2004 (4) TMI 56 - HC - Income Tax

Search and seizure - money lying in the bank or in the custody of the bank Petitioner contend that revenue official cannot seize anything or any substance other than mentioned in the section 132 - Petitioner contend that action on part of the respondents in the name of search and seizure aiming to obstruct and/or prevent the petitioners from encashment as well as the bank from honouring the managers cheques is unauthorised and not permitted under the provisions of the said Act - This order is passed keeping in view the possibility that in the event any absolute order of injunction is passed in favour of the petitioners consequently the money is allowed to be withdrawn and the writ petition is dismissed ultimately then it will be impossible to recover the probable tax dues that might be assessed whereas if the writ petition succeeds then the amount that will be invested in the short-term fixed deposits and the interest to be fetched thereon will enure to the benefit of all the petitioners.

Issues Involved:
1. Validity of fresh prohibitory orders under section 132(3) of the Income-tax Act, 1961.
2. Whether the money lying in the bank for honouring manager's cheques can be treated as the petitioners' money for the purpose of seizure under the Income-tax Act.

Detailed Analysis:

Issue 1: Validity of Fresh Prohibitory Orders under Section 132(3) of the Income-tax Act, 1961

The petitioners contended that under the scheme of the newly inserted section 132(3) read with sub-section (8A) of the Income-tax Act, 1961, no fresh prohibitory order can be issued in relation to the same action of search and seizure. They argued that the insertion of sub-section (8A) by the Finance Act, 2002, eliminated the provision for extension beyond the period of 60 days to prevent unnecessary harassment and prolongation of search and seizure actions.

The court agreed with the petitioners, holding that the fresh prohibitory order dated April 20, 2004, was not permissible under law in view of the insertion of sub-section (8A). The court noted that the earlier provision for extension was deleted to obviate the difficulties faced by affected persons and to fix a rigid time limit of 60 days. The court held that issuing a fresh prohibitory order in relation to the same search and seizure action amounted to an unconditional and unguided extension of time, which was not permissible. The court concluded that the fresh restraint order was ultra vires the provision of section 132 and without jurisdiction.

Issue 2: Whether the Money Lying in the Bank for Honouring Manager's Cheques Can Be Treated as the Petitioners' Money for the Purpose of Seizure

The petitioners argued that the money lying in the bank for honouring manager's cheques does not belong to them at the present moment; rather, the bank is a debtor to the petitioners. They contended that the Revenue officials could not force the bank to pay the money to them or withdraw it forcibly, and that such action was unauthorized under the provisions of the Income-tax Act.

The court agreed with the petitioners, holding that the money lying in the bank at the present moment does not belong to the petitioners; instead, the bank is a debtor to the petitioners. The court noted that the money could be treated as "a debt" payable by the bank to the petitioners and that this debt could be attached under section 132(3) of the Income-tax Act. The court held that the Revenue officials could not compel the bank to encash fixed deposits and make over the proceeds to them under search and seizure, as this would be without jurisdiction.

The court directed that the proceeds from the manager's cheques, if presented for encashment, should be invested in short-term fixed deposits in the name of the respective first writ petitioners. The fixed deposit receipts were to be handed over to the raiding income-tax officials, who were to hold them as officers of the court and not encash them without leave of the court. If the manager's cheques were not presented for encashment within a fortnight, the bank was directed to invest the amounts in short-term fixed deposits in the name of the concerned Commissioner or Joint Commissioner of Income-tax.

Conclusion

The court concluded that the fresh prohibitory order issued under section 132(3) of the Income-tax Act was ultra vires and without jurisdiction. It also held that the money lying in the bank for honouring manager's cheques did not belong to the petitioners at the present moment and could not be seized forcibly by the Revenue officials. The court provided specific directions for the handling of the proceeds from the manager's cheques to balance the interests of both parties pending the final decision.

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