Court Upholds Income Tax Department's Power to Collect Bank Data for Tax Evasion Prevention

Get the full picture - access the original judgement of the court order here.

Case Name:

Pattambi Service Co-operative Bank Ltd. & Ors vs Union of India & Ors. (High Court of Kerala)

WP(C).No. 10334 of 2014 (N)

Date: 20th December 2014

Key Takeaways:

1. The court upheld the Income Tax Department's power to collect information from banks about large deposits and interest payments.

2. This power is deemed necessary for preventing tax evasion and creating a database to check compliance.

3. The court ruled that this does not violate privacy rights, as there are safeguards in place.

4. Co-operative banks are not exempt from providing such information.

5. The judgment reinforces the government's authority to gather financial data for tax purposes.

Issue:

Is Section 133(6) (of Income Tax Act, 1961), which allows tax authorities to collect information from banks about large deposits and interest payments, constitutionally valid?

Facts:

- The Income Tax Department issued notices to co-operative banks under Section 133(6) (of Income Tax Act, 1961).

- These notices sought details of cash deposits in savings accounts aggregating to Rs. 5 lakhs or more during financial years 2010-11, 2011-12, and 2012-13.

- The notices also requested information on interest payments exceeding Rs. 10,000 to depositors.

- Co-operative banks challenged these notices, arguing they violated privacy rights and were beyond the department's jurisdiction.

- The banks also contested the constitutional validity of the 1995 amendment to Section 133(6) (of Income Tax Act, 1961), which added the words "enquiry or" and a second proviso.

Arguments:

Petitioners (Co-operative Banks):

1. Argued that the notices violated depositors' right to privacy.

2. Claimed the information request had no nexus with any specific tax liability.

3. Contended that co-operative banks were governed by separate laws and exempt from such inquiries.

4. Argued that the amendment gave unbridled power to tax authorities without proper guidelines.

Respondents (Income Tax Department):

1. Asserted that the power to collect information is necessary to prevent tax evasion.

2. Argued that the amendment was made to enable gathering of data even when no specific proceeding was pending.

3. Contended that there were sufficient safeguards in place, including the need for prior approval from higher authorities.

4. Stated that the information collected would be kept confidential under Section 138 (of Income Tax Act, 1961).

Key Legal Precedents:

1. Kathiroor Service Co-operative Bank Ltd. & Others V. Commissioner of Income Tax & Others [(2013) 263 CTR (SC) 129]

- The Supreme Court had previously upheld the power of the Income Tax Department to issue notices under Section 133(6) (of Income Tax Act, 1961) to co-operative banks.

2. Ram Jethmalani v. Union of India [(2011) 8 SCC 1]

- While this case emphasized the importance of privacy, it also recognized the state's need to collect information through proper investigations.

3. Govind vs. State of Madhya Pradesh and another [AIR 1975 SC 1378= (1975) 2 SCC 148]

- The Supreme Court held that even if privacy is a fundamental right, it can be restricted based on compelling public interest.

4. R. K. Garg vs. Union of India. [(1981) 4 SCC 675]

- The Supreme Court stated that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights.

Judgement:

1. The court dismissed all the writ petitions challenging the constitutional validity of Section 133(6) (of Income Tax Act, 1961).

2. It upheld the power of the Income Tax Department to collect information from banks, including co-operative banks.

3. The court found no violation of privacy rights, noting that the information collected is kept confidential under Section 138 (of Income Tax Act, 1961).

4. It ruled that the amendment adding "enquiry or" and the second proviso to Section 133(6) (of Income Tax Act, 1961) was valid and incidental to the main provision.

5. The court emphasized that the power to collect information is necessary for preventing tax evasion and is in the public interest.

FAQs:

Q1: Does this ruling apply only to co-operative banks?

A1: No, the ruling applies to all banks and financial institutions.

Q2: Can the Income Tax Department share the collected information with other agencies?

A2: No, Section 138 (of Income Tax Act, 1961) ensures the confidentiality of the information collected.

Q3: Is there any threshold for the deposits that banks need to report?

A3: Yes, the notices mentioned in this case sought information on deposits of Rs.5 lakhs or more per financial year.

Q4: Does this ruling mean that all bank account details will be automatically shared with tax authorities?

A4: No, the ruling upholds the power to collect specific information, but doesn't mandate automatic sharing of all account details.

Q5: Can banks refuse to provide the requested information?

A5: No, the court has upheld the validity of these notices, so banks are obligated to comply with legitimate requests under Section 133(6) (of Income Tax Act, 1961).

1. Constitutional validity of section 133(6) (of 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 Income Tax Act, 1961), 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) (of Income Tax Act, 1961) 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) (of Income Tax Act, 1961), 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 s. I ncome Tax Officer [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) (of Income Tax Act, 1961) 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. & Others V. Commissioner

of Income Tax & Others [(2013) 263 CTR (SC) 129]. 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 2

nd proviso to Section 133(6) (of Income Tax Act, 1961), 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 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 Income Tax Act, 1961) 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) (of Income Tax Act, 1961), 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 & Another([1975) 2 SCC 148], MR.X vs.

Hospital 'Z' .(1998) 8 SCC 296) and People Union for Civil

Liberty v. Union of India & another (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 Ramjethmalani v. Union of

India (2011) 8 SCC 1 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 Ramjethmalani's case 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 and Steel Company

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 = AIR 1978 SC 597) 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 (of Income Tax Act, 1961) 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 Income Tax Act, 1961) 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 1

st 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 case.

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 Income Tax Act, 1961) 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) (of Income Tax Act, 1961) 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) (of Income Tax Act, 1961) 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 case. 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 1

st notice under Section 133(6) (of Income Tax Act, 1961) 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 Income Tax Act, 1961), 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) (of Income Tax Act, 1961) stands answered in

favour of the Revenue, as per the Kathiroor case. 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 Income Tax Act, 1961) 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 Income Tax Act, 1961) is to the

following effect:

SL.No. INFORMATION REQUIRED

1

Details of cash deposits in Savings Bank Account aggregating to

Rs.5 Lakhs during Financial Years 2010-11, 2011-12 &2012-13.

(Information regarding cash deposits in SB Account where the

aggregate of cash deposit is Rs.5 Lakhs or above for the

concerned year. While furnishing the information, all the cash

transactions in the account are to be reflected date wise and not

merely the aggregate amount.)

2

Details of payment of interest exceeding Rs.10,000/- paid to

depositors including interest on fixed Deposits.

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 Income Tax Act, 1961); that the power under

Section 133(6) (of Income Tax Act, 1961) 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. and others vs. Commissioner of

Income Tax and others (2013)263 CTR (SC) 129).

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 Income Tax Act, 1961), 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) (of Income Tax Act, 1961).

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:

“i) issue appropriate writ, order or

direction quashing and setting aside the

addition of the word “inquiry” in Section 133 (of Income Tax Act, 1961)

(6) of the Income Tax Act 1961 and the two

provisos thereto is illegal and unsustainable in

law;

ii) issue an appropriate writ, order or

direction quashing Exhibits P1, P3 and P4

notices issued by the 5th respondent.

Iii) pass any other order in the

interests of justice, equity and good

conscience.”

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 vs.CIT [1961 AIR 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 vs. ITO[(2003) 180 CTR (Kerala) 369= 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) (of Income Tax Act, 1961) 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) (of Income Tax Act, 1961). 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) (of Income Tax Act, 1961)

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) (of Income Tax Act, 1961).

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 v. Union of India

[(2011) 8 SCC 1]. 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 Income Tax Act, 1961).

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-

(i) any officer, authority or body performing any

functions under any law relating to the imposition

of any tax,duty or cess, or to dealings in foreign

exchange as defined in [clause (n) of section 2 (of Income Tax Act, 1961) of

the Foreign Exchange Management Act,1999 ( 42

of 199)]; or

(ii) such officer, authority or body performing

functions under any other law as the Central

Government may, if in its opinion it is necessary

so to do in the public interest, specify by

notification in the Official Gazette in this behalf,

any such information received or obtained by any

income-tax authority in the performance of his

functions under this Act, as may, in the opinion of

the board or other income- tax authority, be

necessary for the purpose of enabling the officer,

authority or body to perform his or its functions

under that law.

(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) (of Income Tax Act, 1961), 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 vs. Khan Chand [(1974) 1 SCC 549], is also of no

avail for the reason stated above. The decision in Maneka

Gandhi vs. Union of India [(1978) 1 SCC 248] 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, 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 Income Tax Act, 1961)

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 Income Tax Act, 1961), 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 Income Tax Act, 1961), 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 vs. State of Madhya

Pradesh and another (AIR 1975 SC 1378= (1975) 2 SCC

148), 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 and another vs. Municipal

Corporation of Greater Bombay and others [(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 vs. 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. vs. Commissioner of

Income Tax, Punjab [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 vs. 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 Income Tax Act, 1961), 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 (of Income Tax Act, 1961), a Division

Bench of this Court in P.K. Aboobacker & other vs. State of

Kerala [1979(44) STC 250 Kerala ] 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

Commissioner of Commercial Tax vs. R.S. Jhavar [(67) 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.

P.R.RAMACHANDRA MENON

JUDGE