AMWAY INDIA ENTERPRISES Vs. UNION OF INDIA

JUDGEMENT

(1.) PETITIONER is a private limited company with unlimited liability engaged in the business of direct selling of principally fast -moving consumer goods. Its registered office is at New Delhi. It started commercial operation in May, 1998. The first respondent is the Union of India and the second respondent is the Dy. Director of Income -tax (Inv.) II, Ernakulam South, Cochin. Petitioner seeks to issue a writ of cartiorari calling for the records and proceedings leading to Exts. P3 and P6 summons as modified by Ext. P8 letter, dt. 10th Aug., 2001, and to quash the same and for a direction to the second respondent to forbear from taking any further steps pursuant to Exts. P8 and for other reliefs.

(2.) EXT . P1 is a letter dt. 6th June, 2001, issued by the second respondent to the managing director of the petitioner M/s Amway India Enterprises, New Delhi, as per which petitioner was requested to furnish the true and complete details of all payments made by them to their distributors in Kerala, during the period from 1st April, 1996, to 31st March, 2001, with the names and complete addresses of the respective payees and the amount paid in each financial year, etc. and any other relevant details. This letter is issued in lieu of summoning the petitioner under Section 131 of the IT Act. Ext. P2 is a reply thereto from the petitioner under, dt. 15th June, 2001, by which petitioner sought for a clarification as to the exact provision of Section 131 of the IT Act, 1961, under which Ext. P1 notice has been issued. By Ext. P3 letter, dt. 19th June, 2001, the second respondent informed the petitioner that the exact provision of Section 131 of the Act under which Ext. P1 was issued was made clear from the letter itself. It was further informed that there is reason to suspect that the distributors of the petitioner's company products in Kerala are in receipt of remuneration (by whatever name called) from the petitioner's company which has not been fully and properly offered for income -tax assessment in their respective hands. For the purpose of making necessary enquiry and investigation thereto, relevant details were called for from the petitioner as per Ext. P1 and thus, notice had been issued under Section 131 r/w Section 131(1A) of the IT Act. A formal summons was also enclosed along with Ext. P3. It was further informed that the personal appearance of the managing director is not essential provided the particulars called for are furnished on or before 2nd July, 2001. The summons enclosed under the same date requires the managing director of the petitioner -company to attend the office of the second respondent at Ernakulam on 2nd July, 2001, to give evidence and produce books of account and other documents containing the particulars of all commission/remuneration to all the distributors in Kerala during the period 1st April, 1996, to 31st March, 2001. By Ext. P4 dt. 31st July, 2001, petitioner -company informed the Addl. Director of Income -tax (Inv.) Cochin, that they would extend all support to the Department and they have sought for opinion from their legal counsel to ascertain their legal rights in the matter and the advice is expected within one week. It was also informed that in the meanwhile, if the Department has any specific query on any particular distributor then they have no hesitation in providing the details. By Ext. P5 dt. 2nd Aug., 2001, the second respondent wrote back to the petitioner that their request for additional time is opposed to all principles of fairness and decency and violation of law since they have failed to comply with the summons issued to them and it is proposed to initiate steps to impose penalty of Rs. 10,000 per day of default, from 2nd July, 2001, onwards upto 31st July, 2001, besides prosecution under the general law. By Ext. P6 dt. 2nd Aug., 2001, the second respondent informed the managing director of the petitioner -company at New Delhi, that his presence is required on 10th of August, 2001, to give evidence or to produce the books of account and other documents. This is a summons issued under Section 131 r/w Section 131(1A) of the IT Act, 1961, to which the petitioner, as per Ext. P7, submitted a detailed reply the guise of which is to inform the authorities that the notice suffers from the vice of vagueness as complete details of all payments are called for without any specific detail or transaction. According to them, requisition of books of account which run into a truck -load, is neither proportionate or legitimate but in the case of identification of any person or class of person for whom there is reason to suspect, once the identity is disclosed they can provide the details of such person. The standard contract entered into between the distributors and the company is enclosed along with the basis of calculation of remuneration contained therein. The reply also highlights the fact that in the absence of the names and addresses of the distributors about whom the details are called for, the question of entertaining suspicion as contemplated under Section 131 did not arise. Ext. P8 is a letter, dt. 10th Aug., 2001, from the second respondent referring to the letter, dt. 9th Aug., 2001, of the senior manager of the petitioner -company on the subject of summons under Section 131 issued on 2nd Aug., 2001. In this letter, the reason to suspect is stated as concealment of income. It is further stated that the reasons need not be communicated to the petitioner and class of persons referred to is distributors based in Kerala. Hence, according to them, the proceedings under Section 131(1) is supported by reason to suspect the concealment of income as well as the class of persons and it was further clarified that what is sought is not the income -tax assessment particulars, but only the particulars of the commission/remuneration (by whatever name called) paid to the distributors based in Kerala. It is further clarified in Ext. P8 that what was required to be communicated is the nature of payment, the mode of payment - - such as cheque/cash, etc. made to the distributors in Kerala. It is made clear that complete books of account are not required and it would be enough if details of the commission/remuneration paid to the distributors in Kerala are furnished. Hence, the objection was overruled. The period for which such information was called for was further limited to the period from 1st Sept., 1999, to 31st Sept., 2000 and from 1st Sept., 2000, to 31st Aug., 2001, to which by Ext. P9 petitioner replied that the managing director is out of country and requested for time till 10th Sept., 2001, to send necessary reply. It was, thereafter, that this original petition was filed.

(3.) ACCORDING to the petitioner, in order to invoke Section 131(1A) there must be a reason to attract the provision and the second respondent erred and acted in excess of his jurisdiction while issuing Ext. P8 letter modifying Ext. P6 summons in that he failed to appreciate that a combined reading of Sections 131 and 132 of the Act clearly indicate that the powers vested in the AO, Dy. CIT(A), Jt. CIT, CIT(A) and Chief CIT or CIT for discovery and inspection could necessarily relate only to those assessees within their jurisdiction in regard to whom the Director -General or Director or Jt. Director or Asstt. Director or Dy. Director or the authorised officer referred to in Sub -section 1 of Section 132 of the Act had reason to suspect that any income had been or was likely to be concealed by any person or class of persons within their jurisdiction and could not relate to the petitioner who was an assessee under the Company Circular 1(3), New Delhi, outside the jurisdiction of the 2nd respondent and the other authorities described in Section 131 and 132 of the Act in Kerala. Even by Ext. P8 the identity of person or class of person contemplated by Section 131(1A) have not been established which is required for the assumption of jurisdiction. It is also urged that after stating that what was sought for was not the petitioner's income -tax assessment particulars the second respondent could not have invoked the provisions of Sub -section 1 of Section 131 of the Act as the petitioner was already assessed by the Delhi authorities of the IT Act. In other words, according to the petitioner, only the specific particulars regarding any particular distributor or distributors could be sought for and since the petitioner had more than 50,000 distributors in Kerala, there cannot be a basis or material before the second respondent for any cause to suspect concealment of income but only in the nature of roving enquiry.