DWIVEDI J. - These petitions are connected together as they raise a common question of law. A learned Single Judge, before whom these petitions were listed for hearing, has referred them to a large Bench for decision. They have been listed before us for hearing.
In the Petition No. 3605, the petitioners are : (1) Hindustan Metal Works (hereinafter called the firm), (2) Mrs. Uma Lal, (3) Mr. Tarachand Agrawal and (4) Mr. Jawahar Lal; the respondents are (1) The Commissioner of Income-tax, U. P., and eight Income-tax Officers. One of the Income-tax Officers is of Meerut, two of Aligarh and five of Agra. The Superintendent of Police, Aligarh, is the tenth respondent.
In the Writ Petition No. 3606, the only petitioner is Sri Ram Babu Lal. The respondents are the same as the respondents in the first writ petition.
In the Writ Petition No. 3607, the sole petitioner is the Bijli Cotton Mills (P.) Ltd., Hathras (hereinafter called the company). The respondents are the same as in the first petition.
In the Writ Petition No. 1691, the petitioner is Messrs. Vishwanath Seth. The respondents are : (1) the Income-tax Officer, A-Ward, Varanasi, (2) the Inspecting Assistant Commissioner of Income-tax, Varanasi, and (3) the Commissioner of Income-tax, U. P.
The petitioners in the Writ Petition Nos. 3605, 3606 and 3607 are interconnected. Mrs. Uma Lal is the wife of Sri Ram Babu Lal. He is the brother of Messrs. Tara Chand Agrawala and Jawahar Lal. He is the managing director of the company. Mrs. Uma Lal and Messrs. Tara Chand Agrawala and Jawahar Lal are the partners of the firm.
The firm has its head office in Hathras. It has also its branches in Calcutta and Jullunder. It carries on the business of manufacturing and selling non-ferrous metals and their alloys and castings. It is assessed to income-tax by the Income-tax Officer, A-Ward, Aligarh. At the point of time with which we are concerned in the first three cases, the third respondent was the Income-tax Officer of A-Ward.
The company carries on the business of manufacturing and selling cotton yarn, newars, cardigans and civil and military tents, etc., and owns a cotton textile mill in Hathras. The mill is popularly known as the Bijli Mills.
The allegations in the three cases are similar. Accordingly, we shall take up the Writ Petition No. 3605 of 1963 as the leading case. The allegations in this petition are that the firm has always been paying income-tax regularly, that it has always produced such documents and account-books, etc., as were demanded by the Income-tax authorities and that it has never been found guilty o evasion of its tax liability. On July 2, 1963, the premises of the firm were searched by the respondents Nos. 2 to 10, the other employees of the income-tax department and some policemen. The houses of Sri Ram Babu Lal and his wife and Sri Ram Babu Lals house was also searched on July 6, 1963. The premises of the company were also searched on July 2, 1963. The search was arbitrary and indiscriminate. The respondents seized a large number of documents arbitrarily and indiscriminately without any regard to their relevancy. The search was mala fide and on the instigation of one Heera Lal, who was inimical to Sri Ram Babu Lal. The Commissioner of Income-tax authorised the search without applying his mind to the fact whether it was necessary. He did not record any reasons for authorising the search. He authorised the search on the behest of the Directorate of Inspection (the Central Board of Revenue), Delhi, No inventory of the seized materials was prepared.
The petitions contain some more allegations but we have left them out, for the pleas based on them were no pressed before us. We have mentioned only such allegations as were made the foundation of arguments by counsel for the petitioners.
In the Writ Petition No. 1691 of 1965, the petitioner is a partnership firm. It carries on the business of speculation in bullion and cotton etcetera; it also deals in bullion and gold and silver ornaments. It has three shops, two in Jaunpur and one in Varanasi. Its head office is in Jaunpur. On February 10 and 11, 1965, the two shops and the hose of the partners in Jaunpur were searched by the income-tax authorities. On February 11 and 12, the shop in Varanasi was searched. Books of accounts, bullion and ornaments were seized. The cash and old silver coins were also seized. The search and the seizure were arbitrary and indiscriminate. On April 14, 1965, the petitioner received a notice dated April 12, 1965, regarding determination of the estimated tax liability under section 132(1B) of the Income-tax Act, 1961 (hereinafter called the Act). April 17 was the date fixed for hearing. The notice was issued after the expiry of the statutory period prescribed by rule 112A of the Income-tax Rules. Accordingly, the proceedings are illegal.
In all these petitions the main prayers are that the search and seizure should be declared illegal and unconstitutional and that the seized articles should be returned to them. In the Writ Petition No. 1691, there is also a prayer that the respondents should be prohibited from proceeding further with the hearing of the case under section 132(1B).
The common constitutional question is that section 132 of the Act is violative of articles 14 and 19(1)(f) of the Constitution and is accordingly void and inoperative. The search and seizure made under section 132 is accordingly illegal. Counsel for the petitioner in the Writ Petitions Nos. 3605, 3606 and 3607 have advanced several other arguments before us. Those arguments are :
(1) Section 6 of the Act No. 1 of 1965 does not validate the searches in the instant case.
(2) In any case, section 6 relates only to searches and does not validate the seizure of articles.
(3) In any case, section 6 does not cure the breach of rule 112.
(4) It does not also repaid the breach of the condition precedent that there should be a proper authorization by the Commissioner of Income-tax.
(5) As searches were unconstitutional, they cannot be validated.
(6) As section 6 seeks to protect past searches and seizure whose legality is still in question and does not purport to validate such past searches and seizures as were challenged in courts and were held to be illegal, it violates article 14 of the Constitution.
(7) Section 6 is also hit by article 119(1)(f) of the Constitution.
(8) The search and seizure was affected by malice in fact as well as malice in law.
Sri B. L. Gupta, counsel for the petitioner in the Writ Petition No. 1691 of 1965, has argued the following points :
(1) As the notice required by rule 112A was not sent within the period prescribed, the proceedings for assessment of the firm are illegal.
(2) The returns for the previous years having been submitted, the Income-tax Officer could not form an opinion that the petitioner was suppressing income until the cases for the said years have been decided.
Before discussing various arguments it will be proper and necessary to sketch the historical background of the statutory provisions which call for consideration in these cases. Section 132 of the Act is similar to section 37(2) of the Income-tax Act, 1922. Searches made under section 37(2) were questioned, inter alia, on the grounds that section 37(2) was violative of articles 14 and 19(1)(f) of the Constitution and that the searches were made mala fide. In Surajmull Nagarmull v. Commissioner of Income-tax the validity of section 37(2) was upheld by the Calcutta High Court. It was also held that the impugned search was not made mala fide. But in Senairam Doongarmal Agency (P.) Ltd. v. K. E. Johnson the majority of a Full Bench of the Assam High Court held that the section 37(2) was violative of articles 14 and 19(1)(f). The Full Bench further held that the search was made mala fide. During pendency of these two case, the Income-tax Act, 1922, has been repealed by the Act and section 132 of the Act is similar to section 37(2). Section 132, as it stood originally, consisted of ten sub-sections. It provided that any Income-tax Officer specially authorised by the Commissioner of Income-tax may search any building or place where he has reason to believe that any books of account or other documents which, in his opinion, will be useful for or relevant to any proceeding under the Act may be found and may seize any such book of account or other document. The power of search and seizure was to be exercised in accordance with the Rules made in that behalf. Rule 112 framed by the Central Board of Revenue provided that the Commissioner of Income-tax may, for reasons to be recorded, issue a written order specially authorising any Income-tax Officer subordinate to him to enter any building or place, specified in the order, where he had reason to believe that books of account or other documents which, in his opinion, will be relevant to or useful for any proceeding under the Act may be found. Such order may authorise the Income-tax Officer to search the said building or place with such assistance of police officers as may be required, to take possession of or seize any books of account or other document found therein as, in his opinion, will be relevant to or useful for any proceeding under the Act. The Commissioners order was to be drawn in Form No. 45.
The validity of a search, purported to have been made under section 132 read with rule 112 was challenged in this court in Seth Brothers v. Commissioner of Income-tax, on the grounds that section 132 was violative of articles 14 and 19(1)(f) of the Constitution, and that the impugned search was mala fide. The court found in that case that the search was mala fide and, accordingly, refrained from examining the constitutionality of section 132. The decision of the court was given on March 27, 1964. On April 28, 1964, the Finance Act of 1964 was enacted by Parliament. Section 30 of the Finance Act amended section 132. This amendment, however, did not touch the searches already made under section 37(2) of the Income-tax Act, 1922, or under section 132 as it stood before the amendment. On account of this omission in the amendment, the President of India promulgated an ordinance again amended section 132. Section 6 of the Ordinance dealt with the searches already made under section 37(2) and section 132. The Ordinance was later replaced by the Income-tax (Amendment) Act I of 1965. Section 2 of this Act amended section 132 and section 132. Section 6 of the Ordinance dealt with the searches already made under section 37(2) and section 132. The Ordiance was later replace by the Income-tax (Amendment) Act I of 1965. Section 2 of this Act amended section 132. Section 6 of this Act deals with the searches already made under section 37(2(and section 132. This Act repealed the Ordinance.
In view of the provisions of section 6 of the Income-tax (Amendment) Act, 1965, it is now not necessary to express any opinion on the first argument of Mr. Khare that section 132 of the Act as it stood at the time of the impugned searches was hit by articles 14 and 19(1)(f) of the Constitution. Let us assume for the sake of argument that section 132 as it stood at the time of the impugned searches was inconsistent with articles 14 and 19(1)(f). Section 6 says that the impugned searches shall now be deemed to have been made in accordance with the provisions of section 132 as amended by the Indian Income-tax (Amendment) Act, 1965.
We shall now discuss the sixth and seventh arguments of Mr. Khare. It is argued that section 6 violates article 14 because it does not seek to protect such past searches and seizures as were challenged in courts ad were held to be illegal or unconstitutional. This argument proceeds on a misapprehension of the true scope of section 6. The words of section 6 are very wide. It says that 'any search' made before the commencement of the Income-tax (Amendment) Act, 1965, shall be deemed to have been made under the amended section as if the amended section was in force on the day the search was made. In the result, even searches, which were held in the case of Seth Brothers that no search could be made under the original section 132 in connection with an assessment proceeding under the Indian Income-tax Act, 1922. Section 6 now says that such a search would be deemed to have been made under the amended section 132 as if the amended section 132 was in force on the day the search was made. Similarly, a search made under the original section 132 shall be deemed to have been made under the amended section 132. If the amended section 132 is constitutional, it will give protection to the officer who made the past searches which were held to be illegal or unconstitutional. Without section 6 the searching officer would not be protected by section 293 of the Act from being sued for damages for unconstitutional search. It may be said that the seized articles, which must have been released after decision of courts, cannot now be reseized by virtue of section 6, but that will not be a sufficient ground for holding that section 6 is discriminatory.
We are of opinion that section 6 does not infringe article 14 of the Constitution. The challenge based on article 19(1)(f) is barred to the petitioners during the life of the proclamation of emergency. Mr. Khare says that the proclamation of emergency will not exclude the application of article 19 because the retrospectivity of section 6 goes back to a period prior to date of its commencement. There is no substance in this argument. Article 358 of the Constitution immunises an Act from the challenge of article 19 if it is enacted during the period of emergency. An Act made during emergency may be prospective as well as retrospective.
We shall now take up the argument of mala fide. In the first instance, it is argued that the searches were motivated by malice in fact. The allegations in support of the argument are made in paragraphs 15 to 30, 33, 43, 44 and 52 to 54 of the Writ Petition No. 3605. The gist of the allegations is that one Heera Lal Burman is a business rival of Ram Babu Lal. He is connected with the Ramchandra Spinning and Weaving Mills. Ram Babu Lal purchased a bungalow belonging to the mill. The company purchased the mills in a court auction. On account of this purchase Heera Lal Burman was highly offended with Ram Babu Lal. Ram Babu Lal had made these purchases in spite of the request of Heera Lal Burman to the contrary. It is alleged in paragraphs 28 and 29 of the petition that Heera Lal Burman colluded with the third respondent with a view to ruin Ram Babu Lal business 'by himself and through the agency of other persons. ' He 'instigated the income-tax authorities' with an ulterior motive to cause loss of reputation, harassment and humiliation and ruin of the petitioners and Ram Babu Lal.'It is learnt' that with this end Heera Lal Burman sent or caused to be sent complaints against the petitioners and Ram Babu Lal to various persons including the Special Police Establishment at Delhi and Lucknow, making wild allegations against them. In proof of malice in fact it is further alleged that searches were made deliberately at a time when Ram Babu Lal and others were out of Hathras.
We are not prepared to believe these allegations. Firstly, paragraphs 28 and 29, which are most crucial paragraphs, have been verified by G. K. Gupta, general manager of the first petitioners on 'information received'. The source of information has not been disclosed. Secondly, the allegations in paragraphs 28 and 28 are vague and lacking in particulars. Thirdly, the third respondent has filed a counter affidavit denying the allegation in support of the plea of malice in fact. The other Income-tax Officers have filed affidavits adopting the affidavit of the third respondent. There appears to be no reason why the affidavits of the respondents should be disbelieved. Fourthly, there is no independent and impartial testimony in proof of the allegations. It is interesting to note that, although G. K. Gupta filed an affidavit in support of the petition, he did not file a rejoinder affidavit controverting the affidavit of the third respondent. Another person has filed a rejoinder affidavit.
For all these reasons, the allegations regarding malice in fact remain unproved. We hold that the petitioners have failed to prove that the respondents made searches on account of malice in fact.
It is then argued that the searches were vitiated by malice in law. In support of this plea counsel for the petitioners have marshalled the following arguments :
1. The Commissioner of Income-tax had no reason to believe that a search was necessary in the circumstances of the case.
2. The Commissioner of Income-tax did not apply his mind to the question whether the search was necessary.
3. There was no material before the Commissioner of Income-tax to enable him to decide whether the search was necessary.
4. Letters of authorisation issued by the Commissioner of Income-tax were the typed copies of Form 45 in which the blanks were filled in by hand.'It appears' that they were filled in by the third respondent afterwards.
5. He did not record any reasons in the letters of authorisation.
6. Letters of authorisation did not mention any details or particulars of documents which were expected to be found, on search.
7. It 'appears that the letters of authorisation were issued' on the directive of the Directorate of Inspection, Delhi, and that the respondents never asked for any authorisation.
The Commissioner of Income-tax has filed a counter-affidavit denying these allegations. He has affirmatively stated that the blanks in the typed copies of Form 45 were completely filled in before the signed the letters of authorisation. He has further stated that he had received report from the third respondent and information from the Directorate of Inspection and that on the consideration of all this material he was satisfied that the search was called for. He has emphatically denied that he had directed the search on the direction of the Directorate of Inspection. He has also stated that reasons for the search were recorded by him separately and not in the letters of authorisation. There is no reason why we should disbelieve the Commissioner of Income-tax. His version gets support from the antecedent dealings of the petitioners in the matter of income-tax. At the time of the searches the assessments for 1960-61 and 1961-62 were pending. In the assessment years 1957-58 and 1958-59 the Income-tax Officer and the Appellate Assistant Commissioner had rejected the accounts of the firm and had applied the proviso to section 13 of the Income-tax Act in assessing tax. Their judgments were, however, reversed by the Appellate Tribunal. Penalties had also been imposed on some of the petitioners. It would appear from the affidavit of the third respondent that he suspected the account books of the petitioners. He has given three reasons for his suspicion. Firstly, the petitioner had a branch at Jullundur. Its income was not shown in the petitioners account books; secondly, the petitioners had shown in their accounts books a loan account of rupees two lakhs against hundis from certain parties at Bombay. There was suspicion that it was not a genuine loan account. Thirdly, the petitioners account books showed the value of their stock-in-trade at eight and a half lakhs while they had taken an over-draft of rupees ten lakhs against the stock-in-trade from the Punjab National bank Ltd., Hathras. Higher value of the stock was shown to the bank. In other words, the third respondent suspected that the petitioners account books were not accurate. We think that the question of malice in law should be examined in the background of these facts. It is not a case where the petitioner had, admittedly, a clean and unsuspected past record.
It is then said that the respondents Nos. 4 and 6 to 9 had no reason to believe that any books of account or other documents which in their opinion would be useful for, or relevant to, any proceeding under the Act, would be found in the course of search. They had nothing to do with the assessment of the petitioners. They did not know anything about the search till the search was made.
It is admitted by the respondents Nos. 4 and 6 to 9 that they have no concern with the assessment of the petitioners. It appears from the affidavit of the third respondent that he and the respondent No. 5 have jurisdiction to assess tax on the petitioners. It also appears from his affidavit that he and the respondent No. 5 had sent reports to the Commissioner of Income-tax asking for permission to make a search. He says that, as several premises were to be searched simultaneously, the Commissioner of Income-tax authorised the respondents Nos. 4 and 6 to 9 to make searches along with him and the respondents No. 5 We believe the third respondent and find no merit in the allegation of the petitioners. The officers who counted, namely, the respondents Nos. 3 and 5, had reasons to believe that documents useful for or relevant to a proceeding would be found during search.
It is then pointed out that malice in law is borne out from the fact that there was indiscriminate search and seizure of documents. The documents of petitioners, of Ram Babu Lal and of his sons having no relevance were seized. The third respondent has denied this allegation and has alleged that only such documents were seized as were considered by the respondents to be useful and relevant.
It is a fact that a few documents which do not apparently seem to be relevant to any pending proceedings were seized. Even so, we are unable to hold that the search was mala fide for that reason. It is not shown that documents belonging to the sons of Ram Babu Lal were seized.
It is also pointed out that at the time of seizure the Income-tax Officer did not record reasons showing that the seized documents were relevant to any proceeding. It is not a statutory requirement to record at the time of search reasons showing the relevancy of the seized documents to a proceeding.
It is then pointed out that several persons, who were not authorised to make a search, were associated with the respondents in making the search. The affidavit of the third respondent states that the respondents were accompanied by three inspectors, one sub-inspector of police and about 12 policemen. The three inspectors were taken for doing clerical and ministerial work during the search. The sub-inspector and the 12 policemen were taken for ensuring the maintenance of peace and order and for preventing obstruction and illicit removal of documents. The affidavit, in our opinion, offers adquate explanation for taking the help of outsiders. That apart, we are not satisfied that the association of outsiders at the time of search would make the search mala fide. For the same reason, the argument that identification marks were not placed on the seized documents loses importance. It may be mentioned that the documents which were seized in the course of search were later kept in a sealed cover by a Commissioner appointed by this court.
It is then alleged that the safeguards provided for in the Code of Criminal Procedure were not observed in the course of search. It is stated that no independent or respectable person of the locality was present at the time of the search. No representative of the petitioner was present at the time of the search. The search party did not give search of their persons before entering upon search of the premises. Our first comment on this argument is that it is based on allegations which are not properly verified in the affidavit of G. K. Gupta. They are based on information, but the source of information has not been disclosed. Some of these allegations are made in paragraph 35 of the petitioner. Paragraph 35 is, however, defectively verified. It is said that a part of the paragraph 35 is based on personal knowledge and another part on information. It is not disclosed as to which part of it is based on personal knowledge and which part on information. It appears from the affidavit of the third respondent that the search which he had made was made in the presence of two witnesses, Madan Lal Bansal and Dr. Harbans Lal. He denies that the search was made in the absence of independent and respectable persons of the locality. He further states that the representatives of the firm were informed that they could take search of his persons but none of them liked to take search of his person. His affidavit of the third respondent and the other respondents, we find little force in this argument.
It is then said that the searches were made at a time when Ram Babu Lal, his wife and other important persons connected with the petitioners were out of station. The affidavit of the third respondent shows that the searches were made in the presence of G. K. Gupta and M. P. Jaiswal, the secretary of the Bijli Cotton Mills. The third respondent has stated that he was not aware of the absence of Ram Babu Lal and his wife from the station. In view of the affidavit of the third respondent, there is no force in the argument.
It is then said that the residence of G. K. Gupta was also searched although he has little connection with the petitioners. It is not correct to say that G. K. Gupta has no concern with the petitioners. He is the general manager of the firm.
Lastly, it is pointed out that the seized documents had been retained for unduly long period. It is true that the seized documents are still in the custody of the income-tax authorities. But for most of this delay the petitioners themselves are to blame. They filed writ petitions and obtained an interim order from this court appointing a Commissioner to put the documents in a sealed cover during pendency of the petition. The Commissioner put all the seized documents in a sealed cover sometime after filing of the petitions. They are still kept in the sealed cover. Accordingly, the income-tax authorities could not examine and make use of the seized documents. In the circumstances of the case, it is difficult to say that the documents had been retained for an unduly long time.
Counsel for the petitioners have tried to support their argument of malice in law by the cases of Seth Brothers and Sanai Ram Doongermal Agency Ltd. Those cases are clearly distinguishable from the present petitioners. Firstly, the background of those cases is different from the background of these cases. In those cases the previous record of the petitioners was found to be clean and unsuspect, in the present petitions the previous record of the petitioners is not inmaculate and above board. Secondly, in the case of Seth Brothers, there was an allegation that the Deputy Director of Inspection had ordered the searches and seizure of all documents and the Commissioner of Income-tax followed his order. Although the Commissioner of Income-tax had filed a counter-affidavit he did not deny this allegation. Counter-affidavits were filed by other respondents but they also did not deny this allegation. It was in the background of this crucial allegation, which was not denied by the respondents, that the court held that the search was mala fide. In the present case a similar allegation has been denied by the Commissioner of Income-tax as well as by other respondents. We have already held that the search was not made at the behest of the Director of Inspection.
In view of the foregoing discussion we are of opinion that the petitioners have failed to satisfy use that the searches were actuated by malice in fact or malice in law.
In view of our findings on the questions already discussed we think that it is not necessary to deal with the other points raised by Sri Khare.
We shall now take up the arguments of Shri B. L. Gupta in Writ Petition No. 1691 of 1965. It may be recalled that the searches were made in this case on February 10, 11 and 12, 1965, after section 132 had been amended by the Ordinance No. 1 of 1965. The Ordinance was promulgated on January 6, 1965. In March, 1965, the Ordinance was incorporated with certain modifications in Act No. 1 of 1965. Sub-section (1B) of section 132, as enacted by the Ordinance, provided that where any money, bullion, jewellery or other valuable article or thing is seized under sub-section (1) of section 132, the Income-tax Officer shall estimate the undisclosed income and calculate the tax on the income so estimated. Section 132(1B) in the Ordinance became section 132(5) in the Act No. 1 of 1965.
After the commencement of the Ordinance, rule 112 was amended on February 15, 1965. Rule 112A was for the first time added to the Rules. Sub-rule (1) of the rule 112A provided that where any money, bullion, jewellery or other valuable article or thing is seized, the Income-tax Officer shall issue a notice to the person in respect of whom enquiry under sub-section (1B) of section 132 is to be requiring him to explain how he came to possess the seized articles. On June 10, 1965, sub-section (1B) was replaced by sub-section (5) in sub-rule (1) of rule 112A. This express amendment was not necessary as a corollary to the fiction enacted in section 24 of the General Clauses Act, is was already necessary to read (5) for sub-section (1B) after enactment of the Act No. 1 of 1965.
The Income-tax authorities issued notice under sub-rule (1) of the rule 112A to the petitioner on April 12, 1965; it was served on the petitioner on April 14 1965. The argument is that the notice, having been issued after the expiry of the period prescribed in sub-rule (1), is illegal. Sub-rule (1) provides that in respect of the seized articles the Income-tax Officer 'shall within 15 days of the seizure issue (a notice) to the person in respect of whom enquiry under sub-section (1B) of section 132 is to be made.'In the present case the notice was evidently issued after the expiry of 15 days from the dates of the seizure of the articles. We are, however, of opinion that the notices is the illegal. Although sub-rule (1), quoted earlier, is in the imperative form, it appears to us that sub-rule (1) is not imperative; it is directory. Sub-section (1B) of section 132, as enacted by the Ordinance No. 1 of 1965, materially reads :
'Where any money, bullion jewellery or other valuable article or thing ...... is seized under sub-section (1), the Income-tax Officer aftert making an enquiry in such manner as may be prescribed, shall within ninety days of the sezure, make in order, with the previous approval of the Commissioner, -
(i) estimating the undisclosed income.... in a summary manner to the best of his judgment on the basis of such materials as are available with him;
(ii) calculating the tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922. ... or his Act;
(iii) specifying the amount that will be required to satisfy any existing liability under this Act...;
and retain in his custody.... such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts...'
Sub-section (1B) of section 132 provides for the estimation of the undisclosed income as well as for the assessment of tax on the income so estimated. If further provides that the said estimation and assessment of tax on the seized assets shall be done within 90 days of the seizure of the assets. It is to be done after makings an enquiry in such manner as may be prescribed. The intention of the legislature is that the seized assets should be made to yield the due tax. The legislature also intends that the assessment of tax should be done within 90 days of the seizure. If sub-rule (1) of rule 112A is read an mandatory, it is likely to frustrate this legislative intention in some cases. It would have the effect of cutting down the period mentioned in sub-section (1B) to a shorter period whereafter the estimation of the undisclosed income and assessment of tax on such income would be impossible. Again, the object of the legislature is that he estimation and assessment of tax should be done after an enquiry 'in such manner as may be prescribed. ' 'Prescribe' means prescribed by rules. The manner of enquiry is to be provided for by rules. The making of rules is however, not obligatory as is obvious fro the expression 'in such manner as may be prescribed. ' This is also clear from the language of section 295 which provided for the making of rules. Sub-section (1) of section 295 provides that the Board may make rules for carrying out the purpose of the Act. The rule making power, is therefore, exercisable at the choice of the Board. The rule making power being discretionary, we think that sub-rule (1) of rule 112A should not be construed as mandatory. The provision is designed to ensure a speedy initiaion of the enquiry so that the assessment may e completed within the time fixed by sub-section (1B).
Having regard to the context and object of sub-rule (1) of rule 112A we think that a notice issued after the expiry of 15 days from the date of seizure would not be illegal.
The last argument is that the search and seizure were mala fide. Shri B. L. Gupta has marshalled the following points in support of this argument :
(1) The Commissioner of Income-tax has no reason to believe that the account books and other documents were useful for or relevant or any proceedings and that any article which were income knot disclosed would be found in the premises.
(2) The letter of authorisation did not specify and particular documents to be searched.
(3) The income-tax authorities did not form any opinion regarding the relevancy of documents.
(4) The searching party was unduly large.
The Commissioner of Income-tax and the income-tax authorities have filed separate affidavits. In paragraph 3 of his affidavit the Commissioner of Income-tax, Shri M. S. Nadkarni, has stated that he had definite information that the petitioner had in his possession certain books of account and documents which were of such a nature that he would not produce them if called upon to do so in the ordinary course. He has further stated that the had also information that the petitioner was in possession of bullion, jewellery and other valuable articles which represented wholly or partly income of property which had not been disclosed for the purposes of assessment. On that information he formed a belief that a search of the petitioners premises was called for. Shri Hari Har Nath Sinhs, the Income-tax Officer, 'A' Ward, Varanasi, has also filed a counter-affidavit. It appears from his affidavit that in the past the account books of the petitioners were not always accepted as true. For instances, in the assessment year 1960-61, the petitioner showed a loss of Rs. 87,657 but the assessment was computed at Rs. 50,180. Again it appears that the returns filed by the petitioners for the years 1962-63 and 1963-64 were not accompanied by a balance-sheet and the profits and loss account. It also appears that the value of the seized assets approximates to Rs 25 lakhs, whereas, in the balance-sheet for the assessment year 1964-65 the petitioner has shown his total assets at about Rs. 50,000. These facts support the Commissioner of Income-tax when he says that he had reason to believe that action was called for under section 132. It is hardly necessary to specify the particulars of documents in the letter of aurhthorisation, nor is it possible for the Commissioner of Income-tax to do so.
In the background of the facts already mentioned, we are of opinion that the search and seizure was not mala fide. As all the arguments of counsel for the petitioners have failed, all these petitions are dismissed with costs.