1999 (3) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the retention of seized assets by the Income-tax authorities.
2. Applicability of Section 132(5) and Section 132B of the Income-tax Act, 1961.
3. Liability of the petitioner as a legal representative under Section 159 of the Income-tax Act, 1961.
4. Claim for compensation by the petitioner for the delay in returning the seized assets.

Detailed Analysis:

1. Legality of the Retention of Seized Assets by the Income-tax Authorities:
The petitioner challenged the retention of her assets, specifically jewellery and National Savings Certificates (NSCs), seized during a search and seizure operation conducted by the Income-tax authorities. The petitioner contended that the retention of these assets was illegal as her tax liabilities had been settled. The court found that the assets should have been returned to the petitioner once her dues were cleared, as mandated by sub-section (3) of Section 132B of the Income-tax Act, 1961.

2. Applicability of Section 132(5) and Section 132B of the Income-tax Act, 1961:
The court examined the provisions of Section 132(5) and Section 132B, which govern the retention and application of seized assets. According to these sections, the Income-tax Officer must return the assets not required for discharging liabilities within a specified period. The court noted that the petitioner's tax liabilities had been paid off, and therefore, the assets should have been returned. The Commissioner's order to retain the assets was found to be unwarranted under these provisions.

3. Liability of the Petitioner as a Legal Representative under Section 159 of the Income-tax Act, 1961:
The respondents argued that the petitioner was liable for the tax dues of her deceased husband under Section 159. The court clarified that Section 159 pertains to the recovery of dues from the estate of the deceased and that such recovery should be pursued through proper recovery proceedings. The court emphasized that the Commissioner could not convert himself into a Recovery Officer under the guise of Section 132(5) and Section 132B to retain the assets for the deceased's liabilities. The court further explained that the liability of a legal representative is limited to the extent of the assets of the deceased that come into their possession, as detailed in sub-section (4) of Section 159.

4. Claim for Compensation by the Petitioner for the Delay in Returning the Seized Assets:
The petitioner sought compensation for the loss caused by the illegal retention of her assets. The court acknowledged that the petitioner had suffered a loss due to the non-return of the NSCs, which had matured and would have increased in value if reinvested. However, the court declined to award damages under Article 226 of the Constitution, citing the discharge of sovereign functions by the State and the petitioner's delayed approach to the court.

Conclusion:
The court quashed the impugned order dated September 29, 1997, passed by the Commissioner of Income-tax, Kanpur, and directed the respondents to return the jewellery and NSCs to the petitioner within 15 days. The court also ordered the respondents to pay the petitioner costs amounting to Rs. 2,500.