercise of powers by the authorities under Section 133(6) to seek for information which would be useful for or relevant to any enquiry besides proceeding under the Act. The second proviso to Section 133(6) specified that the power in respect of an enquiry, in case where no proceeding is pending, shall not be exercised by any income tax authority below the rank of Director or Commissioner without the prior approval of the said authorities.”

The court made a reference to the CBDT circular explaining the 1995 amendment. The court then considered the arguments of the counsels for parties. The submission of the counsel was that the decision in Karnataka Bank case related to power to call for information in “case specific” or “area specific” matters whereas in Kathiroor case the information sought is general in nature. Hence the Karnataka Bank case is distinguishable and cannot be taken as an authority for the proposition that power under 133(6) is available to make “general enquiries or fishing enquiries” regarding the deposits made by the customers.

The court considered the submission of the counsel for the department that the power to issue notice is available under 133(6) for the purpose of making enquiries.

The court then made attempts to find out the meaning and import of the term “inquiry” with the help of leading dictionaries. The court considered the common parlance meaning of the term also.

 THE FINAL VERDICT:

The Hon court on a close reading of section 133(6) was of the opinion that its language is wholly unambiguous and clear so that there is no need for resort to the process of interpretation.

But yet, it appears that the Hon court took some pains to find out the legislative intention behind the enactment of section 133(6). It is stated in Para 17 of the judgment as follows.

(a) Before the introduction of amendment to Section 133(6) in1995, the Act only provided for issuance of notice in case of pending proceedings. As a consequence of the said amendment, the scope of Section 133(6) was expanded to include issuance of notice for the purposes of enquiry. The object of amendment of section 133(6) by the 133(6) by the Finance Act, 1995 (Act 22 of 1995) as explained by the CBDT in its circular shows that 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 computer 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 purposes of any enquiry in both cases:

(b) where proceeding is not pending against the assessee.

However in the lattercase, theassessing authority must obtain the prior approval of the Director or Commissioner, as the case maybe 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 proceeding under the Act.

The Hon court then considered the decision in Karnataka Bank  case and approved the law laid down therein that that it is not necessary that any “inquiry” should have commenced  with  the  issuance  of  notice  or  otherwise before Section 133(6) could have been invoked. It is with the view to collect information that power is given under Section 133(6) to issue notice, inter alia, requiring a banking company to furnish information in respect of such points or matters as may be useful or relevant. The second proviso makes it clear that such information can be sought for even when no proceeding under the Act is pending, the only safeguard being that before this power can be invoked the approval of the Director or the Commissioner, as the case may be, has to be obtained.”

In view of the aforesaid, we are of the view that the powers under section 133(6) are in the nature of survey and a general enquiry to identify persons who are likely to have taxable income and whether they are in compliance with the provisions of the Act. It would not fall under the restricted domains of being “area specific or “case specific.” Section 133(6) does not refer to any enquiry about any particular person or assessee, but pertains to information in relation to “such points or matters” which the assessing authority issuing notices requires. This clearly illustrates that the information of general nature can be called for and names and addresses of depositors who hold deposits above a particular sum is certainly permissible.

Thus the law has been laid down that power under section 133(6) is available to the authorities to issue notice calling for general information even though no inquiry or proceeding is pending under the Act.

POWER TO COLLECT INFORMATION  OR POWER TO INQUIRE?:

The author most respectfully submits that the decision requires reconsideration in so far as many important points which ought to have been raised have not been raised or brought to the notice of the Hon court.  The first most important aspect is that section 133 nowhere grants power to make an “inquiry”.  The heading of the section itself is “Power to collect information”. Even if you read the whole section you will find only the power to gather information and nothing more than that. Thus it is crystal clear that section 133 only provides power to collect information which may be useful or relevant to an “enquiry” under the Act. The Income Tax Act 1961 envisages “inquiry” under different provisions of the Act. Please see sections 10,12AA, 32AB, 35, 80-I, 80-IA, 131,142,144BA, 171178,, 220, 245HA, 250, 251, 263, 264,269F and 273A. Therefore section 133 is actually related to the “inquiries” under the above provisions of the Act and really no power of inquiry is contemplated under the said section.

It is settled law that every action performed by a public authority must derive its power to perform that action either from the constitution or from a statute which is enacted lawfully in accordance with the constitution. Performance of any action or exercise of any power without the authority of law is therefore expressly or impliedly prohibited. It is curious to note that even the power to collect information itself is specifically granted on certain authorities for the purpose of inquiry under section 133. It clearly shows that if section 133 is not there the authorities cannot collect information specified therein.

If so is it not necessary that power to inquire should also be given by the Income Tax Act? As already stated section 133 envisages recording of the opinion of the authority that collection of certain information shall be useful or relevant for an inquiry or proceeding. If formation of opinion is a condition for collection of information then it becomes all the more necessary that opinion should also be recorded before initiating an inquiry. Therefore there must first of all be a power to make inquiry expressly granted under the Act and then in order to make effective use of that power there should be a power to collect the relevant or useful information in respect of that inquiry. Section 133 provides for the power to collect the information but nowhere has it provided for the power to make inquiry as such. This crucial aspect appears to have missed the attention of the Hon court.

DID 1995 AMENMENT ACHIEVED THE PURPOSE?

The Hon court made a useful reference to the CBDT circular in order to find out the legislative intention behind the 1995 amendment. It is stated that prior to the amendment there was no power to collect information unless there is a proceeding pending under the Act. This acted as an impediment. Therefore the amendment was brought about to enable the authorities to collect information even if no proceeding is pending. If that was the objective or intention of the law makers then a simple proviso could have been added to section 133 by stating that information can be collected even if no proceeding is pending. It is difficult to justify the reason for inserting the words “inquiry or” before the word “proceeding” to achieve the purpose. It is idle to contend that the 1995 amendment at a stroke gives dual powers ie the power to make inquiry and the power to collect information for the said inquiry. Such an interpretation is not permitted in the absence of clear and unambiguous words used in the section.

INQUIRY v PROCEEDING:

The next connected question is whether the terms “inquiry” and “proceeding” are one and the same or is there any difference between the two? The author is of the view that the said terms are different in its scope and meaning though thin and narrow. There can be overlapping. The meaning of the word “inquiry” has been dealt with extensively by the Hon Supreme court in the judgment and therefore the author is not dealing with the same again. The meaning and scope of the word “proceeding” is also dealt with by the courts in a catena of decisions. Hence the object here is to find out whether there is any difference between the two when both terms are used in section 133.

A useful reference may be made to the decision of the Hon Bombay High court in  Jamunabai Motilal v State of Maharashtra AIR 1978 Bom 200 wherein the Hon court made the following observations:

“Now, it appears to us well settled that the words like "proceedings" or "inquiry" used by a given statute are to be understood in the context of that given statute; for the legal term like "proceeding" may have a wide as well as narrow connotation: See Ganga Naicken v. Sundaram Ayyar (AIR 1956 Mad 597); Shantilal v. N. A. Rangaswami (1977 Mah LJ 587 (FB) para. 13 at p. 604)”.

Hence according to the Hon court both terms carry different meaning in different contexts. The very amendment suggests that the word inquiry carry a different meaning otherwise if both are the same what was the necessity to make the amendment?

Therefore the legislative intention behind the 1995 amendment is to widen the horizon of power to collect information to inquiries also since there is a chance that somebody may challenge the said power on the ground that no proceeding is pending and what is pending falls in the category of inquiry for which section 133 do not provide.

 IS IT NECESSARY THAT “INQUIRY” SHOULD ALSO BE PENDING?

The basic question is whether an “inquiry” should also be pending before issue of a notice? The author is of the view that there should be an “inquiry” pending before issue of a notice under section 133. It applies with equal force to all the subsections (1) to (6) and is not restricted to sub section (6) alone.( On a close analysis of the section it can be found that each sub section is separated by a semi-colon and the function of the semi colon is to inter link related but separate matters. The final full stop appears in the end of the section. )

The Hon court in Kathiroor case itself firmly affirmed the legal position that “proceeding” should be pending before issue of a notice. If that be so how can the law be different when it is applied to “inquiry” which lies close to the word “proceeding” or rather precedes it?  It may be noted that in fact the word ”proceeding” gives company to  the word “inquiry”  and is inter connected firmly by the word “OR” in between. It is settled law that the usage of “or” is a conjunctive and is used to connect two things which vary in nature, character and scope etc. If the interpretation placed on the word “inquiry” is given effect to it may produce anomalous and unintended results. The real effect of the combined operation of the two decisions ie Kathiroor case and Karnataka Bank case is that a notice can be issued for making “inquiry” irrespective of pendency of a “proceeding” whereas notice cannot be issued for collecting information if no proceeding is pending unless it relates to an “inquiry”.

If we take a very close look at the decision of the Hon court it can easily be found that the Hon court also in fact said in clear terms that the purpose of the amendment is to collect information which is useful or relevant for the inquiry. This is what the Hon court observed in Para 17 of its judgment.

Before the introduction of amendment to Section 133(6) in1995, the Act only provided for issuance of notice in case of pending proceedings. As a consequence of the said amendment, the scope of Section 133(6) was expanded to include issuance of notice for the purposes of enquiry.”

Thus the court at this juncture states that the amendment expanded the scope of section 133 to include issuance of notice for inquiry also. It did not say that the amendment granted power to inquire.

Now please have a look at what the Hon court said in the said Para 17.

“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 proceeding under the Act.”

Here also the Hon court stated that the word “inquiry” connote collection of information before initiating a “proceeding” or during pendency of “proceeding” but is silent about the initiation of “inquiry” or pendency of “inquiry”.

Hence the author is of the view that there cannot be a different interpretative treatment for the term “inquiry” and hence the settled law that a “proceeding” must be pending before issue of a notice ought to have been applied to the expression “inquiry” also.  The author, however, in this article made no attempt to find out the impact of the doctrine of ejusdem generis on its application to the two terms under consideration. The Hon court however in Karnataka Bank case held that an inquiry need not be pending at the time of issuing the notice under section 133 and it is submitted that in view of the discussion above the above view requires reconsideration since the Hon court had no occasion to address the matter from the angle discussed by the author.

Thus the intention of the amendment is clearly to expand the horizon of power to collect information which was restricted to a “proceeding” till 1995. Now after amendment the power to collect information is extended to an “inquiry” also, of course restricted to the “inquiries” permitted under the Act. Therefore it is a condition precedent that the authority should form an opinion before issue of a notice that the information he is planning to seek will be useful for some “inquiry” or “proceeding” under the Act. How such an opinion can be formed without the pre existence of an “inquiry” or “proceeding”?

OPINION OF THE ASSESSING OFFICER

Section 133 is very clear when it provides that the information required in relation to such points or matters by the authority should be such that giving information related to such points, should, in the opinion of the authorities will be useful or relevant to any “inquiry” or “proceeding” under the Act.

The word “opinion” occurring in section 133 should now be noted. The formation of opinion cannot be an empty formality or casual in nature. According to Bombay High court the word “opinion” is a belief stronger than mere expression (Webster) referred to in AIR 2005 Bom 431.Opinion means something more than mere retaining of gossip or of hearsay. It means judgment or belief that is belief or conviction resulting from what one thinks on a particular question. See Dolgorindu v Nimai charan AIR 1959 SC 914, 918  and VLS Finance Ltd v CIT (2000) 246 ITR 707(Del)

Therefore it is a condition precedent that the authority should form an opinion before issue of a notice that the information he is planning to seek will be useful for some “inquiry” or “proceeding” under the Act. How such an opinion can be formed without the pre existence of an “inquiry” or “proceeding”? Can we envisage a situation where the authority forms an opinion to gather/collect information in respect of an inquiry which is not there or non-existent?

IN RESPECT OF AN “INQUIRY”:

Attention is now invited to the second proviso to section 133 which is reproduced above. It speaks about power in respect of an” inquiry”.  The meaning of the expression as per the law lexicon By P.Ramanatha Iyer ( see Page No 3259 of Vol 3 of 4th Edition) is “being connected with” ( see UOI v Vijay Chandh Jain AIR 1977 SC 1302) The use of the words “in respect of” before the word “inquiry” is indicative of the clear position that it indicates the relationship of collection of information and the inquiry under the Act. Thus on a proper interpretation of the second proviso it becomes clear that what is envisaged under the main section is “inquiry” which is pending so that the lower authorities can take prior permission in respect of “a pending inquiry”.

PRIOR PERMISSION OF DIRECTOR/CIT:

The proviso requires that the power to collect information can be exercised only with prior permission of Director/CIT. So the lower authority like Assessing officer should seek prior permission. What permission he should take from Director/CIT? Is it the permission to collect information for inquiry or the inquiry itself? What is that inquiry the AO is talking about? Who granted him the power to decide about the kind of “inquiry” for which he wishes to collect information under section 133?  Can he suo motu form an opinion for collecting information from an assessee against whom no inquiry or proceeding is pending?  Is there any provision under the Income Tax Act empowering the AO to decide himself about an “inquiry” and then seek permission from Director/CIT? Will it not lead to arbitrary exercise of power? Will it not lead to abuse or misuse of power which would lead to harassment?

It may also be noted that the legislature has used the singular for both “inquiry” or “proceeding” and not “inquiries” or “proceedings”. Thus it indicates the existence of a particular “inquiry” or “proceeding” as contemplated and authorized under the Act.

Therefore, from the above discussion on the word “inquiry” and connected matters in the above Paras it can be forcefully argued that a legally permitted “inquiry” should also be pending.

RELIANCE ON CBDT CIRCULAR:

It may be noted that Hon court heavily relied on the circular no 177 dated 18th August 1995 issued by the CBDT the highest body of the defendant in order to ascertain the legislative intention of the 1995 amendment. The counsels appearing for the parties did not make an attempt to find out any other intention that could have led the parliament to amend the existing law. It is clear that the intention, as explained by the CBDT, was not achieved  by the insertion of the word “inquiry” in section 133(6). In other words the amendment really did not produce the desired result. If that be so it is a case where the legislature failed in its venture. It appears to have missed the bus.

CONCLUSION:

The author is of the opinion that there should be a clear power to make general or roving inquiries under the Act. The section 133 as it now stands do not provide for power of enquiry as such. The section may require further amendment.  The present section only enables the named authorities to collect information in relation to points or matters which will be useful or relevant to the “inquiry”  or “proceeding” under the above sections/provisions of the Act.  Nothing more and nothing less. The legislative intention while making the 1995 amendment is clear and it is to clothe the authorities with the power to collect information even when no proceeding is pending. It will be sufficient if an enquiry is pending.

The Hon court was of the opinion that the provisions of section 133(6) are clear and hence no interpretation process is necessary. But still considerable discussion has taken place to interpret the word “inquiry” and to find out the legislative intention by reliance on explanation given by the CBDT in its circular. If the word “proceeding” as used in the section was clear and unambiguous there was no necessity for the courts to clarify that it means “pending proceeding” and not contemplated or future proceeding.  Therefore, the author is of the opinion that the process of interpretation is very much necessary in the matter and the decision in Kathiroor case may be reconsidered in view of the elaborate discussion in this article.