2010 (12) TMI 647 - HC - Income Tax

Search and seizure - reason to believe - held that For the purpose of section 132 of the Act, there has to be a rational connection between the information or material and the belief about undisclosed income, which has not been and is not likely to be disclosed by the person concerned - there was an information and the first appellant who after collecting the information by recording it in the form of statement, approached the competent authority for necessary authorisation to effect a search and thereafter made a search on the respondent and finding that the respondent was categoric in his information revealed earlier and having found the gold jewellery weighing 10 kgs. held by him proceeded to seize the same under section 132. Residential status - Section 6(1)(c) - therefore stay in India in that previous year should be 182 days or 60 days. - Held that - when we examine the details of the respondent s visit to Singapore and Chennai on various dates, it will have to be held that the conclusions of the appellants that the respondent was not governed by Explanation (b) to section 6(1)(c) and was governed only by section 6(1)(c) alone cannot be faulted. Therefore when the respondent has satisfied the criteria namely 365 days in the preceding four years of the previous year 2009-10 and remained in India for 96 days, in that previous year the consequent search and seizure effected on him by invoking section 132(1) of the Act was well within the jurisdiction of the appellant.

Summary

Issues Involved:
1. Validity of the search and seizure conducted on August 14, 2009.
2. Determination of the respondent's residential status under section 6(1)(c) of the Income-tax Act.
3. Validity of the order passed under section 132B of the Income-tax Act dated December 10, 2009.

Analysis:

1. Validity of the Search and Seizure:
The court examined the circumstances leading to the search and seizure on August 14, 2009. The respondent, upon arrival from Singapore, was found carrying 10 kg of gold jewelry and USD 10950, which he claimed belonged to an unknown person. The Income-tax Department obtained necessary authorization based on this information and conducted the search and seizure. The court referenced the principles laid down in the Ajit Jain case, emphasizing that the information must be tangible and have a rational connection to the belief that undisclosed income was involved. The court concluded that the information provided by the respondent himself was sufficient and valid, thereby upholding the search and seizure under section 132 of the Income-tax Act.

2. Determination of Residential Status:
The court analyzed whether the respondent could be considered a "resident" under section 6(1)(c) of the Income-tax Act. The respondent had stayed in India for more than 365 days between October 16, 2004, and November 28, 2007, and for 96 days in the previous year 2009-10. The respondent argued that he should be governed by Explanation (b) to section 6(1)(c), requiring a stay of 182 days in the previous year. The court examined the respondent's passport entries and concluded that his stay in foreign countries was only as a visitor and not for any avocation, job, or business. Therefore, the respondent did not qualify under Explanation (b) and was correctly classified as a resident under section 6(1)(c).

3. Validity of the Order under Section 132B:
The court evaluated the order dated December 10, 2009, passed under section 132B of the Income-tax Act, which held that the respondent was a resident and liable for tax in India. The court noted contradictions in the respondent's statements regarding the ownership of the gold and found no merit in the respondent's claim of coercion. The court also dismissed the argument that compliance with the Customs Act's notification regarding gold import should impact the Income-tax Act proceedings. The court concluded that the Income-tax Department had jurisdiction to retain the seized gold jewelry pending the finalization of the assessment and recovery of the tax liability.

Conclusion:
The court allowed the appeal, setting aside the order of the learned single judge and restoring the order of the second appellant dated December 10, 2009. The court directed the Income-tax Department to conclude the assessment proceedings expeditiously, preferably within three months, and allowed the respondent to participate in the proceedings to vindicate his stand.