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J.R Malhotra And Another v. Additional Sessions Judge Jullundur And Others

Supreme Court Of India

Dec 11, 1975

Judgment

Subsequent
References

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Factual and Procedural Background

On August 6, 1971 the respondent, Romesh Chander, was intercepted by the police while travelling in a car and was found carrying Rs 1,61,411. A criminal case was registered against him under several sections of the Indian Penal Code and the Foreign Exchange Regulation Act, 1947. Simultaneously, the Income-tax Department executed a warrant under Section 132 of the Income-tax Act, 1961 and seized the cash along with books and documents.

Romesh Chander challenged the search warrant before the Punjab & Haryana High Court, which on May 25, 1972 declared the search invalid and ordered the Revenue to return the seized money and documents. On appeal, the Division Bench (November 22, 1972) modified the relief by directing that the money and documents be handed to the Station House Officer, Kartarpur, for appropriate action.

Several collateral proceedings followed:

The Income-tax Department claimed to have adjusted the cash on October 5, 1972 towards an assessed demand of Rs 7,90,293 for A.Y. 1972-73.
The Judicial Magistrate, Jullundur (April 24, 1973) ordered return of the money to the police; the Additional Sessions Judge affirmed this on May 5, 1973.
In Criminal Revision No. 430 of 1973, the High Court (June 26, 1974) remanded the matter to determine the legality of the adjustment.
After remand, the Judicial Magistrate (June 3, 1974) allowed the Revenue to retain the money, but held the earlier adjustment invalid.
On January 4, 1975 the Additional Sessions Judge set aside that order and directed the Revenue to return the money and documents to Romesh Chander.
The Revenue’s writ petition challenging the Sessions Judge’s order was dismissed in limine by the High Court on May 6, 1975.

The present civil appeal by special leave is against the High Court’s summary dismissal.

Legal Issues Presented

Whether, in the absence of a subsisting and valid income-tax assessment or demand, the Revenue had lawful authority to retain Rs 1,61,411 seized from the respondent.
Whether the High Court was correct in dismissing the Revenue’s writ petition that challenged the Additional Sessions Judge’s direction to return the money and documents to the respondent.

Arguments of the Parties

Revenue (Appellant)

Contended that the assessment order dated June 26, 1972 created a valid demand of Rs 7,90,293, entitling the Department to retain the seized amount under Section 226(4) and/or Section 132 of the Income-tax Act.
Argued that the earlier adjustment made on October 5, 1972 was lawful and that the amount should continue to be held in partial satisfaction of outstanding tax dues.

Respondent (Romesh Chander)

Submitted that the search and seizure had been declared illegal by the High Court; therefore, the Department lacked any authority to retain the cash or documents.
Pointed out that the criminal case had been filed as “untraced” and that appeals filed against the assessment were pending, with recovery proceedings stayed.
Argued that, given the absence of a valid assessment or tax demand, the money must be returned to him forthwith.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court, per A. N. Ray C.J., affirmed the High Court’s dismissal of the writ petition, reasoning as follows:

The criminal proceedings against the respondent had already been terminated on January 25, 1973; consequently, the police or the Revenue could not retain the cash under criminal-law powers.
The High Court’s unchallenged order of May 25, 1972 (affirmed on November 22, 1972) required the money and documents to be returned; no appeal was preferred against that order.
Subsequent assessment proceedings resulted in no outstanding demand: orders of the Appellate Assistant Commissioner dated October 17, 1975 indicated that there was “no order of assessment and no income-tax demand.”
As there was neither a valid assessment nor a subsisting demand, the Department lacked statutory authority to adjust or retain the seized amount.
Retention of the money on the speculative ground of a future demand was impermissible; any deprivation of property requires clear legal authority, which was absent.

Accordingly, the Court concluded that the Additional Sessions Judge’s order directing return of the money and documents was correct, and the writ petition was rightly dismissed.

Holding and Implications

APPEAL DISMISSED WITH COSTS.

Immediate Effect: The Income-tax Department must return Rs 1,61,411 and the seized books/documents to the respondent, Romesh Chander. Broader Implications: The decision reinforces the principle that governmental authorities cannot retain seized property without a valid, subsisting statutory basis; mere anticipation of future tax liability is insufficient authority. No new precedent was expressly created beyond application of this foundational rule.

Show all summary ...

A.N Ray, C.J— This appeal is by special leave from the order dated May 6, 1975 of the High Court of Punjab and Haryana dismissing in limine the writ petition of the appellant.

2. The appellant filed a writ petition in the High Court challenging the order dated January 4, 1975 of the Additional Sessions Judge, Jullundur who allowed the revision petition of the respondent Romesh Chander and dismissed the petition of the appellant.

3. The facts leading to the order are these: On August 6, 1971 the respondent Romesh Chander was travelling in a car. His car was intercepted by the police. A sum of Rs 1,61,411 was found in a bag in his hands. The respondent Romesh Chander was taken to the police station. A criminal case was registered against him under Sections 411, 413 and 414 of the Indian Penal Code and under Sections 4, 5, 6 and 8 of the Foreign Exchange Act, 1947. The Commissioner of Income Tax issued a warrant of authorisation empowering certain officers under Section 132 of the Income Tax Act to conduct a search and seizure. Pursuant to that authorisation the authorised officer seized the sum of Rs 1,61,411 and certain books and documents. The business premises of the respondent Romesh Chander and the other respondents who were his partners were searched and certain documents and books were seized.

4. The respondent Romesh Chander by a writ petition challenged the warrant of authorisation. The High Court of Punjab and Haryana on May 25, 1972 held the search to be invalid and directed the Revenue to return the money and the books. On appeal the High Court on November 22, 1972 accepted in part the appeal of the Revenue and held that the amount and the books and documents be returned by the Revenue to the Station House Officer, police station, Kartarpur who was directed to proceed in accordance with law.

5. The respondent Romesh Chander filed an application on March 12, 1973 in the Court of the Judicial Magistrate, Jullundur and alleged that the police had not filed any challan against the respondent Romesh Chander for a long time and prayed for an order that the Station House Officer, Kartarpur be directed to get the money from the Income Tax authorities and comply with the orders of the High Court.

6. The Revenue authorities filed an application under Section 523 of the Code of Criminal Procedure on March 25, 1973 before the Judicial Magistrate, Jullundur and prayed that orders might be passed directing that the sum of Rs 1,61,411 be retained by the income tax department in partial satisfaction of their outstanding demand against the respondent Romesh Chander, and the papers of the respondent Romesh Chander be also retained by the Revenue authorities for completion of assessment proceedings against the respondent Romesh Chander.

7. In the aforesaid application of the Revenue Authorities before the Judicial Magistrate, Jullundur it was alleged that a regular assessment order had been passed on June 26, 1972 against the respondent Romesh Chander and the demand of the Revenue Authorities against the respondent Romesh Chander was Rs 7,90,293. The Revenue further alleged that the respondent Romesh Chander was given 35 days' notice to pay the amount and because he did not pay the amount demanded, the sum of Rs 1,61,411 was adjusted on October 5, 1972, towards the outstanding demand. It also appeared in the aforesaid application of the Revenue before the Judicial Magistrate, Jullundur that the criminal case registered against the respondent Romesh Chander had been “filed as untraced” by the order of the Court dated January 25, 1973.

8. The Judicial Magistrate on April 24, 1973 passed an order directing the Income Tax Authorities to return the amount in dispute, the books and other documents to the Station House Officer, police station, Kartarpur.

9. The order of Judicial Magistrate was affirmed by the Additional Sessions Judge, Jullundur in revision on May 5, 1973.

10. The order of the Judicial Magistrate and the order of the Additional Sessions Judge, Jullundur were challenged by the Revenue in Criminal Revision No. 430 of 1973 in the High Court of Punjab and Haryana. On June 26, 1974 the High Court set aside the orders and remanded the matter to the Judicial Magistrate, Jullundur for determining whether the amount in dispute could be adjusted in law against the outstanding tax dues from the respondent Romesh Chander and further whether the adjustment made by the CIT on October 5, 1972 was valid and justifiable.

11. Meanwhile the respondent Romesh Chander filed an application under Section 146 of the Income Tax Act before the Income Tax Officer against the order of assessment. The respondent Romesh Chander also filed an appeal against the assessment orders before the Appellate Assistant Commissioner on August 3, 1972. The application of the respondent Romesh Chander under Section 146 of the Income Tax Act was rejected by the Income Tax Officer on August 2, 1973. The respondent Romesh Chander filed an appeal against the rejection of the petition on August 27, 1973. On September 17, 1973 the appeals filed by the respondent Romesh Chander against the orders of the Revenue in regard to assessment of income tax of the respondent were heard. The Income Tax Officer on September 18, 1973 asked for adjournment to explain the departmental case. The Appellate Assistant Commissioner granted adjournment and informed the respondent Romesh Chander by letter dated September 22, 1973 that steps had been taken by the department to stop all recovery proceedings against the respondent Romesh Chander and that the appeal would be heard later on.

12. On September 22, 1973 the respondent Romesh Chander filed an application before the Appellate Assistant Commissioner that the operation of the assessment order during the pendency of the appeals might be stayed and the demand of the tax be held in abeyance. The Appellate Assistant Commissioner by letter dated September 27, 1973 informed the respondent Romesh Chander that recovery of demand of Rs 7,90,293 for Assessment Year 1972-73 had been stayed by order of the Revenue Authorities dated September 18, 1973.

13. It is in this background that the Judicial Magistrate, Jullundur on June 3, 1974 on revision petitions filed by the appellant and the respondent Romesh Chander held that the amount of Rs 1,61,411 be retained by the income tax department in partial satisfaction of their outstanding demand against the respondent Romesh Chander. The Judicial Magistrate also held that in view of the invalidity of the order made under Section 132(5) of the Income Tax Act the adjustment of the amount in dispute by the Commissioner of Income Tax on October 5, 1972 was not valid. The Judicial Magistrate further held that the business papers of the respondent Romesh Chander might be retained by the income tax department for the statutory period for completing pending assessment proceedings.

14. The respondent Romesh Chander went up in revision against the order of the Judicial Magistrate. The Revenue also went up in revision. By order dated January 4, 1975 the Additional Sessions Judge, Jullundur allowed the revision petition of the respondent Romesh Chander and dismissed the petition of the appellant Revenue. The Additional Sessions Judge, Jullundur directed the Income Tax Authorities to return the amount of Rs 1,61,411 and the books to the respondent Romesh Chander.

15. The appellant Revenue filed a writ petition in the High Court challenging the order dated January 4, 1975 of the Additional Sessions Judge, Jullundur.

16. The High Court rightly rejected the writ petition at sight. The Additional Sessions Judge, Jullundur held that the criminal case against the respondent Romesh Chander was filed by an order of the Judicial Magistrate dated January 25, 1973. The second finding of the Additional Sessions Judge is that the High Court by order dated March 20, 1974 remanded the matter to the Court of the Judicial Magistrate to find out whether it was permissible in law to adjust the amount of Rs 1,61,411 against the outstanding dues of the respondent Romesh Chander and the Judicial Magistrate held that adjustment was not justifiable under the relevant statutory provision. The Judicial Magistrate, however, held that the respondent Romesh Chander was not entitled to the amount and that the income tax department could retain the amount in partial satisfaction of their outstanding demand. Before the Additional Sessions Judge, Jullundur the Revenue contended that the assessment was valid under Section 226(4) of the Income Tax Act independently and under Section 132 of the Income Tax Act. The Additional Sessions Judge, Jullundur referred to the appeals filed by the respondent Romesh Chander against the assessment proceedings and observed that the appeal had been heard on September 17, 1973 and on the following day viz. September 18, 1973 the matter was adjourned at the instance of the Revenue. The Additional Sessions Judge, Jullundur further said that the search and seizure were illegal and therefore, the assessee was entitled to the return of all the documents and the amount in question.

17. The orders of the Appellate Assistant Commissioner dated October 17, 1975 show that there is no order of assessment and there is no income tax demand.

18. There is no criminal case against the respondent Romesh Chander. The order of the High Court dated May 25, 1972 directed the return of the sum of Rs 1,61,411 and the documents to the respondent Romesh Chander. The order of the learned Single Judge was affirmed by the High Court on November 22, 1972. No appeal was preferred against the order of the High Court. The order of the High Court was that the amount of Rs 1,61,411 and the books and other documents were to be returned to the Station House Officer. After the criminal case had been filed the authorities have no right to keep the money, under any provision of law. There is no question of adjustment of the sum of Rs 1,61,411 by reason of the fact that there is no valid order of assessment and there is no demand for income tax.

19. The Revenue cannot indirectly keep the money on the plea that there will be a demand, and, therefore, the money should be allowed to be kept with the Revenue. There must be authority of law under which the money can be kept. There is no legal order to keep the money. The appeal, therefore, fails and is dismissed with costs.