2025 (7) TMI 1124 - HC - Income Tax

Disclosure of information respecting assessees u/s 138(1)(b) of the Income Tax Act - Seeking information obtained during search and seizure operations for use in private arbitration proceedings - Inaction on the part of the DCIT in not considering the application that the petitioner had made seeking for certain information pertaining to respondent No.7 firm and that of respondent Nos.8 to 10 - petitioner claims himself to be a sleeping partner holding 20% of shares in respondent No.7 firm known - petitioner contended that the petitioner cannot be considered to be a third party as admittedly he is a partner though a sleeping partner of respondent No.7 firm. HELD THAT - Petitioner wants the information to be used as a defence in the arbitration dispute pending between the petitioner and private respondent Nos.7 to 10. Petitioner requires the information as an effective defence before the Arbitrator for his personal gains which would also show that the information sought for is not relating to any public cause or public interest at large. The information sought for can only be given to the person who is bonafidely entitled for the same unlike the petitioner who in his affidavit itself has stated that the information is required as an effective defence before the Arbitrator. This in the opinion of this Bench would not be a justifiable ground for allowing of a writ petition for the relief sought for. In nutshell the information sought for by the petitioner cannot be permitted to be used for vested interest more particularly to settle scores with private respondents. Also Act and the rules framed therein are totally silent in respect of the relief sought for so far as whether the information can be provided to any person seeking third party information. In the absence of any such clear mandate there cannot be a Writ of Mandamus that could be issued directing the official respondents to provide for the information sought for or any other information as sought for by the petitioner. This Bench is of the firm view that such information more particularly when they are collected in the course of search and seizure proceedings cannot be released to the petitioner herein or one of the sleeping partners of respondent No.7 firm. However it is made clear that in the event if the Deputy Commissioner of Income Tax or for that matter any other agency uses the information which the petitioner is now seeking in any manner for prosecuting the petitioner in the said circumstances the petitioner shall be entitled for such information / documents. In the instant case such a situation or occasion has not arisen and therefore there is no need for any observation or a direction in that regard at this juncture. WP Dismissed.

Summary

ISSUES:

• Whether a sleeping partner in a firm is entitled to obtain information collected during search and seizure operations conducted by income tax authorities on the firm and its members.
• Whether information obtained during search and seizure operations can be disclosed to a partner for use in private arbitration proceedings.
• Whether the Income Tax authorities are obligated under Section 138(1)(b) of the Income Tax Act to furnish such information to a partner claiming vested rights.
• Whether refusal to provide such information violates principles of natural justice and fair play.
• Whether a writ of mandamus can be issued directing disclosure of confidential information collected during search and seizure operations.

RULINGS / HOLDINGS:

• The petitioner, though a sleeping partner, is not entitled to the information collected during search and seizure operations as the information is "serious confidential documents" and disclosure would amount to granting confidential information to third parties.
• The information sought is intended for use as an "effective defence before the Arbitrator" in a private arbitration dispute and does not relate to any "public cause or public interest at large," thus not justifying disclosure under the Income Tax Act.
• Section 138(1)(b) of the Income Tax Act allows furnishing information only if the authority is "satisfied that it is in the public interest so to do," and the decision is "final and shall not be called in question in any court of law."
• The Act and rules are silent regarding disclosure of information to persons seeking third-party information, and in absence of clear mandate, no writ of mandamus can be issued to compel disclosure.
• Denial of access to such confidential information in these circumstances does not constitute a violation of the principles of natural justice or fair play.
• However, if the authorities use the information to prosecute the petitioner, he would then be entitled to access the relevant information/documents; since that situation has not arisen, no direction is necessary at this stage.

RATIONALE:

• The Court applied Section 138(1)(b) of the Income Tax Act, 1961, which governs disclosure of information by income tax authorities and emphasizes public interest as a prerequisite for disclosure.
• The Court recognized the confidential nature of information obtained during search and seizure operations and the absence of any statutory provision mandating disclosure to third parties or partners for private disputes.
• The Court distinguished between public interest disclosure and disclosure for private, vested interests, particularly where the information is sought for use in arbitration proceedings.
• The decision reflects a doctrinal position that confidential tax information cannot be disclosed merely on the basis of partnership status or private disputes without statutory backing.
• The Court reserved the possibility of disclosure if the information is used against the petitioner in prosecution, aligning with principles of natural justice.