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Case Number

O.P No. 7323 of 1990

Attorney(S)

For the Appellant: P.K. Raveendranatha Menon

Judges

Radhakrishna Menon, J.

Acts

S. 132(1)(c), (i), (iii) and (v) of B of sub-section (1)
clause (iii) of subsection 1 of S. 132
Indian Income-tax Act, 1922
INCOME TAX ACT 1961
INCOME TAX ACT

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The first respondent, exercising powers under section 132(1) of the Income-tax Act, 1961, conducted searches of the first petitioner's residence and business premises together with officers of the Income-tax Department. The searches were followed by seizures recorded in Exts. P1 and P4. Item Nos. 1 to 3 in Ext. P1 and the single item described in Ext. P4 are stated to be immovable properties. Exts. P1 and P4 contain directions that the petitioners shall not transfer or otherwise alienate those properties because they could not properly explain the sources of acquisition; the bank accounts of the petitioners were also frozen by those exhibits.

The petitioners challenged the seizures and prohibitory directions by filing an Original Petition seeking, inter alia, (a) certiorari quashing Exts. P1, P4, P5(a)–(c), P6 and P7; (b) mandamus directing the respondents to withdraw notices and release seized articles; (c) prohibition against completing proceedings based on those exhibits; (d) costs and damages; and (e) other appropriate relief.

Legal Issues Presented

Whether, on the facts and circumstances of the case, the authorised officer was justified in seizing immovable properties under section 132 of the Income-tax Act?
Whether the words "other valuable article or thing" in section 132(1)(c) and the related proviso include immovable property or are limited to movable property?
Whether the prohibitory orders (including freezing of bank accounts) and any directions to valuation officers in Exts. P1 and P4 are sustainable in law to the extent they relate to immovable properties?

Arguments of the Parties

Petitioners' Arguments

Exts. P1 and P4 insofar as they relate to the seizure of immovable properties are not sustainable in law because immovable properties cannot be seized under section 132.
The apparent seizure of these immovable properties was not authorised by law and therefore those parts of the proceedings are liable to be set aside.
The direction to the valuation officer to value the properties (in the context of S.132 proceedings) is not warranted if S.132 cannot be applied to immovable properties.

Revenue's Arguments

The search and seizure operations revealed that the petitioner was in possession of unexplained investment of a large magnitude; such unexplained investment constitutes property (including immovable property) or represents the value thereof.
The Revenue had suspicion of immovable properties but did not know the location or identity prior to the search; where a search reveals unaccounted assets they may be seized.
The phrase "other valuable article or thing" in section 132 is sufficiently wide to include the items subject to the prohibitory orders; the word "thing" may include anything that may be the subject of proprietary right.
The authorised officer may, by the second proviso, issue prohibitory orders when physical seizure is impracticable because of volume, weight or other characteristics; such orders are to be deemed seizure under the statute.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
C.I.T. v. Tarsem Kumar, 161 ITR 505	Supports the proposition that search and seizure under section 132 are to be read together and that where the location of property is known there may be no need to conduct a search or seizure.	The court relied on this decision to fortify the view that the scheme of section 132 contemplates search and seizure of movable articles found hidden, and to support the conclusion that immovable properties are not within the ambit of seizure under S.132.
State of Assam v. Ranga Muhammad, AIR 1967 SC 903	Principle that words and phrases in a statute must be read in their context; the meaning of a word is coloured by the words with which it is associated.	The court invoked this principle to reject a broader meaning of "article" taken from other statutory contexts and to construe "other valuable article or thing" in section 132 in light of its immediate textual context (i.e. alongside "money, bullion, jewellery").
S. Parduman Singh v. Union of India, 166 ITR 115 (Delhi HC)	The Delhi High Court, relying on Tarsem Kumar, expressed the view that S.132 does not extend to the seizure of immovable properties.	The court noted and cited this decision as consistent support for the interpretation that immovable properties cannot be seized under section 132.
C.I.T. v. C. Budharaja & Co., 121 ITR 212 (Orissa HC)	Held that the word "article" in a different statutory provision (S.84 in that context) may be capable of meaning anything corporeal.	The court observed that counsel relied on this decision, but concluded that the meaning in that different context was not relevant to the construction of section 132 and therefore did not adopt it.
C.I.T. v. Pressure Piling Co., 126 ITR 335 (Bombay HC)	Similar use of the word "article" in a different statutory context.	The court recorded that counsel relied on this decision but rejected its applicability because the context differs from the context of section 132.
Pooran Mai v. Director of Inspection, 93 ITR 505	Supreme Court decision bearing on the use of valuation reports and related consequences in post-search proceedings (as referenced by the court).	The court cited this decision (with Partap Singh) to state that the question whether valuation reports can be used for orders under S.132(5) or for fresh assessments is not res integra.
Partap Singh v. Director of Enforcement, 155 ITR 166	Decision relating to the use of valuation reports and similar procedural issues after searches/seizures.	The court relied on this decision along with Pooran Mai to avoid deciding afresh the admissibility/use of valuation reports in S.132 proceedings.

Court's Reasoning and Analysis

The court began by identifying the central statutory provisions to be construed: S.132(1)(c) (and its clauses (i), (iii), (v) and the second proviso). The statutory scheme was recited: where an authorised officer, on information, has reason to believe that a person is in possession of money, bullion, jewellery or other valuable article or thing representing undisclosed income or property, the officer may authorise search of places where such items are suspected to be hidden; if such items are found hidden the authorised officer may seize them and must prepare an inventory (mahazar). The second proviso allows that if physical possession is impracticable owing to volume, weight or other characteristics the authorised officer may serve an order prohibiting removal or dealing with the item, and such order is deemed seizure under the sub-clause.

From the statutory text the court inferred that search and seizure are linked: the statute contemplates search of a place where movable items (books of account, documents, money, bullion, jewellery or other valuable article or thing) are hidden, and seizure (or a prohibitory order in lieu of physical seizure) follows from such a search. The court observed that if the location of the property is known there may be no need to search or to seize under section 132, citing C.I.T. v. Tarsem Kumar to support this structural view.

The court next addressed the pivotal interpretive question whether the phrase "other valuable article or thing" reaches immovable property. It analysed the textual context: the words "other valuable article or thing" are used in immediate association with "money, bullion, jewellery", which are incontrovertibly movable. Applying the contextual approach to statutory interpretation (and citing State of Assam v. Ranga Muhammad), the court concluded that the associative context constrains the meaning of "other valuable article or thing" so that it should be read as encompassing movable valuables, not immovable property.

The court noted that counsel for the Revenue relied on earlier High Court decisions (C. Budharaja and Pressure Piling) that treated the word "article" as potentially wide, but held that those decisions addressed the word in a different statutory context and therefore their readings were not persuasive for section 132. The court also observed that the Delhi High Court in S. Parduman Singh had adopted the view (following Tarsem Kumar) that immovable properties cannot be seized under S.132, and it agreed with that view.

Concerning the valuation officer's direction, the court recognised the petitioners' objection that valuation for S.132 purposes would be inappropriate if S.132 could not be applied to immovables. The court declined to decide the broader question because, in the present case, the properties had already been valued and the Supreme Court decisions in Pooran Mai and Partap Singh addressed the subsequent questions about the use of valuation reports; hence the point was not adjudicated afresh.

Holding and Implications

Holding: The court concluded that the expression "other valuable article or thing" in section 132(1) must be read in the context of the immediately associated words "money, bullion, jewellery", and therefore does not extend to immovable properties. Consequently, the court held that Exts. P1 and P4, to the extent they purport to seize immovable properties (including the prohibitory order contained therein), are not sustainable.

DISPOSITION: Exts. P1 and P4 are set aside insofar as they purport to seize immovable properties, including the prohibitory orders contained in those exhibits.

Implications:

The direct effect is that the parts of Exts. P1 and P4 that relate to the seizure (and the prohibitory orders) of immovable properties have been quashed.
The court did not entertain or decide, as a fresh question of law, the broader issue of the use of valuation reports for passing orders under S.132(5) or for fresh assessments, observing that this matter has been addressed by the Supreme Court in Pooran Mai and Partap Singh.
The petition was allowed to the extent indicated (setting aside Exts. P1 and P4 insofar as they relate to immovable property); no costs were awarded.
The opinion applies established interpretive principles and existing authority rather than announcing a novel legal principle beyond its specific application to section 132; the court relied on precedent (including Tarsem Kumar and related High Court authority) to reach its conclusion.

Final order recorded: The Original Petition is allowed to the extent indicated above. No costs.

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Gabriel Babu v. Asst. Director Of Income Tax

1. The residence and business premises of the first petitioner were searched by the first respondent along with the Officers of the Income-tax Department, in exercise of the power vested in him under S. 132(1) of. The Income-tax Act, 1961, for short, The Income-tax Act. The search was followed by seizure of the properties made mention of in Exts. P1 and P4. Items 1 to 3 in Ext. P1 and the only item in Ext. P4 are admittedly immovable properties. Exts. P1 and P4 contain directions to the effect that the petitioners, inasmuch as they could not properly explain the sources of acquisition of these properties, shall not transfer or otherwise alienate them. The bank accounts of the petitioners have also been frozen by Exts. P1 and P4. According to the petitioners those items which are shown as Item Nos. 1 to 3 in Ext. P1 and the only items hownin Ext. P4 sare incapable of being seized under S. 132 because they are immovable properties and hence the seizure is not sustainable. Failure to respond to this argument has resulted in the filing of the Original Petition for the reliefs stated hereunder:

“It is therefore prayed that this Hon'ble Court be pleased to rail for the records of the case leading to the passing of Exhibits P1, P4, P5(a), (b), (c), P6 and P7 and

(a) to issue a writ of certiorari or any other appropriate writ, order, or direction quashing Exhibits P1, P4, P5(a), (b) & (c), P6 & P7;

(b) to issue a writ of mandamus directing the respondent not to proceed on the basis of Exhibits P1, P4, P5(a), (b), (c), P6, P7 and direct them to withdraw the notices and release the seized articles;

(c) to issue a writ of prohibition or any other appropriate writ, order, or direction prohibiting the respondents from completing the proceedings on the basis of Exhibit P1, P4, P5(a), (b), (c), P6 and P7;

(d) to award the costs and damages for the illegal action of the respondents; and

(e) to pass such other appropriate orders as are deemed fit”.

2. The learned counsel for the petitioners submit that Exts. P1 and P4 to the extent to which they relate to seizure of immovable properties, are not sustainable in law. The aparent seizure of these items of immovable properties cannot be said to be authorised by law, and hence these proceedings to the said extent are liable to be set aside. The short answer of the Revenue to this argument, discernible from the counter affidavit is this:

“……………It was only search and seizure operations that revealed that the petitioner was in possession of the above items of properties or to put it differently, revealed that the petitioner had unexplained investment to this gigantic magnitude, which unexplained investment, it is submitted, itself is property in the form of immovable property or to the extent of the value of these six items of properties or the expenditure incurred for acquiring these six items of properties. Of course the Revenue bad some suspicion that the petitioner was in possession of several pieces of immovable property, but the location or identity was not known to the Revenue or could be identified by the Revenue. The contention of the petitioner, that no search in relation to the seizure of immovable properties relying on the theory of “known and identified”, if I may be permitted to call so, is not applicable at least to the six items of properties So to the extent of the secret investment or the investment in excess of the declared investment which, it is submitted is property was not known or identified by the Revenue. Accordingly if search reveals unaccounted assets they have to be seized. This is what is done in this case”.

3. The counsel for Revenue submits that the first respondent accordingly has also issued the prohibitory order freezing the bank accounts.

4. The short question arising for consideration thus is: whether on the facts and in the circumstances of the case the first respondent was justified in seizing the immovable properties under S. 132 of. The Income-tax Act.

5. The answer to the question depends upon the construction of S. 132(1)(c), (i), (iii) and (v) of B of sub-section (1) and the second proviso thereto. Where any officer made mention of in sub-section 1, in consequence of information in his possession, has reason to believe that 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 or would not be disclosed for the purposes of the Indian Income-tax Act, 1922 of. The Income-tax Act (which is stated to be the undisclosed income or property), then such officer can authorise any Assistant Director/Assistant Commissioner or Income-tax Officer, called the authorised officer, to enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept. On such search if the authorised officer happens to find any such books of account, other documents, money, bullion, jewellery or other valuable article or thing being hidden in the building, place, vessel, vehicle or aircraft, he has the power to seize the thing found hidden. Simultaneously he shall prepare a note or an inventory of any such money, bullion, jewellery or other valuable article or thing. The proviso provides that where it is not possible or practicable to take physical possession of any valuable article or thing and remove it to a safe place due to its volume, weight or other physical characteristics or due to its being of a dangerous nature, he may 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 authorised officer and such action of the authorised officer shall be deemed to be seizure of such valuable article or thing under sub-clause (iii). It is thus clear from these provisions that where the authorised officer has reason to suspect that the person concerned has hidden any books of account, other documents, money, bullion, jewellery or other valuable article or thing in his place of business, in any building, place, vessel, vehicle or aircraft, then he had the power to search the place of business etc, and also to seize such books of account, other documents, money, bullion, jewellery or other valuable article or thing and on effecting such seizure, he is obliged to prepare an inventory or mahazar of the things seized by him. It is thus clear from the scheme of these sections that search and seizure go together. In other words where the location of the property was known there is no need to conduct a search. If that be so, there is no need to seize the property also. I am fortified in this view by a decision of the Supreme Court. (See C.I.T v. Tarsem Kumar, 161 ITR 505). The further question that would arise in this context in this: What are the properties that can be seized after the search? According to the learned counsel for the petitioner only movables can be seized. Under no circumstances immovable properties can be seized, the counsel submits. The counsel for the Revenue however, argues that S. 132 empowers the authorised officer to issue prohibitory orders if it is found on search that the person has made secret investment which was not known or informed to the Revenue. According to him the words used in clause (iii) of subsection 1 of S. 132 namely “seize…………” other valuable article or thing “found as a result of such search” fully explain this position. He in this connection made particular reference to the following averments contained in the counter affidavit:

“The term “other valuable article or thing” is sufficiently wide enough to rope in the item of properties that are under prohibitory orders. “Thing” going by the dictionary means (law) “anything that may be the subject of proprietory right” (The Random House Dictionary). The use of the word “property” in S. 132(1)(c), the second proviso to S. 132(1) and the deeming provision contained in the second proviso would eminently support the present action of the first respondent whose action is impugned herein”.

6. The counsel in support of this argument referred to two decisions; one of the Orissa High Court in C.I.T v. C. Budharaja & Company, (121 ITR 212) and the other of the Bombay High Court in C.I.T v. Pressure Piling Co. (126 ITR 335). In these decisions, according to the counsel, the learned Judges have observed that the word ‘article’ occuring in S. 84, as “capable of meaning anything corporeal”. Th said meaning of the word ‘article’ used in a context different from the context in which that word occurs in S. 132 therefore, has no relevance here. It is a well established cannon of construction that words and phrases occurring in a statute are to be taken not in an isolated or detached manner dissociated from the context in which they are used. In other words the meaning of words and phrases should take their colour from the context in which they appear. It is also fundamental that if a word occurs in association with other words which are well defined and understood, then that word takes colour from the words with which that word is associated. A reference in this connection to the decision of the Supreme Court in State of Assam v. Ranga Muhammad (AIR 1967 SC 903) is profitable.

7. Having understood the principle thus, let us see whether the words used in the section “other valuable article or thing” mean differently from the words “money, bullion, jewellery” which undoubtedly are only movables. To my mind these words ‘other valuable article or thing’ used in association with the words ‘money, bullion, jewellery’ cannot be understood differently. The section therefore cannot be said to be include in its ambit immovable properties also. The Delhi High Court, relying on the decision of the Supreme Court in Tarsemkumar, has expressed the same view. (See the decision in S. Parduman Singh…Petitioner v. Union Of India…Repsondent (166 ITR 115). This being the position in law Exts. P1 and P4 to the extent to which they purport to seize immovable properties (including the prohibitory order contained therein) are liable to be set aside. The question under the circumstances requires to be answered in favour of the petitioners. Accordingly Exts. P1 and P4 to the extent indicated above are set aside.

8. The learned counsel for the petitioner has a further case that the direction to the valuation officer to value the properties, in the circumstances of the case, is not warranted. According to him if no action under S. 132 can be taken against an immovable property, the direction to value it in the course of the said proceeding is also not sustainable in law. It is not as if there is no substance in this argument. But in the circumstances of the case it is unnecessary to go into this question because the properties have already been valued. Whether such reports of the valuation officer can be used for the purpose of passing orders under S. 132(5) or making fresh assessments no more is res integra in view of the decision of the Supreme Court in Pooran Mai v. Director of Inspection (93 ITR 505) and Partap Singh v. Director of Enforcement (155 ITR 166). The Original Petition accordingly is allowed to the extent indicated above. No costs.

9. Allowed.

Gabriel Babu v. Asst. Director Of Income Tax

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Gabriel Babu v. Asst. Director Of Income Tax

Comments