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Shajahan and ors. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberO.P. Nos. 2453, 2460 and 2467 of 1975
Judge
Reported in[1976]46CompCas506(Ker); [1976]104ITR265(Ker)
ActsIncome-tax Act, 1961 - Sections 132(3); Constitution of India - Article 226
AppellantShajahan and ors.
Respondentincome-tax Officer and ors.
Appellant Advocate K.P.R. Menon, Adv.
Respondent Advocate P.A. Francis, Adv.
DispositionPetition allowed
Cases ReferredCalcutta Discount Co. Ltd. v. Income
Excerpt:
direct taxation - validity of order - sections 132 (1) (c) and 132 (3) of income-tax act, 1961 and article 226 of constitution of india - petition challenged order issued to bankers of petitioners restraining bank from removing, parting with or otherwise dealing with money in saving bank account of petitioner by tax officer issued under section 132 (3) - under section 132 (1) (c) search is in respect of money of which a person is in possession and which money either wholly or partly represents income or property which had not been disclosed for purpose of act and order under section 132 (3) could also only be issued only in respect of such money on ground that it is not practicable to seize same - act itself provides adequate remedy for person aggrieved by order under section 132 (3) -.....chandrasekhara menon, j.1. the same question arises in the three cases. what is under challenge in these cases are orders issued to the bankers of the petitioners, federal bank, punalur, restraining the bank from removing, parting with, or otherwise dealing with the money in the savings bank account of the petitioners, by the income-tax officer (authorised officer under section 132), a-ward, quilon, issued under section 132(3) of the income-tax act, 1961. i will extract in full the order challenged in o.p. no. 2453/75 marked as exhibit p-1 in that case :' prohibition under section 132(3) of the income-tax act, 1961.by virtue of the powers conferred on me by section 132(3) of the income-tax act, 1961, i. n. p. padmanabhan, income-tax officer, a-ward, quilon, an authorised officer, order.....
Judgment:

Chandrasekhara Menon, J.

1. The same question arises in the three cases. What is under challenge in these cases are orders issued to the bankers of the petitioners, Federal Bank, Punalur, restraining the bank from removing, parting with, or otherwise dealing with the money in the savings bank account of the petitioners, by the Income-tax Officer (authorised officer under Section 132), A-Ward, Quilon, issued under Section 132(3) of the Income-tax Act, 1961. I will extract in full the order challenged in O.P. No. 2453/75 marked as exhibit P-1 in that case :

' Prohibition under Section 132(3) of the Income-tax Act, 1961.

By virtue of the powers conferred on me by Section 132(3) of the Income-tax Act, 1961, I. N. P. Padmanabhan, Income-tax Officer, A-Ward, Quilon, an authorised officer, order that you, the agent the Federal Bank Ltd., Punalur, shall not remove, part with or otherwise deal with the books of accounts, other documents, money, bullion, jewellery or other valuable article or thing as per annexure of which you are in immediate possession or control either as owner or otherwise without any previous permission.

If you contravene this order, you shall be punishable with rigorous imprisonment which may extend to two years and shall also be liable to a fine under Section 275A of the Income-tax Act, 1961.

Annexure(A) Bank Accounts: Savings account No. 978/71, in the name ofSri M. Shajahan, Shaji Manzil, Valacode,Punalur.Dated 20-3-1975. Sd. Authorised Officer (under Section 132)Income-tax Officer, A-Ward, Quilon. '

Orders impugned in the other O.Ps. are similar and to the same effect.

2. The contention taken up by the petitioners is that Section 132(3) does not confer any power on the authorised officer, that is, the first respondent, to issue a prohibitory order in the nature of exhibit P-I. The reading of the said provision, it is said, would indicate that the proceedings envisaged therein must relate to money, etc., which has not been disclosed for the purpose of the Income-tax Act and which it is not practicable to be seized by invoking the provisions contained in Sub-section (1) of Section 132 for any reason whatsoever, one of which may be because it is in the immediate physical possession or control of a third person. Though the bank account may be one of the documents that will be scrutinized by the assessing authority while making a regular assessment, it cannot be said that the money found in a running account maintained by a businessman with a bank represents money which is in the possession or custody of such person, but which has not been disclosed for the purpose of the Act. Money deposited with the bank, even if it may not have been disclosed for the purpose of the Act, cannot be equated with physically concealed money.

3. The revenue naturally takes up the position that the order is legal and with jurisdiction. In this connection it will be useful to examine the scope and ambit of Section 132, which reads:

'(1) Where the Director of Inspection or the Commissioner, in consequence of information in his possession, has reason to believe that--

(a) any person to whom a summons under Sub-section (1) of Section 37 of the Indian Income-tax Act, 1922, or under Sub-section (1) of Section 131 of this Act, or a notice under Sub-section (4) of Section 22 of the Indian Income-tax Act, 1922, or under Sub-section (1) of Section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or

(b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922, or under this Act, or

(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed for the purposes of the Indian Income-tax Act, 1922, or this Act (hereinafter in this section referred to as the undisclosed income or property),

he may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer (hereinafter referred to as the authorised officer) to--

(i) enter and search any building or place where he has reason to suspect that such hooks of account, other documents, money, bullion, jewellery or other valuable article, or thing are kept;

(ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by Clause (i) where the koys thereof are not available ;

(iii) seize any such books of account, other documents, money, bullion, jewellery or other valuable article or thing found as a result of such search;

(iv) place marks of identification on any books of account or other documents or make or cause to be made extracts or copies therefrom;

(v) make a note or an inventory of any such money, bullion, jewellery or other valuable article or thing.

(2) The authorised officer may requisition the services of any police officer or of any officer of the Central Government, or of both, to assist him for all or any of the purposes specified in Sub-section (1) and it shall be the duty of every such officer to comply with such requisition.

(3) The authorised officer may, where it is not practicable to seize any such books of account, other documents, money, bullion, jewellery, or other valuable article or thing, serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and such officer may take such steps as may be necessary for ensuring compliance with this sub-section.

(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922, or under this Act.

(5) Where any money, bullion, jewellery or other valuable article or thing (hereinafter in this section and Section 132A referred to as the assets) is seized under Sub-section (1), the Income-tax Officer, after affording a reasonable opportunity to the person concerned for being heard and making such enquiry as may be prescribed, shall, within ninety days of the seizure, make an order, with the previous approval of the Commissioner,--

(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ;

(ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922, or this Act;

(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in Clause (a) of Sub-section (1) of Section 230A in respect of which such person is in default or is deemed to be in default,

and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in Clauses (ii) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized :

Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized :

Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in Clauses (ii) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case.

(6) The assets retained under Sub-section (5) may be dealt with in accordance with the provisions of Section 132A.

(7) If the Income-tax Officer is satisfied that the seized assets or any part thereof were held by such person for or on behalf of any other person, the Income-tax Officer may proceed under Sub-section (5) against such other person and all the provisions of this section shall apply accordingly.

(8) The books of account or other documents seized under Subsection (1) shall not be retained by the authorised officer for a period exceeding one hundred and eighty days from the date of the seizure unless the reasons for retaining the same are recorded by him in writing and the approval of the Commissioner for stich retention is obtained :

Provided that the Commissioner shall not authorise the retention of the books of account and other documents for a period exceeding thirty days after all the proceedings under the Indian Income-tax Act, 1922, or this Act in respect of the years for which the books of account or other documents are relevant are completed. (9) The person from whose custody any books of account or other documents are seized under Sub-section (1) may make copies thereof, or take extracts therefrom, in the presence of the authorised officer or any other person empowered by him in this behalf, at such place and time as the authorised officer may appoint in this behalf.

(10) If a person legally entitled to the books of account or other documents seized under Sub-section (1) objects for any reason to the approval given by the Commissioner under Sub-section (8), he may make an application to the Board stating therein the reasons for such objection and requesting for the return of the books of account or other documents.

(11) If any person objects for any reason to an order made under Sub-section (5) he may, within thirty days of the date of such order, make an application to such authority, as may be notified in this behalf by the Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority), stating therein the reasons for such objection and requesting for appropriate relief in the matter.

(12) On receipt of the application under Sub-section (10) the Board, or on receipt of the application under Sub-section (11) the notified authority, may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit.

(13) The provisions of the Code of Criminal Procedure, 1898, relating to searches and seizure shall apply, so far as may be, to searches and seizure under Sub-section (1).

(14) The Board may make rules in relation to any search and seizure under this section ; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer--

(i) for obtaining ingress into such building or place to be searched where free ingress thereto is not available;

(ii) for ensuring safe custody of any books of account or other documents or assets seized.

Explanation I.--In computing the period of ninety days for the purposes of Sub-section (5), any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.

Explanation 2.--In this section, the word 'proceeding' means any proceeding in respect of any year, whether under the Indian Income-tax Act, 1922, or this Act, which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may bo commenced after such date in respect of any year.'

5. The Central Board of Direct Taxes has, in exercise of the power conferred by Section 295(1) of the Act, framed Rule 112 prescribing the procedure to be followed by the Commissioner and authorised officers and Rule 112A about the motion of enquiry under Section 132. Rules 112B and 112C deal with how the assets are to be released if they have to be released. The said rules are hereinbelow extracted :

'Rule 112. Search and seizure.--(1) The powers of search and seizure under Section 132 shall be exercised in accordance with Sub-rules (2) to (14).

(2) The Director of Inspection, or the Commissioner may, after recording his reasons for doing so, authorise any Deputy Director of Inspection, or any Inspecting Assistant Commissioner or any Assistant Director of Inspection or any Income-tax Officer for the purposes of Section 132 of the Act; such authorisation shall--

(i) be in writing under his signature ;

(ii) bear his seal; and

(iii) authorise the Deputy Director of Inspection or the Inspecting Assistant Commissioner or the Assistant Director of Inspection or the Income-tax Officer, as the case may be (hereinafter referred to as the authorised officer), to enter and search any building or place specified therein and to exercise the powers and perform the functions under Subsection (1) of Section 132, with such assistance of police officers or officers of the Central Government, or of both, as may be required.

(3) Whenever any building or place authorised to be searched is closed, any person residing in or being in charge of such building or place shall, on demand by the authorised officer and on production of the authority, allow him free ingress thereto and afford all reasonable facilities for a search therein.

(4) If ingress into such building or place cannot be so obtained it shall be lawful for the authorised officer executing the authority, with such assistance of police officers or of officers of the Central Government, or of both, as may be required, to enter such building or place and search therein and in order to effect an entrance into such building or place, to break open any outer or inner door or window of any building or place, whether that of the person to be searched or of any other person, if after notification of his authority and purpose and demand of admittance duly made, he cannot otherwise obtain admittance :

Provided that, if any such building or place is an apartment in actual occupancy of a woman, who according to custom does not appear in public, the authorised officer shall, before entering such apartment, give notice to such woman that she is at liberty to withdraw and shall afford her every reasonable facility for withdrawing and may then break open the apartment and enter it. (4A) The authorised officer may require any person who is the owner or has the immediate possession, or control, of any box, locker, safe, almirah or any other receptacle situate in such building or place, to open the same and allow access to inspect or examine its contents, and, where the keys thereof are not available or where such person fails to comply with any such requirement, may cause any action to be taken including the breaking open of such box, locker, safe, almirah or other receptacle, which the authorised officer may deem necessary for carrying out all or any of the purposes specified in the authority issued under Sub-rule (2).

(4B) The authorised officer may, where it is not practicable to seize the money, bullion, jewellery or other valuable article or thing or any books of account or document, serve an order on the owner or the person who is in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of the authorised officer, who may take such steps as may be necessary for ensuring compliance with this Sub-rule.

(5) Where any person in or about such building or place is reasonably suspected of concealing about his person any article for which search is being made, such person may also be searched by the authorised officer with such assistance as he may consider necessary. If such person is a woman, the search shall be made by another woman with a strict regard to decency.

(6) Before making a search, the authorised officer about to make it shall call upon two or more respectable inhabitants of the locality in which the building or place to be searched is situate to attend and witness the search and may issue an order in writing to them or any of them so to do.

(7) The search shall be made in the presence of the witnesses aforesaid and a list of all things seized in the course of such search and of the places in which they were respectively found shall be prepared by the authorised officer and signed by such witnesses; but no person witnessing a search shall be required to attend as a witness of the search in any proceedings under the Indian Income-tax Act, 1922, or this Act unless specially summoned.

(8) The occupant of the building or place searched or some person on his behalf shall be permitted to attend during the search and a copy of the list prepared under Sub-rule (7) shall be delivered to such occupant or person. A copy shall also be forwarded to the Commissioner and also to the Director of Inspection where the authorisation under Sub-rule (2) has been issued by him.

(9) When any person is searched under Sub-rule (5), a list of all things taken possession of shall be prepared and a copy thereof shall be delivered to such person. A copy shall also be forwarded to the Commissioner and also to the Director of Inspection where the authorisation under Sub-rule (2) has been issued by him.

(10) The authorised officer shall place or cause to be placed the bullion, jewellery and other valuable articles and things seized during the search in a package or packages which shall be listed with details of the bullion, jewellery and other valuable articles and things placed therein ; every such package shall bear an identification mark and the seal of the authorised officer or any other income-tax authority not below the rank of Income-tax Officer and the occupant of the building or place searched or any other person in his behalf shall also be permitted to place his seal on them. A copy of the list prepared shall be delivered to such occupant or person. A copy shall also be forwarded to the Commissioner and also to the Director of Inspection where the authorisation under Sub-rule (2) has been issued by him.

(11) The authorised officer may convey the books of account and other documents, if any, seized by him in the course of the search made by him and the package or packages, if any, referred to in Sub-rule (10) to the office of any income-tax authority not below the rank of Income-tax Officer (hereinafter referred to as the Custodian). Any money seized in the search referred to above may also be deposited with the Custodian.

(12) (i) The Custodian shall take such steps as he may consider necessary for the safe custody of--

(a) books of account and other documents, and

(b) the package or packages, conveyed to him.

(ii) The Custodian may deposit for safe custody all or any of the packages with anybranch of the Reserve Bank of India or the State Bank of India or of its subsidiaries or a Government treasury.

(iii) Where any money has been deposited with the Custodian, he may credit the money or remit the money through the nearest Government Treasury free of charge for being credited in the personal Deposit Account of the Commissioner in the Government Treasury at the place where the office of the Commissioner is situate.

(13) (i) Whenever any sealed package is required to be opened for any of the purposes of the Act, the authorised officer may, unless he is himself the Custodian, requisition the same from the Custodian and on receipt of the requisition, such package or packages, as the case may be, shall be delivered to him by the Custodian. The authorised officer may break any seal and open such package in the presence of two respectable witnesses after giving a reasonable notice to the person from whose custody the contents were seized to be present.

(ii) Such person shall be permitted to be present till all or any of the contents of such package are placed in a fresh package or packages and sealed in the manner specified in Sub-rule (1) or delivered to such person or the Custodian, as the case may be.

(14) The authorisation of the Director of Inspection or the Commissioner referred to in Sub-rule (2) shall be in Form No. 45.

Rule 112A. Inquiry under Section 132.--(1) Where any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) are seized, the Income-tax Officer shall within fifteen days of the seizure issue to the person in respect of whom enquiry under Sub-section (5) of Section 132 is to be made requiring him on the date to be specified therein (not being earlier than fifteen days from the date of service of such notice) either to attend at the office of the Income-tax Officer to explain or to produce or cause to be there produced evidence on which such person may rely for explaining the nature of the possession and the source of the acquisition of the assets.

(2) The Income-tax Officer may issue a notice to the person referred to in Sub-rule (1) requiring him on a date specified thereinto produce or cause to be produced at such time and at such place as the Income-tax Officer may specify such accounts or documents or evidence as the Income-tax Officer may require and may from time to time issue further notices requiring production ot such further accounts or documents or other evidence as he may require.

(3) The Income-tax Officer may examine on oath any other person or make such other inquiry as he may deem fit.

(4) Before any material gathered in the course of the examination or inquiry under Sub-rule (3) is used by the Income-tax Officer against the person referred to in Sub-rule (1) the Income-tax Officer shall give a reasonable notice to that person to show cause why such material should not be used against him.

Rule 112B. Release of articles under Section 132(5)--Where in pursuance of Sub-section (5) of Section 132 of the Act, the assets or part thereof have to be released, the Income-tax Officer shall forthwith deliver the same to the person from whose custody they were seized in the presence of two respectable witnesses,

Rule 112C.--Release of remaining assets.--Any assets or proceeds thereof which remain after the liabilities referred to in Clause (i) of Subsection (1) of Section 132A are discharged shall be forthwith made over or paid to the person, from whose custody the assets were seized in the presence of two respectable witnesses.'

6. In the light of decided cases there cannot be, and rightly the petitioners have not made, any attack on the constitutionality of the concerned section or rule. While making a law under anv entry in the Schedule to the Constitution, it is competent to the legislature to make all such incidental and ancillary provisions as may be, necessary to effectuate the law. In the case of a taxing statute, it is open to the legislature to enact provisions which would check evasion of tax. It is under this power to check evasion that provision for search and seizure is made in many taxing statutes. The legislature has, therefore, power to provide for search and seizure in connection with taxation laws in order that evasion may be checked (see Commissioner of Commercial Taxes v. Ramkishan Shri-kishan Jhaver, : [1967]66ITR664(SC) ).

7. The scope of the section and of the rules framed in furtherance of the section has been considered by the Supreme Court in Income-tax Officer, Special Investigation Circle ' B', Meerut v. Seth Brothers, : [1969]74ITR836(SC) . There it was a question of seizure of documents under Section 132(1)(b). The principles laid down in the above decision have been neatly summarised as follows in his commentaries on the Law of Income Tax by A.C. Sampath Iyengar, 6th edition, volume 2, pages 1459-1460 i

' (i) The issue of a search warrant by the Commissioner under Section 132 of the Income-tax Act, 1961, is not a judicial or a quasi-judicial act.

(ii) Since by the exercise of the power under Section 132 of the Income-tax Act, 1961, a serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised.

(iii) If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action.

(iv) If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court.

(v) // the conditions for the exercise of the power are not satisfied, the proceeding is liable to be quashed. But where power is exercised, bona fide, and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power. (Underlining is mine).

(vi) Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court, on a petition by an aggrieved person, cannot be asked to substitute its own opinion whether an order authorising the search should have been issued.

(vii) Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken provided the officer has, in executing the authorisation, acted bona fide.

(viii) The Act and the Rules do not require that the warrant of authorisation should specify the particulars of documents and books of accounts ; a general authorisation to search for and seize documents and books of account relevant to or useful for any proceeding complies with the requirements of the Act and the Rules.

(ix) It is for the officer making the search to exercise his judgment and seize or not seize any documents or books of account.

(x) An error committed by the officer in seizing documents which may ultimately be found not to be useful for or relevant to the proceeding under the Act will not by itself vitiate the search, nor will it entitle the aggrieved person to an omnibus order releasing all documents seized.

(xi) The aggrieved party may undoubtedly move a competent court to pass an order releasing the documents seized. In such a proceeding, the officer who has made the search will be called upon to prove how the documents seized are likely to be useful for or relevant to a proceeding under the Act.

(xii) If he is unable to do so, the court may order that those documents be released.

(xiii) The circumstance that a large number of documents have been seized is not a ground for holding that all the documents seized are irrelevant or the action of the officer is mala fide.

(xiv) The provisions of the Code of Criminal Procedure, 1898, relating to searches apply, so far as may be, to searches under Section 132.

(xv) Thereby, it is only intended that the officer concerned shall issue the necessary warrant, keep present respectable persons of the locality to witness the search, and generally carry out the search in the manner provided by the Code of Criminal Procedure.

(xvi) But Sub-section (13) of Section 132 does not imply that the limitations prescribed by Section 165 of the Code of Criminal Procedure are also incorporated therein.

(xvii) Where a warrant is issued in relation to a firm, the officer authorised thereunder is not restricted to searching for and taking possession of only those books of account and other documents which directly relate to the business carried on by the partners in the name of the firm.

(xviii) The books of account and other documents in respect of other businesses carried on by the partners would certainly be relevant because they would tend to show inter-relation between the dealings and supply materials having a bearing on the case of evasion of income-tax by the firm.

(xix) Merely because the income-tax officers made a search for and seized the books of account and documents in relation to business carried on in the names of other firms and companies, the search and seizure would not be illegal.

(xx) In the absence of anything to show that the documents seized were either replaced or tampered with, the irregularity of failing to place identification marks on several documents will not by itself supply a ground for holding that the search was mala fide.

(xxi) The keeping of police officers in the house of influential businessmen to ensure the protection of the officers and the records at the time of search could not amount to employment of excessive force [Sub-section (2)].'

8. Let us consider the legality of the order exhibit, P-1, in all these cases on the basis of the principles laid down by the Supreme Court. As Ayyangar points out (at page 1461) the power conferred under Section 132(1) is contemplated in relation to cases where the precise location of the article or thing is not known to the income-tax department, and, therefore, a search must be made for it, and where it will not be ordinarily yielded by the person having possession of it. The power to seize money, bullion, jewellery or other valuable article or thing is not an arbitrary power. The section does not confer such arbitrary authority upon the revenue officers. The Commissioner or the Director of Inspection must have in consequence of information, reason to believe that any person is in possession of such money or thing representing either wholly or partly, income or property which has not been disclosed for the purpose of the Indian Income-tax Act. Then recording reasons for the belief he must issue an authorisation in favour of a designated officer to search the premises and exercise the powers set out therein. The primary condition for entry into and making search of any building or place is the reason to believe that such money, article or thing would be found there. There, if it is found by the authorised officer that it is not practicable to seize such money or thing then an order could be served on the owner or the person in immediate possession or control thereof that he shall not remove, part with or otherwise deal with it except with the previous permission of such officer and the officer may take such steps as may be necessary for compliance with Sub-section (3). It is only with respect to money or other valuable article or thing in respect of which the Director of Inspection or the Commissioner in consequence of information in his possession has reason to believe that such money or article or thing represents either wholly or partly income or property which has not been disclosed for the purposes o the Income-tax Act and in regard to which he has authorised the officer concerned to enter and search any building or place where he has reason to suspect that such money, article or thing is kept, the authorised officer can pass an order under Section 132(3) when he finds it is not practicable to seize the same. If in the course of search, a bank pass book is found which might reveal that the income of the assessee has escaped assessment, then certainly the Income-tax Officer can take action under Section 147, but I do not think it will be legal for the officer to pass a prohibitory order under Section 132(3) to the bank. This is not a case of the money being kept in a locker in a bank which migh justify an order under Section 132(3), if the officer on a search finds that the money or thing has been given custody to the bank to be placed in a locker. It may be the pass book itself as a document evidencing deposit in a bank can be seized so that the tax authorities can take appropriate steps to tax the concealed income.

' 'The relation of banker and customer ', as Sir John Paget aptly remarks, 'is primarily that of debtor and creditor, the respective positions being determined by the existing state of the account. Instead of the money being set apart in a safe-room, it is replaced by a debt due from the banker. The money deposited with him becomes his property and is absolutely at his disposal, and, save as regards the following of trust funds into his hands, the receipt of money by a banker from or on account of his customer constitutes him merely the debtor of the customer with the ' super added ' obligation to honour his customer's cheques drawn upon his balance, in so far as the same is sufficient and available... When moneys are deposited in a bank the ownership of the money passes to the bank and the right of the bank over the moneys lodged with it cannot be a lien at all... The mere fact that a banker invites deposits, and is prepared to pay interest on them, is proof enough of his intention to make use of it as he likes, and earn interest therefrom, so as not only to enable him to pay interest to his depositor but also to earn profits for himself. But even if the banker pays no interest on the money deposited, he is his customer's debtor and not a bailee, because he undertakes to repay on demand a sum, equivalent to the amount deposited with him, and the customer has no right whatsoever to claim the identical coins or notes, deposited by him with his banker. The latter can pay the amount in any kind of legal tender '.' (Tannan--Banking Law and Practice in India, 11th edition, page 79). No doubt, with regard to securities and valuables deposited for safe custody, the banker's position is different. The property in them remains with the customer.

Sri P.A. Francis, learned counsel for the revenue, sought to contest the position that the money given for deposit to a bank is really loan given to the bank by bringing to my notice the following passage from paragraph 345 at page 308 of volume 10, American Jurisprudence, 2nd edition:

' Although the legal title to money on general deposit is in the bank, generally speaking, the deposit account is the property of the depositor or of the person to whose order the deposit is subject, whose right thereto may not be disputed by the bank, apart from the remedies allowed to a bank in the case of adverse claims.'

Another passage in paragraph 349 at page 313 also was relied on by him I

' A savings bank pass book is on a higher plane as an indicium of ownership than a pass book of a commercial bank, but mere possession, either of a savings bank passbook or of a deposit book used by commercial banks to record deposits, is not sufficient to establish the right to withdraw the deposit evidenced by the book, although presentation of a savings bank or department pass book is generally necessary at the time of withdrawing money from the account.'

9. This will not in any way go against what Tannan has stated and which I had quoted earlier. In paragraph 345 itself it is stated that the bank is legally the debtor of its general depositors. The matter is made more clear at paragraph 339, pages 301-302, of the same volume of the American Jurisprudence:

' Although money on deposit in a bank is commonly considered to be the property of the depositor, the relationship in fact between him and the bank is that of debtor and creditor; the amount on deposit represents merely an indebtedness by the bank to the depositor. It is therefore a fundamental rule of banking law that in the case of a general deposit of money in a bank, the moment the money is deposited it actually becomes the property of the bank and the bank and the depositor assume the legal relation of debtor and creditor. The legal effect of the transaction is that of a loan to the bank upon the promise and obligation, usually implied by law, to pay or repay the amount deposited, usually upon the demand ; there is nothing of a trust or fiduciary nature in the transaction, nor anything in the nature of a bailment in the transaction or relationship or in the nature of any right to the specific moneys deposited. Rather, the funds thus received are commingled with other funds of the bank and may be loaned or otherwise disposed of by the bank ; indeed if the funds are lost, destroyed, or stolen, or become worthless the loss must be borne by the bank, even though it is free from negligence or fault.' For the sake of completeness I will also quote from paragraph 340 at page 304 of the same book :' The relationship of a depositor in a savings bank, or of a depositor having a savings account, to the bank is dependent upon the nature of the bank's business or corporate make up and upon the way and for whose ultimate benefit the business of the bank is conducted. If the deposit is in a savings bank which has a capital stock and stockholders, the relationship is practically the same as that existing between the depositor of a commercial account and the bank which carries the account--namely, that of debtor and creditor. However, where a savings bank is conducted solely for the benefit of the depositors, the deposits constituting its only capital, and the income from interest, etc., after deducting expenses, is divided among the depositors, the relationship between them and the bank is not that of the ordinary debtor and creditor, but is more merely that of trustee and cestui que trust or quasi-stockholder and corporation.'

10. This would indicate that the law in America is in no way different from the law in England and India in regard to deposits in banks. No doubt, the debt due from a bank to its customers differs from ordinary commercial debts in one important respect, viz., that the general rule by which a request by the creditor for payment is unnecessary, does not apply. In Joachimson v. Swiss Bank Corporation , [1921] 3 KB 110 , Atkin L.J. gave the correct summary of the nature of the contract created by an account current in the following words :

' The bank undertakes to receive money and to collect bills for its customer's account. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours. It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer except upon reasonable notice. The customer on his part undertakes to exercise reasonable care in executing his written orders so as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept. Whether he must demand it in writing, it is not necessary now to determine.'

11. The above discussion would indicate that once money is deposited in a bank the depositor though he has got a legal title to the account has ceased to be the owner or having custody of the particular amount deposited in the bank in the account. He has really given the amount to the bank as loan; the money has become the bank's property which is absolutely at its disposal subject to the bank's obligation to honour the person's cheques drawn upon his account to the amount in credit in that account. With regard to that money I am of the view that no order under Section 132(3) of the Income-tax Act could be passed in the light of the provisions in that section. This is because under Section 132(1)(c) the search is in respect of the money of which a person is in possession and which money either wholly or partly represents income or property which had not been disclosed for the purpose of the Income-tax Act and the order under Section 132(3) could also only be issued only in respect of such money on the ground that it is not practicable to seize the same.

Therefore, I do not find any way to sustain the legality of exhibit P-1 order in the three cases.

12. The learned counsel for the revenue cited in support of his contention the decision of the Delhi High Court in Mrs. Kanwal Shamsher Singh v. Union of India, : [1974]95ITR80(Delhi) . The facts and decision in the case as summarised in the headnote of the case is as follows :

' While carrying out a search of the petitioner's residence pursuant to an authority under Section 132(1) of the Income-tax Act, 1961, on February 2, 1973, the authorised officer took possession of the keys of two lockers in a safe deposit company and both the lockers were sealed. On February 7, 1973, the lockers were opened, inventories of their contents were prepared and orders were issued to the company restraining it from parting with or allowing the contents of the lockers to be removed. Since no summary order of assessment was made thereafter within 90 days as provided in Section 132(5), the petitioner filed a writ petition in the High Court contending that the contents of the lockers were ' seized' on February 7, 1973, within the meaning of Section 132 and since no order was made as contemplated by Section 132(5) within 90 days therefrom, the seizure was illegal and prayed for a writ of mandamus directing the release of the assets or other appropriate reliefs :

Held, (i) that in Section 132(1)(iii) the legislature used the expression ' seize ' in its ordinary meaning : ' seizure ' of money, bullion, jewellery or other valuable article or thing envisaged in Section 132(1)(iii) meant the dispossession of the person from whom seizure is made and its assumption by the authorised officer. In this case there was no ' seizure ' within the meaning of Section 132; the authorised officer merely issued orders under Section 132(3) and did not assume possession of the contents of the lockers ; they remained where they were. The mere taking over of the keys of the lockers did not amount to dispossession of the petitioner in respect of their contents. The order under Section 132(2) on the bank restraining them from the lockers being operated also did not have this effect. The contents of the lockers remained, in fact and in law, in the same state as to their possession and custody as they were before. These acts of the authorised officer did have the effect of disabling the petitioner from dealing with the contents of the lockers but they did not amount to the same being taken over by the authorised officer on behalf of the department. The preparation of the inventories also made no difference in this regard.

(ii) That, however, the authorised officer did not have an unfettered discretion in the matter and did not have a right to indefinitely keep under seal and detain the goods found during a search by recourse to Section 132(3) of the Act. '

13. The decision may not be strictly relevant in the context of the present case.

Both sides have also drawn my attention to the decision of this court in Assainar v. Income-tax Officer, Calicut, : [1975]101ITR854(Ker) . The Division Bench has said therein that when articles have been seized pursuant to a provision in a statute as long as the enquiry is pending the person who seized the articles will be in the position of a bailee. But once the proceedings were over that officer will no longer be a bailee. The statutory obligation cast on him to return the article to the person from whom it was seized would come into operation. He would, therefore, be holding the article on behalf of the person from whom it was seized. If that be so, under Sub-section (1)(c) of Section 132, the articles can be seized from such person because his possession was on behalf of the person who had possession before seizure. The question that came up for consideration in that case being different, that case also is not pertinent here.

14. It was also contended on behalf of the revenue that the Act itself provides adequate remedy for a person aggrieved by an order under Section 132(3). Whether the Act provides such remedy or not, where any authority acts without jurisdiction or in excess of jurisdiction which action might result in unnecessary harassment of the person concerned, this court can intervene under Article 226. Alternative remedy even if available is not always a bar to this court acting under Article 226. I need only refer to the decision of the Supreme Court in Calcutta Discount Co. Ltd. v. Income-tax. Officer, Calcutta, : [1975]101ITR854(Ker) .

15. In the result the original petitions are allowed and exhibit P-1 in the three cases set aside. However, I make no order as to costs.


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