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Assainar and anr. Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberO.P. Nos. 2226 and 2884 of 1972
Judge
Reported in[1975]101ITR854(Ker)
ActsIncome Tax Act, 1961 - Sections 132, 132(1) and 132(7)
AppellantAssainar and anr.
Respondentincome-tax Officer and ors.
Appellant Advocate K.P. Radhakrishna Menon and; K.K. Ravindranathan, Advs.
Respondent Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs.
Cases ReferredState of Gujarat v. Memon Mohamed Haji Hasan
Excerpt:
.....in this section and section 132 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; (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..........was made under section 110(1) of the customs act, but it was found on investigation that the money seized was not liable to confiscation. in fact no notice as contemplated by section 110(2) of the customs act, 1962, was issued. so the money seized was liable to be returned as provided by sub-section (2) of section 110 of the customs act, 1962. at that stage the income-tax officer who was empowered by the commissioner as envisaged by sub-section (1) of section 132 of the act intervened and issued a notice purporting to be under rule 112a of the income-tax rules, 1962, to the petitioner requiring him to explain the source of the above-said sum of rs. 50,000. counsel for the revenue made available to us what is called panchanama which from the terms thereof indicated that there has.....
Judgment:

Govindan Nair, C.J.

1. The same question arises for determination in these two petitions and the answer to the question depends on the interpretation to be placed on Section 132 of the Income-tax Act, 1961, for short the Act. To start with we shall read the section.

'132. (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 (11 of 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(11 of 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 (11 of 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 books 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 keys 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 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 (11 of 1922), or under this Act.

(5) Where any money, bullion, jewellery or other valuable article or thing (hereinafter in this Section and Section 132 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 (11 of 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 persoa 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 such 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(11 of 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 subsection (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 (5 of 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 were free ingress there to is not available;

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

Explanation 1.--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 (11 of 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 be commenced after such date in respect of any year.'

2. The facts which led up to the petition, O. P. No. 2226 of 1972, are the following. A sum of Rs. 50,000 was seized from the petitioner by the Central Excise Department on May 14,1971, at 11 p.m. when the petitioner, one Sri Assainar, was travelling from Payyannoor to Kottayam in a stage carriage. The seizure was made because it was suspected that the said amount represented the value of contraband gold. The seizure was made under Section 110(1) of the Customs Act, but it was found on investigation that the money seized was not liable to confiscation. In fact no notice as contemplated by Section 110(2) of the Customs Act, 1962, was issued. So the money seized was liable to be returned as provided by Sub-section (2) of Section 110 of the Customs Act, 1962. At that stage the Income-tax Officer who was empowered by the Commissioner as envisaged by Sub-section (1) of Section 132 of the Act intervened and issued a notice purporting to be under Rule 112A of the Income-tax Rules, 1962, to the petitioner requiring him to explain the source of the above-said sum of Rs. 50,000. Counsel for the revenue made available to us what is called Panchanama which from the terms thereof indicated that there has been a search of the office of the Customs Authorities and that the amount was seized. The notice under Rule 112A of the Income-tax Rules, 1962, is exhibit P-l, and the order under Sub-section (5) of Section 132 of the Act has been produced as exhibit P-2. By the order, exhibit P-2, the amount payable by way of tax on the sum of Rs. 50,000 which was taken to be the total income of the petitioner for the year in question was fixed at Rs. 19,550 and the balance amount has been returned to the petitioner. The order, exhibit P-2, is challenged in this petition. We shall state the grounds of the challenge later after stating the facts which led up to the petition, O. P. No. 2884 of 1972, for the grounds taken in the two petitions are the same. Now, turning to the facts in O.P. No. 2884 of 1972 they are very similar to the case that we have already stated excepting that the seizure took place pursuant to the provisions in the Foreign Exchange Regulation Act, 1947. The amount that was seized in that case was Rs. 50,010.15, A penalty of Rs. 25,000 was imposed under the Foreign Exchange Regulation Act, 1947. The balance amount available with the Enforcement Directorate was the sum of Rs. 25,010'I5. At that time the Income-tax Officer intervened and issued a notice similar to exhibit P-l, in O. P. No. 2226 of 1972 which is exhibit P-2, in this case and having obtained the custody of the sum of Rs. 25,010.15, proceeded to determine the liability of the petitioner in the O. P. by exhibit P-3 order and fixed it at Rs. 52,097. The entire sum of Rs. 25,010.15 was adjusted towards the liability and demand has been made on the petitioner for the balance amount due to the income-tax department.

3. The whole procedure adopted in these two cases has been challenged as unwarranted by law. Shortly stated, the argument which, it is seen, has been accepted by more than one High Court was that the seizure contemplated by Sub-section (1){c) of Section 132 of the Act is a seizure after search ; a search which will bring to light things hidden and without such a search there cannot be a seizure under Clause (c)(iii) of Sub-section (1) of Section 132. This is so because under Sub-clause (iii) of Clause (c) of Subsection (1) of Section 132 it is stated that the seizure must be of money or other valuable Article or thing found 'as a result of the search'. fn cases where it was known that certain amounts were with an officer or even in cases where they were visible on a table in an open hall there can be no seizure and no order can be passed under Sub-section (3) of Section 132, for Sub-section (3) of Section 132 will come into operation only in cases where a seizure is 'impracticable'. So the Calcutta High Court found that subsection (3) of Section 132 which enables the issuance of an order by the Income-tax Officer to some other authority to hold the money or other article and not to deal with it without the permission of the officer is inapplicable in cases where a search was unnecessary. The decision is in K E. Johnson v. Laxmipat Choraria, : [1974]93ITR489(Cal) . The Allahabad High Court came almost to the same conclusion with a very slight difference in the reasoning and the decision is in Motilal v. Preventive Intelligence Officer, Central Excise and Customs, : [1971]80ITR418(All) . These were the two decisions mainly relied on by counsel for the petitioner on this aspect of the argument that has been advanced before us. A similar view has been taken by a learned judge of this court dealing with a criminal revision petition in regard to an order passed under Section 523 of the Criminal Procedure Code. That decision is in K. Choyi, Income-tax Officer v. Syed Abdulla Bafakki Thangal, : [1973]91ITR144(Ker) . Earlier, Justice Isaac, sitting with Justice Raghavan, as he then was, came to the conclusion that a criminal court exercising the discretion vested under the Criminal Procedure Code must return the goods seized for the purpose of the crimimal cases to the person who under a statute similar to the Income-tax Act had power to seize it. It was said that it would be unrealistic to insist that the article must be returned to the person from whom it was seized. Reliance was placed on the well-known passage in the decision in Smt. Godavari Shamrao Parulekar v. State of Maharashtra, : 1964CriLJ222 . The passage runs thus :

'The State Government, however, decided to revoke the order of November 7, 1962, and instead decided to pass an order under the Rules on the same day, namely, November 30, 1962. In these circumstances it would be in our opinion an empty formality to allow the appellants to go out of jail on the revocation of the order of November 7 and to serve them with the order dated November 10, 1962, as soon as they were out of jail.'

4. The Madras High Court in the decision in Mohammed Kunhi v. Mohammed Koya, : [1973]91ITR301(Mad) has taken the view that the Sub-clauses (i) and (ii) of Clause (c) of Sub-section (1) of Section 132 of the Act are merely enabling provisions and the fact that it was unnecessary to resort to those Clauses will not take away the power given by Clause (c) of Sub-section (1) of Section 132 which the court found was in substance and in effect a power of seizure. The learned judge expressed himself in somewhat strong terms and it is useful to read a passage from that judgment:

'The argument is that as the discovery of money in court deposit is not claimed to be the result of search of any building or place referred to in Clause (iii) of Sub-section (1) of Section 132 of the Act, the question of applying the provisions of Clause (iii) of Section 132(1) cannot arise. This argument, it is true, has found favour with two learned judges, one of the Orissa High Court (K. Ahmad C.J.) in Union of India v. Hadibandhu Das, : [1973]91ITR156(Orissa) and the other of the Kerala High Court (K. Bhaskaran J), in Crl. Revision Petition No. 306/72 (K. Choyi, Income-tax Officer v. Syed Abdulla Bafakki Thangal). With great respect to the two learned judges, I find myself unable to frustrate the legislative intent by putting too narrow a construction upon the language of Section 132 of the Income-tax Act. The primary power conferred by Parliament upon the Income-tax Officer is the power of seizure. The power to enter and search any building or break open the lock of any door, box, locker, safe, almirah or other receptacle is only an incidental powwr, the exercise of which will be only a means to the primary end, viz., the seizure. To say that the power of seizure is not exercisable unless it is preceded by the search of a building or breaking open of locks is to confuse the end with the means and to caricature the intention of the legislature, which, in order to facilitate the power of seizure, has provided also for the ancillary power of invading the privacy of people, by entering and searching their buildings and breaking open the receptacles where the thing to be seized might remain concealed. It would indeed be a captious and pernicious play on words to tell the Income-tax Officer, 'You have, no doubt, the power of seizure; but you cannot exercise it unless you go through the physical motions of entering a building, searching it, breaking open the locks therein and then finding the thing you want to seize as a result of your searching efforts.' It is conceivable that the thing to be seized is lying at the threshold of the building and without entering the building and searching and breaking open the locks, the Income-tax Officer may seize the thing straightaway. To say that such a seizure is illegal, because it is not the result of such a search as is contemplated in Clauses (i) and (ii) of Sub-section (1) of Section 132 of the Act is to indulge in a self-defeating piece of sophistry. After all, what is the meaning of the word 'search'? The Concise Oxford Dictionary says that it means 'look for' or 'seek out'. What the Income-tax Officer has done in this case is to enter the building of the court of the Second Presidency Magistrate and to look for or seek out the amount kept in court custody and ask that it may be paid over to him, because it represents wholly or partly undisclosed income of Mohammed Koya. Be it noted that the section does not say that the Income-tax Officer can enter and search only the building of the person who had failed to disclose his income for the purposes of the Income-tax Act. What the section says is that where any person is in possession of any money which represents wholly or partly undisclosed income, the Income-tax Officer can enter and search any building or place where he has reason to suspect that such money is kept. This means that seizure can be effected even from the custody of a person other than the person who has failed to disclose his income and from a building belonging to any person other than the defaulter. Putting even the narrowest construction upon Clause (iii) of Sub-section (1) of Section 132 of the Act, I hold that the Income-tax Officer has found the money in court deposit only as a result of such search as has been contemplated in the section. The resulting position is that the order of the court below directing refund of the entire amount in court deposit to the V-Income-tax Officer, Madras, is correct, and is hereby upheld. The criminal revision case of Mohammed Kunhi is dismissed.'

5. Reference was made to the decision of this court to which we have already adverted in K. Choyi, Income-tax Officer, Assessment-IV, Calicut v. Syed Abdulla Bafakki Thangal, as well as to a decision of the Orissa High Court in Union of India v. Hadibandhu Das. But the learned judge differed from the view taken in these two decisions. The view taken by the Madras High Court has also been taken by the Madhya Pradesh High Court in the decision in Pannalal v. Income-tax Officer, : [1974]93ITR480(MP) This exhausts the rulings on the subject that have been brought to our notice excepting thedecision of the Supreme Court dealing with the ambit and scope of Section 132 in Income-tax Officer, Special Investigation Circle 'B', Meerut v. Seth Brothers, : [1969]74ITR836(SC) . The dictum in that decision is the following :

'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. 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. 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. If 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. 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, in a petition by an aggrieved person, cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Again, 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.'

6. Counsel for the petitioner contended that the section must be strictly construed as it contains a drastic provision permitting the invading of the privacy of an individual and deprivation of his property by seizure and merely for the purpose of imposing income-tax for which other elaborate machinery is provided under the Act; the proceeding has been characterised as summary and it has been emphasised that the decision is almost final subject only to an appeal to the Board as provided by Sub-section (II) of Section 132 of the Act. The normal remedy under the Act when tax is imposed which is claimed as unjustifiable is to file appeals, two of them and then seek a reference to the High Court with a further appeal to the Supreme Court if the High Court was satisfied that an appeal should be permitted as envisaged by Section 261 of the Act. Therefore, it was submitted that we must construe the section so as to limit its scope and ambit. So construed it was contended that the procedure adopted in the two cases would not be justified. It was also contended that an officer who under the authority of law had seized the monies cannot be said to be a person inpossession against whom an order under Sub-section (3) of Section 132 could be passed. It was vehemently argued that Clause (c) of Sub-section (i) of Section 132 will have no application against such an officer. It was emphasised that the provisions in the Customs Act and the Foreign Exchange Regulation Act say that he who seized the articles must return the same to the person from whom it was seized.

7. We considered the question in all its aspects in the light of the elaborate arguments which lasted for more than a day. We think the problem has to be viewed in a different manner from which it has been looked at by the decisions that have been cited before us. 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. We have the authority of the Supreme Court in State of Gujarat v. Memon Mohamed Haji Hasan, AIR 1967 SC 1885 for this proposition. But once the proceedings were over, that officer will no more 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, we think that under Sub-section (1)(c) of Section 132 the article can be seized from such person because his possession was on behalf of the person who had possession before seizure. The procedure followed, namely, the issuance of notice, exhibit P-l in 0,P. No. 2226 of 197,2, and a similar notice, exhibit P-2 in O.P. No. 2884 of 1972, is only to demand that the money be handed over to the Income-tax Officer. Apart from that, it is seen from the panchanama already referred to regarding the seizure after search of the customs officer and a similar one regarding the obtaining of possession of the sum of Rs. 25,010'15, the subject-matter of O.P. No. 2884 of 1972, that actual searches were made and seizure of the amounts effected. The word 'search' in Section 132(1)(c)(i), considering the object and scope of the section, should not be given a far too technical meaning. The word 'search' has varied meanings and we think it should be given the general meanings 'to look for' or 'seek' which are well-known meanings attributable to the word. Section 132 itself specifically envisages that a seizure can be had from a person other than the owner of the assets seized. A reading of Sub-section (7) of Section 132 of the Act would make this clear s

'132. (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. We have already expressed the view that since the investigations were complete the customs authorities who held the money with which we are concerned in O.P. No. 2226 of 1972 and the authority under the Foreign Exchange Regulation Act who held the sum of Rs. 25,010.15 which was the subject-matter of O.P. No. 2884 of 1972 were holding it only on behalf of the persons from whom those amounts were seized by those authorities. By virtue of Sub-section (7) of Section 132 there could be a lawful seizure of those amounts from those authorities. Factually, there have been seizures as we have found and even searches were conducted as stated in the panchanamas.

9. In the light of the above, we are unable to accept the contention that there is any illegality vitiating the proceedings which would justify their annulment. In any view of the matter we certainly would not interfere by exercising our powers under Article 226 of the Constitution to set at naught proceedings taken to realise the income-tax due from the petitioners. In the circumstances which we have considered at length, we dismiss these petitions with costs.


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