[Cites 3, Cited by 0]
Telangana High Court
M/S. Margadarsi Chit Fund Ltd. Hyd vs Addl. Commr. Of I.T. Hyd. on 2 December, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT HYDERABAD
THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HONOURABLE SRI JUSTICE
SUDDALA CHALAPATHI RAO
W.P.Nos.911 & 28441 OF 2009
02.12.2025
Between:
M/s Margadarsi Chit Find Limited,
Rep. by its Managing Director,
Smt.Ch.Shailaja,
Hyderabad.
...Petitioner
AND
The Deputy Commissioner of Income Tax,
Circle 16(2), 6th Floor, Ayakar Bhavan,
Basheerbagh, Hyderabad.
...Respondent
ORDER:
(per Hon'ble Sri Justice P.Sam Koshy)
Heard Mr. Kailash Nath P.S.S, learned counsel representing
Mr. T.Bala Mohan Reddy, learned counsel for the petitioner and
Mr. K.Sudhakar Reddy, learned Senior Standing Counsel for the
Income Tax Department for the respondent. Perused the record.
2. These are two writ petitions which have been filed assailing
the assessment order dated 29.12.2008 for the assessment year
2006-2007 and dated 14.12.2009 for the assessment years 2007-
2008.
3. Though the Assessing Officer in the course of passing
the impugned assessment order has decided four issues, those are -
(1) disallowance of chit dividend/interest u/s 40(a)(ia),
(2) disallowance of staff cost, (3) disallowance of expenditure u/s
14A and (4) disallowance u/s 40(a)(ia) for the failure u/s 194C, the
petitioner seems to be primarily aggrieved of the order passed in
issue No.1 so far as disallowance of chit dividend/interest under
Section 40(a)(ia). The said issue by now has been considered in a
batch of writ petitions by this High Court itself and few of
them pertaining to the very same assessee. The same issue has also
been decided by the other High Courts as well. In the case of
COMMISSIONER OF INCOME TAX VS. SAHIB CHITS
(DELHI) (P) LTD.1 decided on 24.07.2009, the Division Bench of
ITA No.44 OF 2008 DATED 24.07.2009
of High Court of Delhi at New Delhi
the Delhi High Court dealing with the issue on chit subscription has
held as under:
"The above question has already been answered
by the Delhi High Court in Sahib Chits (Delhi) (P) Ltd.,
in I.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
interest. Similar view was taken by the Madras High
Court in the case of Bilahari Investments (P) Ltd. V.
C.I.T (288 ITR 39 (Mad.) and the decision of the
Madras High Court has been affirmed by the Supreme
Court in the case of C.I.T. v. Bilahari Investment Pvt.
Ltd [(2008) 299 ITR 1]. Therefore, the learned Tribunal
has followed the correct 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."
4. Following the aforesaid judgment of the Delhi High Court,
this High Court also in the case of the assessee itself in
W.P.No.26553 of 2005 allowed the writ petition in terms of the
order passed by the Delhi High Court in the case of Sahib Chits
(supra) vide its order dated 29.01.2024. The said judgment was
subsequently also followed in W.P.No.1562 of 2008 which stood
decided on 26.06.2025.
5. In the present two writ petitions also, the main issue that was
under challenge is this itself and, therefore, the learned counsel
appearing on either side do not dispute the fact that the said issue
stands decided by the aforesaid judgment of the Delhi High Court
in the case of Sahib Chits (supra) and this High Court in
W.P.No.26553 of 2005 and W.P.No.1562 of 2008.
6. In view of the same, we are inclined to allow the writ
petitions to the extent so far as issue No.1 in respect of chit
subscription is concerned holding that disbursement of the chit
amount to its members cannot be treated as interest or dividend.
7. However, as regards the other issues are concerned, those
pertaining to disallowance of staff cost, disallowance of
expenditure under Section 14(A) and disallowance under Section
40(a)(ia) for the failure under Section 194 (c) are concerned and
for the assessment year 2006-2007, there two more additional
issues, those are disallowance of short term capital loss on sale of
plant and machinery and PF and ESI treated as income u/s
2(24)(x), this Court in its earlier decision itself in W.P.No.1562 of
2008 had left it for the Assessing Officer to issue fresh notice and
decide on merits. However, in the instant case, since there is
already an adjudication by the Assessing Officer, those issues we
are leaving it open permitting the petitioner to challenge the same if
at all if the petitioner inclined to challenge the same by way of
preferring a statutory appeal in accordance with law.
8. With the aforesaid observation and direction, these two writ
petitions stand allowed-in-part. As a consequence, the order of the
Assessing Officer so far as the issue pertaining to chit contribution
is concerned, is set aside/quashed. There shall be no order as to
costs.
Consequently, miscellaneous petitions pending, if any, shall
stand closed.
_____________________
P.SAM KOSHY, J
_________________________________
SUDDALA CHALAPATHI RAO, J
02.12.2025
Lrkm/Vpt
