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Judgment
T.L. Viswanatha Iyer, J.—The petitioner is a company registered under the Companies Act, which commenced business on February 13, 1986, as seen from the certificate of commencement of business issued by the Registrar of Companies, namely, exhibit P-2. A notification exhibit P-3 was issued by the Government of India u/s 620A of the Companies Act, 1956, on December 1, 1988, declaring the petitioner to be a Nidhi and including it as item No. 102 in column No. 1 of Schedule III of the notification issued by the Central Government on May 28, 1963. A copy of the memorandum of association of the petitioner-company is exhibit P-4. This original petition is prompted by the proceedings taken by respondents Nos. 1 and 2 under the Income Tax Act, 1961 ("the Act"), apparently with a view to ascertain whether the income, if any, of the petitioner is liable to be assessed under the said Act.
The petitioner was assessed to tax under the Act for the year 1989-90 on an income of Rs. 5,910 with tax liability of Rs. 2,955 which was paid. It is said that the petitioner is facing loss in the year 1990-91. The petitioner filed an application, exhibit P-5, dated December 27, 1991, before the second respondent, Income Tax Officer, requesting him to treat the petitioner as entitled to exemption from tax under the Act. The petitioner followed it up with a subsequent representation exhibit P-6 to the first respondent, Assistant Commissioner of Income Tax, for a similar relief. No replies had been received thereto up to the date of filing of the original petition. But the first respondent issued a notice exhibit P-7, dated November 5, 1992, to the managing director of the petitioner requiring him to attend his office on November 11, 1992, to give evidence and to produce the books of account and other documents specified, threatening imposition of penalty u/s 131(2) of the Act on default, The managing director did not appear as summoned on the plea that he was undergoing treatment for cardiac illness in support of which he filed a certificate exhibit P-9 from one Dr. George Erali, along with the application for adjournment exhibit P-8. According to the petitioner, the first respondent phoned Dr. George Erali about the issue of the certificate. Subsequent notices exhibits P-10 series were issued to the manager and two employees of the company, on November 11, 1992, by the first respondent in terms similar to exhibit P-7 to appear and give evidence and to produce the documents mentioned. The two employees excused themselves on the plea that they had no sufficient time to contact the managing director for permission to appear before the first respondent, but the chief accountant appeared, when it was alleged that he was abused for working with the petitioner-company. The original petition does not disclose what exactly was the work transacted when the chief accountant appeared. But the original petition followed soon thereafter on November 16, 1992, with a prayer for declaration that the petitioner is a Nidhi (mutual concern) entitled to exemption from Income Tax "for its profits" and for a direction to respondents Nos. 1 and 2 to dispose of the applications exhibits P-5 and P-6 and also to quash the notices exhibits P-7 and P-10 series. This court admitted the original petition and directed respondents Nos. 1 and 2 not to take further action pursuant to exhibits P-7 and P-10 series of notices without disposing of the petitions exhibits P-5 and P-6. That was on November 18, 1992. But this order was modified on December 17, 1992, by stating that if any assessment is made that will be subject to the result of the original petition and that no amount under the assessment shall be recovered without orders in the original petition. Orders were thereafter passed by the first respondent On December 4, 1992, namely, exhibits P-12 and P-13, disposing of exhibits P-5 and P-6, stating that the question raised by the petitioner will be decided at the time of making the assessment with reference to the relevant records of the petitioner and in the light of the law on the point. The original petition was consequently amended to quash these two proceedings exhibits P-12 and P-13. The first respondent thereafter issued a notice exhibit P-14 u/s 142(1) of the Act directing the petitioner to produce the accounts and documents specified therein. The petitioner replied thereto by exhibit P-15, dated December 30, 1992, and promptly moved an application C. M. P. No. 858 of 1993 in this court for stay which was granted in the first instance, for ten days and has continued since then. The first respondent, thereafter, issued a pre-assessment notice exhibit P-16 stating that, for the reasons stated, he was proposing to make a best judgment assessment treating the entire interest income of Rs. 61,94,000 as the petitioner''s income during the assessment year 1990-91. The petitioner replied by exhibit P-17 and produced copies of these documents as exhibits P-16 and P-17 in this case along with C. M. P. No. 2596 of 1993. Since the respondents sought for vacating the stay, the original petition itself was taken up and heard.
A counter-affidavit has been filed by the first respondent in which, while stating that he was not expressing any final opinion on the point and that the question of the petitioner''s liability will have to be considered only on an examination of all the relevant records and evidence in the case, he has stated that the certificate u/s 620A does not ipso facto mean that the assessee is a mutual benefit society under the Income Tax Act. That matter has to be considered independently and on merits. Since the matter depends on the facts and circumstances of the case, necessarily he had to make an enquiry, for which purpose the documents of the assessee were being called for.
No assessment has yet been completed on the petitioner for the assessment year 1990-91. But the petitioner seeks a pre-assessment adjudication of its non-liability to tax as a mutual fund or Nidhi. Virtually, the petitioner''s contention is that it has been registered as a Nidhi by the Central Government u/s 620A of the Companies Act, 1956, and it should follow as a direct consequence that the petitioner is not liable to pay any tax under the Income Tax Act. The petitioner made requests for what he called exemption under exhibits P-5 and P-6, but they were not dealt with in the first instance and stood rejected by exhibits P-12 and P-13 after the original petition was filed. The petitioner states that the principle of the decision of the Supreme Court in Commissioner of Income Tax,Madras Vs. Kumbakonam Mutual Benefit Fund Ltd., , applies to the facts of this case. He also mentions the decision of the Income Tax Appellate Tribunal, Madras Bench in ITO v. Chenni Sri Andal Dhanasekhara Sasvatha Nidhi Ltd. [1989] 38 TTJ 286 ; [1990] 33 ITD 86 as one directly in point.
The main thrust of the petitioner''s case is that it has been registered as a Nidhi u/s 620A of the Companies Act, 1956, and that, therefore, it is exempted from payment of tax under the provisions of the Income Tax Act, 1961. What Section 620A of the Companies Act does is to enable the Central Government by a notification in the Gazette to direct that the provisions of the Act, specified in the notification shall not apply to any Nidhi or mutual benefit society or that it shall apply subject to such exceptions, modifications or adaptations as may be specified in the notification. Since such a notification has been issued by the Central Government, it must be taken that the petitioner is a Nidhi and, hence exempted. In other words, the extreme contention taken is that the notification issued by the Central Government is binding on the Income Tax Officer and he cannot thereafter make any enquiry into the assessability or otherwise of the petitioner''s income.
The purpose with which Section 620A was introduced was to benefit the Nidhis or thrift funds which catered to the poor and middle class people from being burdened with the cumbersome expensive procedures of meetings, returns and the like under the Companies Act, 1956. The reason for the introduction of Section 620A has been elaborately set forth in the recommendation of the Amendment Committee which took note of the hardship which will be caused by rigorous implementation of various provisions like Sections 166, 208, 219, 280, 314 and so on. It was noted that the implementation of these provisions as also others will involve a laborious task and huge amount of clerical work with no corresponding advantage to the fund besides huge expenses which may be beyond the means of these thrift societies. It was in these circumstances that the committee recommended exemptions in favour of such Nidhis from the operation of various provisions of the Companies Act. But then it must be noted that the exemption is only from the provisions of the Companies Act. It may be that the income of a Nidhi or mutual fund is exempted from assessment under the Income Tax Act, but it cannot be said that the Income Tax Officer''s jurisdiction to make an investigation under the Act or to make an assessment thereunder is taken away by the issue of notification u/s 620A of the Companies Act. Cases may exist where a Nidhi so called may still not be operating in the way in which a Nidhi or mutual fund is expected to function as happened in the very case cited by the petitioner of Kumbakonam Mutual Benefit Fund, where the shareholders were entitled to participate in the profits as and when dividend was declared even though they had not taken any loans from the benefit fund in question. Or it may be that the Nidhi in question may not conform to the prescriptions of a mutual fund and, therefore, its income may be assessable despite its being styled a Nidhi. These are all matters for investigation. Even the authorities under the Companies Act may be entitled to take proceedings if the company in question does not function as a Nidhi should. The jurisdiction of the Income Tax Officer under the Income Tax Act, 1961, is plenary and he has got all the jurisdiction to investigate into matters to ascertain whether the profits derived by any person or entity are liable to be taxed as income under the Act. For that purpose, he is also entitled to hold an investigation in the manner permitted by the Act including the issue of summons u/s 131. This is what precisely the first respondent is doing in this case by issuing summons u/s 131 to the persons concerned for appearance and for production of documents. It cannot be said that the first respondent is acting without jurisdiction in issuing the summons or in calling upon the officers of the petitioner to appear before him with the relevant documents. The declaration made by the Central Government cannot, of its own force, bind the Income Tax Officer or preclude him from exercising his jurisdiction under the Income Tax Act, though that may also be a relevant piece of evidence in deciding on the question of assessability. I do not, therefore, find anything illegal in the first respondent''s issuing the notices in question. Nor is there any obligation on him to take a preliminary decision on the petitioner''s applications, exhibits P-5 and P-6. He was perfectly justified in saying that the matter will be considered at the stage of assessment. In fact, I must observe here that the first respondent is keeping an open mind as could be seen from his averments in the counter-affidavit, where he says that he is not expressing any opinion on the point as the matter can be decided only after inspection of the documents and after considering the facts of the case.
The first respondent had every reason to initiate proceedings for another reason as well. The petitioner had admittedly been assessed under the Act for the year 1989-90. The assessment became final and the petitioner paid the tax. If that be so, the first respondent was definitely entitled to investigate whether there was any change of circumstance which will justify the petitioner''s claim for exemption made in exhibits P-5 and P-6.
The petitioner has a case that the first respondent is taking a vindictive attitude. I am sure that the first respondent will keep an open and fair mind as he has purported to do in the counter-affidavit and complete the proceedings judiciously and in a fair manner.
I do not, therefore, find any illegality or lack of jurisdiction in the proceedings initiated by the first respondent. A writ will not issue from this court to restrain proceedings which are within jurisdiction and warranted by the provisions of the Act. The petitioner is not, therefore, entitled to any relief in relation thereto. They are all justified by the provisions of Section 131 of the Income Tax Act, 1961. For the same reason, the petitioner is not entitled to the declaration sought that it is exempted from payment of tax as a Nidhi, as the matter is still under investigation and its entitlement to exemption or otherwise will depend on the result of the investigation.
The original petition is, therefore, dismissed.