M/s.Margadarsi Chit Fund Ltd., having its Office at vs. The Central Board of Direct Taxes,Rep. by its Chairman

WP/27671/2007HC TelanganaHBHC01018169200719 January 2026Bench: P.SAM KOSHY,SUDDALA CHALAPATHI RAO7 pages

AI SummaryAllowed

What did the High Court hold?

The High Court allowed the writ petition. The Court noted that an identical issue had been decided by a Division Bench of the same High Court in ITA No.120 of 2013, which relied on the Delhi High Court's judgment in Commissioner of Income Tax v. Sahib Chits (Delhi) (P) Ltd. and the Bangalore ITAT's decision in Marga Soochi Chit Pvt. Ltd. These judgments held that amounts disbursed by a chit fund company to its members from contributions cannot be treated as interest. The Madras High Court's view in Bilahari Investments (P) Ltd. v. C.I.T., affirmed by the Supreme Court in C.I.T. v. Bilahari Investment Pvt. Ltd., was also cited. Given the similarity of the issue, the High Court found no reason to interfere with the established legal proposition and allowed the writ petition in terms of the prior Division Bench order. No order as to costs was made.

What were the facts?

The petitioner, M/s. Margadarsi Chit Fund Limited, filed a writ petition before the High Court for the State of Telangana at Hyderabad. The petition challenged the action of the respondents (various Income Tax authorities) in proceeding with the assessment for the assessment year 2005-06, specifically citing a notice dated 14-12-2007. The petitioner argued that these proceedings were premature, unwarranted, void, and violative of directions from the Supreme Court in Civil Appeal No.12144 of 2006. The petitioner sought a direction to the respondents to cease all further steps in relation to the assessment for AY 2005-06. The High Court was also requested to suspend these proceedings pending the disposal of the writ petition.

What were the issues?

1. Whether the action of the respondents in proceeding with the assessment for AY 2005-06, including the issuance of notice dated 14-12-2007, is premature, unwarranted, ab initio void, and violative of Supreme Court directions? (Question of law and fact, concerning the assessment proceedings and compliance with Supreme Court orders). Assessee's Contention: The petitioner contended that the assessment proceedings and the notice were premature, unwarranted, void, and violated Supreme Court directions. They sought to halt all further proceedings. Revenue's Contention: The judgment does not explicitly record the revenue's contentions. However, their participation as respondents implies they were defending their right to proceed with the assessment.

AI-generated summary — verify with the full judgment below

[ 34Ee ] HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY, THE NINETEENTH DAY OF JANUARY TWO THOUSAND AND TWENTY SIX PRESENT THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HONOURABLE SRI JUSTICE SUDDALA CHALAPATHI RAO wRrT PETITION NO: 27671 OF 2007 Between: M/s. Margadarsi Chit Fund Limited, having its Office at Margadarsi House, Fateh Meidan Road, Basheerbagh, Hyderabad, Rep. by its Managing Director, Smt. Ch. Shailaja ,..PETITIONER AND 1 The Central Board of Direct Taxes, Rep. by its Chairman, Ministry of Finance Department of Revenue, Government of lndia, North Block, New Delhi. 2. The lncome Tax Officer, Circle 14(2), 1st Floor, AayakarBhavan, Basheerbagh, Hyderabad. 3. The Assistant Commissioner of lncome Tax Circle 14(2)' 2nd Floor, Ayakar Bhavan, Basheerbagh, HYderabad. 4. The lncome Tax Officer, ward 15(3), 2nd Floor' Ayakar Bhavan, - Basheerbagh,Hyderabad. 5. The Deputy Commissioner of lncome Tax, Circle 14(2), 2nd Floor, Ayakar Bhavan, Basheerbagh, HYderabad. 6. The Joint Commissioner of lncome Tax, Range 16, Ayakar Bhavan, Bash 66r6tfuh, Hyd erabad. ...RESPONDENTS Petition under Afticle 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a direction or order or writ more in the nature of writ of lr,'tandamus declaring the action of the respondents seeking to proceed with the assessment of the petitioner for the assessment year 2005-06 and more specifically the issue of notice bearing F.No. JCIT/R-1 16114412OO7-08 dl 14-12-2007 as premature, unwarranted ab-initio void and violative of directions

to the Honble Supreme Court in Civil Appeal No.1214412) tG dl 27 -2-2007 and consequently direct the respondents not to take any furth: steps or any further proceedings in relation to the assessment proceedings lr the year 2005-06 including the proceedings in continuation or pursuant to th( notice bearing F.No. JCtT/R-1 161 1 44t2007 -O8 dt.1 4-12-2007. l.A. NO: 1 OF 2007(WPMP. NO: 36190 OF 2007) Petition under Section 151 CPC praying that in.the ,ircumstances stated in the affidavit filed in support of the petition, the High Cor t may be pleased to suspend all further proceedings of the respondents in relali rn to the assessment year 2005-2006 of the petitioner including the proceedirr s in continuation or pursuant to the notice bearing F.no.JClT lR-1161144120 () -08 dt. 14-12-2007, pending drsposal of the writ petition. Counsel for the Petitioner: SRI T.BALA MOHAN REDDY Counsel for the Respondent No.1 SRI N.BHUJANGA RACI DEPUTY SOLICITOR G E {ERAL OF INDIA Counsel for the Respondent No.2 to 6: SRI K.SUDHAKAR I EDDY, Sr. SC FOR lT The Court made the following: ORDER

IN THE HIGH COURT FORTHE STATE OF TELANGANA AT HYDERABAD THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HONOURABLE SRI JUSTICE SUDDALA CHALAPATHI RAO Writ Petition No.27671of 2007 Dated:19.01.2026 Between: M/s.Margadarshi Chit Fund Limited, Having its Office at Margadashi House, Fateh Maidan Road, Basheerbagh, Hyderabad. Rep by its Mangading Director Smt.Ch.Sailaja ...Petitioner AND The Central Board of Direct Taxes, Rep by its Chairman, Ministry of Finance Department of Revenue, Government of India, North Block, New Delhi & others. . . . Respondents ORDER, (per Hon'ble Sri Justice P.Sam Koshy) This writ petition has been filed seeking the following relief: "declaring the action of the respondents seeking to proceed with the assessment of the petitioner for the assessment year 2005-06 and more specrfically the issue of notice bearing F.No.JCIT/R-116/144/2007-08 dt. 14. t 2.2007 as premature, unwarranted, abinitio, t'oid

2 and violative of directiorts to the Hon'bl Supreme Court in Civil Appeal No.12144 of 2006 d,.'7 02 2007 and consequently direcl the respondents n()t i) take an.y furtlter stap.\ or any further proceedings rn clhtion k-t the assessment proceedings for the tea 2005-06 tncluding the proceedings in continuation or I ursuant to the notice bearing F.No.JCIT/Rl 16,/t, 4/2007-0,9 dt.I412.2007 " 2. Heard Mr.T.Bala Mohan Reddy, learned ounsel for the petitioner and Mr.K.Sudhakar Reddy, learned !i, nior Starrding Counsel for lncome-lax. Peruscd the record. 3. Today when the matter is taken up for hea - rg, it has been brought to the notice of this Bench that an identical Lssue came up for consideration belore the Division Bench of r.his Court in LT.f.A.No.120 ot 2013 which stood decided <n 27.06.2013 whereby the Division Bench of this Court rel y ng upon the judgment ol the High Court of Delhi in the case of omm$stoner of Income Tox v. Sahih Chi* (Dethi) (P) Lilt hir held that the ' ITA ruo.qa of 2008 dated 24-07.2009 of High Court of Delhi at New Delh

w 3 amount disbursed by a chit fund company to the members from the contribution cannot be treated as interest. For ready reference, the relevant portion passed by the Division Bench of this Court is reproduced herein under: "The above question has already been answered by the Delhi High Court in Sahib Chits (Delhi) (P) Ltd., in t.T.A. No.44 of 2008, on 24.07.2009, and also by the learned Tribunal of Bangalore Bench in the case of Marga Soochi Chit Pvt. Ltd., in I.T.A. No.995/Bangalore/2008, wherein it was held that the amount disbursed by a chit fund company to the members from the contribution cannot be treated as interesl. Similar view was taken by the Madras High Court in lhe case of Bilahari Investments (P) Ltd. V. C.I.t' and the decision of the Madras High Court has been afirmed by the Supreme Court in the case of C.I.T. v. Bilahari Investment Pvt. Ltd.3 Therefore, the learned Tribunal has followed the coruect proposition of law relying on the Supreme Court decision, and Delhi and Madras High Courts decisions. We do not find any reason to interfere with the impugned order." ' zsa rrn :s (t lad.) ' (zooe) zgg trR r \

4 4. Given the fact that the issue raised by the : .titioners in the present writ petition being similar if not identical we are of the considered opinion that the writ petition deserves : be allowed in terms of the order passed by the Division Bench of t iis Court in the case of Commissioner of Income Tax (supra). 5. For the aforesaid reason, the present wri. ltetition stands allorvcd No orclcr as to costs. Consequently, miscell.r reous petitions pending, if an1,, shall stand closed. That Rule Nisi has made Absolute as above vitness The Hon'ble SRI APARESH KUMAR SINGH, The Chief Jur Lice on this Monday, the Nineteenth Day of January, Two Thousand arr, Twenty Six. S&-AH //rRUE coPY// \fl\ The Chairman, Central Board of Direct Taxes, Mifistry of Revenue Government of lndia, North Block,$dw D i EDABDULLAKHAN I ISTANT REGISTRAR SECTION OFFICER , f.Finance Department -, L To, 1 Nr 2. The lncome Tax Officer, Circle 14(2), 1st F I ,or, AayakarBhavan, Basheerbagh. Hyderabad. 3. The Assistant Commissioner of lncome Tax Circle 1,1 ,?.), 2nd Floor, Ayakar Bhavan, Basheerbagh, Hyderabad. 4. The lncome Tax Officer, Ward 15(3), 2nd Fl:,r, Ayakar Bhavan, Basheerbagh, Hyderabad. 5. The Deputy Commissioner of lncome Tax, Circle 14()), znd Floor, Ayakar Bhavan, Basheerbagh, Hyderabad. 6. The Joint Commissioner of lncome Tax, Range 6, Ayakar Bhavan, Basheerbagh, Hyderabad. 7. One CC to SRI T BALA MOHAN REDDY, Advocate [O: ..JC] 8. One CC to SRI K SUDHAKAR REDDY, Sr. SC FOR IT | )PUCI 9. One CC to SRI N,BHUJANGA RAO, DEPUTY SOLI( ITOR GENERAL OF lNDIA, High Court for the State of Telangana at Hyderzt ad [OPUC] 10. Two CD Copies BSR

HIGH COURT DATED: 1910112026 ORDER WP.No.27671 of 2007 ALLOWING THE WRIT PETITION, WITHOUT COSTS -f pti z .91 ;-\ ,// * lr)l Dc" 1, 3. 1&c l 1. \ \/

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