Bafna Textiles v. Income Tax Officer .

1. The petitioner Bafna Textiles, represented by its partner, has challenged in this writ petition the order dt. 6-3-1973 passed by the Income-tax Officer (Assessment 4) Circle II, Bangalore under Sec. 132(5) of the Income-tax Act, 1961 hereinafter referred to as the Act, by which a sum of Rs. 1 lakh belonging to the petitioner has been retained.

2. On the 6th of Decr. 1973 one Mahendra Kumar was carrying cash of Rs. One lakh when he was apprehended by the Central Excise Authorities at Salem near Valaypatty and the cash of Rs. 1 lakh found on the person of Mahendra Kumar was seized. On the 8th of Decr. 1972, the Commr. of Income-tax for Mysore at Bangalore issued a warrant of authorisation under Sec. 132(1) of the Act and Rule 112(1) of the Income-tax Rules, 1962 (hereinafter referred to as the Rules) to V. Kalyan Sundaram, I Income-tax Officer, Circle II Salem 4 to search and seize the money of Bafna Textiles, C.S Street, Bangalore which represents the income which has not been disclosed for the purpose-of Income-tax Act and which he has reason to suspect is to be found at the Office of the Assistant Collector of Central Excise, Salem. In response to the aforesaid warrant of authorisation, the authorised officer seized Rs. 1 lakh from the office of the Assist. Collector of Centra Excise, Salem. It is not disputed that though the cash of Rs. 1 lakh was seized by the Excise Authorities from the person of Mahendra Kumar that the said amount belongs to the petitioner. The petitioner's Advocate Shri J. Jeshtmal was addressed a letter by the Asst. Collector of Central Excise. Salem-7 on the 14th of Deer., 1972 whereby he was informed that Rs. 1 lakh seized from Mahendra Kumar, Bangalore by the Central Excise Officers of Salem has since been transferred to the Commr. of Income-tax. Bangalore., on a warrant issued by him and that therefore further correspondence in that behalf should be made with the Income-tax Department, Bangalore. The Income-tax Officer, Assessment-5 Circle II, Bangalore issued a notice to the petitioner under S. 132(5) of the Act read with Rule 112A of the Rules requiring it to explain the nature of the possession and the source of acquisition of Rs. one lakh seized by the Income-tax Department. By letter of the petitioner's Advocate dt. 8-1-1973 a reply was given to the aforesaid notice, wherein it is stated that an amount of Rs. 1 lakh is available as cash in the books of accounts seized by the Income-tax Department and that therefore the said amount be returned to the petitioner. On the 6th of March, 1973 the Income-tax Officer, Assessment-4 Circle II. Bangalore made an order under S. 132(5) of the Act retaining the entire amount of Rs. 1 lakh on the ground that the tax liability of the petitioner is greater than Rs. 1 lakh. It is the said order that is challenged in this Court by the petitioner. Shri K. Srinivasan, learned Counsel appearing for the petitioner, contended that the seizure of cash of Rs. 1 lakh in this case by the Income-tax Department, is illegal and invalid and that theresfore the impugned order made under S. 132(5) of the Act is also illegal and invalid. To appreciate this contention, it is necessary to sat out sub-secs. (1) to (5) of S. 132 of the Act as follows:

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3. The warrant of authorisation was issued in this case by the Commr. of Income-tax, Mysore at Bangalore on 8th Deer., 1972, under S. 132(1)(i) and (iii) of the Act and Rule 112(1) of the Rules. The Commissioner can, under sub-sec. (1) of S. 132, authorise an Income-tax Officer to search any building or place where he has reason to suspect that money is kept and to seize such money as is found as a result of such search. That power can be exercised by the Commissioner only when he is in possession of information from which he has reason to believe that any person is in possession of any money etc., which represents income or property which has not been disclosed for the purpose of the Income-tax Act, 1922 or the Act. When in pursuance of the warrant of authorisation issued under S. 132(1) the authorised officer seizes the money then the Income-tax Officer becomes entitled to take action under sub-sec. (5) of S. 132 of the Act. The Income-tax Officer can, after affording reasonable opportunity to the person concerned, for being heard and making an enquiry in accordance with the rules, pass an order within the prescribed time with the previous approval of the Commissioner, estimating the undisclosed income in a summary manner and calculating the amount of tax on the income so estimated and specifying the amount that will be required to satisfy the liability and retaining in his custody such part of the seized amount of cash as in his opinion is sufficient to satisfy the liability and to release the remaining amount to the person from whose custody the money was seized. The summary assessment made under S. 132(5) is subject to final and regular assessment. It is, therefore, clear that Sec. 132 of the Act confers special powers on the Income-tax Department to seize and retain cash etc. belonging to a person even before passing a regular order of assessment against him. The power to make summary assessment and to retain the amount can be exercised under sub-sec. (5) of S. 132 of the Act by Income-tax Officer only when the money etc. has been validly seized under sub-section (1) of S. 132. If the seizure of the amount under S. 132(1) is invalid, the Income-tax Officer will not have jurisdiction to exercise powers conferred on him by Section 132(5) of the Act.

4. The Commissioner can empower the authorised officer to search and seize money under S. 132(1)(c) only when the following conditions are satisfied:

(1) The Commissioner must have reason to believe an the information in his possession, that the person is in possession of money etc.

(2) That the said money etc. represents wholly or partly income or property which has not been disclosed for the purpose of the Income-tax Act, 1922 or the Act.

5. It is, therefore, clear that the seizure contemplated is of that money which represents either wholly or partly income which has not been disclosed for the purpose of the Income-tax Act. It is also clear that the money sought to be seized must be in the possession of the person who has committed a default by not disclosing the same for the purpose of the Act. It is only against such person that an order under S. 132(5) of the Act can be made. If, therefore, a person who has not disclosed particular income or property for the purpse of the Act, is not in possession of such undisclosed money, the Commissioner cannot issue a warrant of authorisation under S. 132(1), (c) of the Act. It is, therefore, necessary for the Commissioner, before Issuing a warrant of authorisation, to be satisfied on the basis of the information he has, that the defaulting person is in possession of the money in respect of which he has committed default vis-a-vis the Act.

6. The contention of Shri Srinivasan is that even if it is assumed for the sake of argument that the Commissioner had reason to believe on the basis of information in his possession that the petitioner had not disclosed fosr the purpose, of income-tax a sum of Rs. 1 lkh, he could not have issued any warrant of authorisation for search and seizure unless he had reason to believe that it is the petitioner who was in possession of the said amount of Rs. 1 lakh. It was argued that the amount of Rs. 1 lakh which was being carried by Mahendra Kumar having been seized by the Excise Authorities, the petitioner stood divested of his possession and that until the petitioner got back possession of the said money, the seizure of the said money by the Income-tax Dept. could not have been effected.

7. It is not disputed that it is only when the Commissioner has reason to believe that the defaulting person is in possession of money which represents either the income or property not disclosed for the purpose of the Act that a warrant of authorisation of search and seizure of the same can be issued. But, the stand taken by Shri S.R Rajashekhara Murthy for the Revenue is that notwithstanding the seizure by the Excise Authorities, the legal possession of the money continued with the petitioner and that therefore the Commissioner was competent to issue a warrant of authorisation for search and seizure of the said money. When the money is seized from a person, he, is divested of the possession. The person from whom the money is seized cannot, from the moment of seizure, be regarded as a person in possession of the said money. As explained by the Supreme Court in Gain Chand v. State of Punjab . AIR. 1962 SC. 496., the expression ‘seize’ means to take possession contrary to the wishes of the owner of the property and that such action is unilateral action of the person seizing. The person from whom the money is seized, loses possession of the same when the person seizing the money acquires the right to control or regulate the use of the money seized. The person from whom the money is seized loses from the moment of seizure the right or power to control or regulate the use of the money. When the money of the petitioner was seized from his agent Mahendrakumar by the Excise Authorities, the Excise Authoties acquired the right to control the use and possession of the money seized. During the subsistence of the seizure, the petitioner lost the right to control the use and possession of the said money. As long as the money stood seized by the Excise Authorities, the petitioner could not command the said money or use or possess the same. Hence, it is impossible to taka the view that even after the seizure of the money by the Excise Authorities, the possession of the money still continued with the petitioner. I am fortified in this view of mine by the observations of the Supreme Court in Durga Prasad v. Gomes . AIR. 1966 SC. 1209.. Though that was a case in which the Supreme Court was construing the provisions regarding seizure under the Customs Act, the said decision is of valuable assistance for understanding the effect of seizure. In para 8 of the judgment, the Supreme Court has observed that the legal effect of the order of seizure was the transfer of the legal possession to the person effecting the seizure. It is further laid down that such a change of possession need not necessarily involve a physical transfer of possession and that as a matter of law on and from the date of seizure the authority excising the seizure was entitled to exercise the full incidents of possession over the document seized in that case. During the subsistence of the seizure by the Excise Authorities of the cash in question, therefore, the Excise Authorities had the legal right to exercise all the incidents of possession over the same. When the Excise Authorities are, by such seizure, clothed with all the incidents of possession, it is impossible to contend that the person from whose possession the money was seized by the Excise Authorities must still be regarded as a person in possession of the money.

8. In this case, the money was seized by the Excise Authorities on the suspicion that an excise offence had been committed, entitling them to seize the money. The Excise Authorities under the relevant law could, take appropriate action, if there has been contravention of law and either confiscate the money or otherwise deal with the same in accordance, with law. If, however, it transpired that no offence as such had been committed justifying the authorities to retain the money seized by them, they were under a legal obligation to return the money to the person from whom it was seized. Until the money seized is thus, released, the legal possession continues with the Excise Authorities. In this case, it is nobody's case that any order was made by the Excise Authorities, who had seized the money, releasing the same from seizure and directing the money being given to the person from who it was seized. I fail to see how money already seized by one department of the Government of India under one set of laws, can during the subsistence of such seizure be seized by another department of the same Government under the provisions of the Act. If seizure of money seized by one department under one set of laws is permitted to be seized by another department under another set of laws, it is obvious that the same will lead to unwholesome conflict of authority. If, in this, case, the Excise Authorities needed the money seized by them for the purpose of confiscation or otherwise proceeding in accordance with the Law, they will be prevented from exercising their powers in respect of the money they have already seized, merely because the Income-tax Dept. requires the same money for taking action in accordance, with the relevant provisions of the Act. The power conferred by S. 132 is not an overriding power which can be exercised notwithstanding anything containd to the contrary in any other law. The exercise of power under S. 132 cannot, therefore, come in the way of exercise of powers by another authority under another set of laws under which the money had already been seized. Similar situations may arise when the money or articles are attached and produced before Courts in criminal cases. If before the criminal case is disposed of, the authorities under the Act invoke their powers under S. 132 of the Act and seize the money or articles attached and produced in the Court and pass orders under S. 132(1) & (5) of the Act, the same will have the effect of interfering with the course of admistration of criminal justice. A construction which results in such an absurd situation must at all events, be avoided. This is another reason, which compels me to take the view that money or articles already seized by another authority under another law cannot be seized under S. 132(???) of the Act, inasmuch as during the subsistence of such seizure the legal possession vests with the authority which had seized the same and not with the person from whom the same was seized. The view Which I have taken accords with the view taken by the Calcutta High Court in Laxmipat Choraria v. K.K Ganguli & Others.* . 82 ITR 306. and Johnson v. Laxmipat Choraria . 1973 Tax LR. 1503. and by the Punjab and Haryana High Court in Commr. of income-tax v. Ramesh Chancier . ???., with which I respectfully agree, on the question of the competence of the authorities under the Act to effect search and seizure under Sec. 132 of the Act of money or property already seized or attached by another authority under an Cither set of laws.

9. Shri S.R Rajashekara Murthy invited my attention to decisions of some, other High Courts wherein a contrary view has been taken. He invited my attention to the decision of the Kerala High Court in Krishnan Sukumaran,… v. Enforcement Officer, Cochin,…. . AIR. 1968 Kar. 208.. That was a revision petition under S. 439 Crl. P.C It was held in that case that if a property which an Enforcement Officer functioning under the Foreign Exchange Regulation Act, 1941 is entitled to seize or otherwise take possession of u/s. 19G of the Act is in the custody of a Court or any other authority, what that officer has to do under that circumstance is to move the Court or the authority for handing over possession of the property for any lawful purpose and it is the duty of the Court or the authority to hand it over to the Officer if it does not require it for some lawful purpose. That was not a case of Construing the provisions of S. 132(1) of the Act. All that is laid down is that if the property is in the possession of the Court or any other authority and if such Court or authority does not require the possession of the same for any lawful purpose, it should hand over the same to the officer entitled to seize or otherwise take possession under any other provision of law. The question as to whether an authority functioning under one enactment is entitled to seize the property already seized by another authority under another law during the subsistence of such seizure did not arise for consideration in that case. Hence, the said decision has no direct bearing on the question involved in this case.

10. The next decision relied upon is that of the High Court of Madras in Mohammed. Kunhi v. Md. Koya . 91 ITR. 301.. That was a criminal revision petition under S. 439 Crl. PC against the order passed by the Magistrate under S. 523 of the Code. In that case, currency notes were seized by the police on suspicion that he had committed a cognizable offence. He was arrested and produced before the Magistrate of Madras along with the amount seized. The Inspector of Police having found on investigation that no cognizable offence has been made out dropped the proceedings after intimating the Income-tax Department. The Income-tax Commissioner empowered the authorised officer to search and seize the amount under Sec. 132(1) of the Act. In pursuance of the said authorisation, the Income-tax Officer filed a petition in the Court of the Magistrate claiming to be the person entitled to the amount in Court deposit and requesting the Court to hand over the same to him. The Magistrate passed an order under S. 523 directing the delivery of the amount to the Income-tax Officer. It is the said order that was challenged in revision before the High Court. The High Court of Madras came to the conclusion that if the Income-tax Officer is clothed by statute with the power to seize the amount in Court deport, he would be a person entitled to possession of the amount because seizure is the process, by which possession is procured and it would be idle to draw a distinction between a person entitled to possession and a person entitled to seize. It further held that if the Court is convinced that the Income-tax Officer has the power under S. 132 of the Income-tax Act to seize the money in Court deposit, it would be a wholly needless and empty ritual to ask him to wait till after the Court has refunded the amount to the party and then allow the officer to seize the amount from him the moment it is handed over to him. It further held that if the property which an officer is entitled to seize under the law is in the custody of a Court, the officer has only to move the Court for handing over possession of the property for any lawful purpose and it is the duty of the Court to hand it over to the officer if it does not require it for some lawful purpose. The power of seizure under S. 132 of the Act is a power to be unilaterally exercised and against the wishes of the person from whom the money of property is seized. The exercise of the power under S. 132 cannot, therefore, be made to depend upon the question as to whether the money sought to be seized under S. 132 was required by the Court for other proceedings or not. If the Income-tax department has the power under S. 132(1) of the Act to seize the property attached and produced before the Magistrate in a criminal case, full effect has to be given to it whether or not the Court where the money attached and lying in a criminal case, requires it for the criminal case pending before it or not. In that event, the exercise of the power under S. 132 will have the effect of impeding the course of administration of justice. The very concept of seizure under S. 132(1) of the Act involves the idea of divesting another person of possession which he is not willing to part with it. With great respect, I find it difficult to agree with, the view taken by the High Court of Madras.

11. The next decision relied upon is that of the M.P High Court in Pannallal Chunnilal Natha v. Income-tax Officer . 1973 Tax LR. 784.. It was held that where currency notes and gold ornaments were seized by the Collector of Customs under the Gold Control Act from the assessee but the currency notes were ordered to be released as there was no contravention of the Gold Control Act in respect of the notes, the possession of the notes by the Collector of Customs must be held to be for and on behalf of the assessee so as to attract S. 132 of the Act. The facts of that case are cleanly distinguishable. That was a case where the notes seized under the Gold Control Act were ordered to be released as it was found that there was no contravention of the Gold Control Act. It is after such an order releasing the seized notes from seizure that the provisions of S. 132(1)(c) of the Act were invoked. It is in these circumstances that it was held that though the notes were in the immediate possession of the Collector of Customs and Central Excise, they were held for and on behalf of the petitioner. But, in the present case, it is not the case of the Revenue that any order releasing any money seized by the Excise Authorities was parsed on the ground that there has not been any contravention of law justifying further retention of the money seized.

12. For the reasons stated above, I hold that the seizure of the cash of Rs. 1 lakh by the Income-tax Dept., under Sec. 132(1)(c) of the Act is illegal and invalid, as the said amount was not in the possession of the petitioner, it being in the legal possession of the Excise Authorities at Salem. No valid order under S. 132(5) of the Act could be made except in respect of money validly seized under S. 132 of the Act. Hence the impugned order dt. 6-3-1973 of the Income-tax Officer (Assessment-4) Circle II, Bapgalore, Ext.-4 is also illegal and invalid. Shri Srinivasan prayed for the issue of a direction to the respondent to pay the amount of Rs. 1 lakh-retained by them to the petitioner, on the ground that such retention is illegal. As the amount was not seized by the Income-tax Department from the petitioner, no such direction can be issued. But, as the retention of the amount by the Income-tax Department is illegal, it would be appropriate to direct the respondent to return the amount to the Excise Authorities at Salem from whom the said amount was seized. As I am allowing this writ petition on the ground that the seizure in this case is illegal, it is not necessary to consider the other grounds raised by the petitioner.

13. For the reasons stated above, this writ petition is allowed and the impugned order of the Income-tax Officer (Assessment-4) Circle II, Bangalore dt. 6-3-1973 Ext.-4 is hereby quashed and a writ in the nature of mandamus is issued directing the respondent to return the amount of Rs. 1 lakh to the Assistant Collector of Central Excise, Salem from whom it was seized under a warrant of authorisation issued by the Commissioner of Income-tax, Mysore, Bangalore dt. 8-12-1972. The petitioner is entitled to his costs. Advocate's fee Rs. 200.