2011 (1) TMI 1171 - HC - Income Tax

Whether the Central Government is liable to pay interest on the shares which were seized by the Income-tax Department and retained under section 132 of the Income-tax Act which, of course, were subsequently released after a few years, without adjusting any possible tax liability - contention of petitioner that as the shares seized formed part of the working capital of the business of the petitioner as a jobber, and ultimately, the income-tax authorities returned the shares after coming to a conclusion that the retention of shares is not needed for adjustment against the possible tax liability and, therefore, it should be treated as money and under section 132B(4) of the Income-tax Act the Central Government is bound to pay interest at 15 per cent per annum Held that - merely because the shares seized did form part of the capital assets of the petitioner and the petitioner as jobber was in the process of buying and selling shares which is his avocation, it does not mean that the shares should be construed as money, for the purpose of claiming interest, no illegality in the order of the first respondent, writ petition fails and the same is dismissed

Issues Involved:
1. Claim for interest on shares retained beyond six months under section 132(5) of the Income-tax Act.
2. Interpretation of the term "money" under section 132B(4) of the Income-tax Act.
3. Legality of the Settlement Commission's order rejecting the claim for interest.

Issue-wise Detailed Analysis:

1. Claim for interest on shares retained beyond six months under section 132(5) of the Income-tax Act:

The petitioner, a stockbroker, challenged the order of the Settlement Commission dated October 25, 2002, which rejected his claim for interest on shares retained beyond six months from the date of the order under section 132(5) of the Income-tax Act. The shares were seized during a search and seizure operation by the Income-tax Department on July 15, 1992. The petitioner argued that the shares, being part of the working capital of his business, should be treated as money, and thus, he was entitled to interest under section 132B(4) of the Income-tax Act.

2. Interpretation of the term "money" under section 132B(4) of the Income-tax Act:

The petitioner contended that the term "money" under section 132B(4) should be interpreted broadly to include shares, as they are equivalent to cash in the business of a stockbroker. He argued that the term "money" is not defined in the Income-tax Act and should be construed in the context of the business where shares are quickly convertible to cash. The respondents, however, argued that the term "money" should be strictly construed as cash, as per the provisions of the Act.

3. Legality of the Settlement Commission's order rejecting the claim for interest:

The court examined whether the Central Government was liable to pay interest on the shares seized and retained under section 132 of the Income-tax Act. The court noted that section 132B(4)(a) of the Act imposes an obligation on the Central Government to pay simple interest on the amount of money seized under section 132 or requisitioned under section 132A, but this obligation does not extend to shares. The court emphasized that the term "money" in section 132B(4)(a) refers only to cash or assets that can be reduced to cash, and shares do not fall under this category as they require a process of sale to ascertain their value.

The court concluded that the construction of the term "money" by the Settlement Commission, which limited it to cash, was neither alien to the present scenario nor illegal. The court dismissed the writ petition, confirming the order of the Settlement Commission and ruling that there was no illegality in rejecting the claim for interest on the shares seized and subsequently released.

Conclusion:

The court upheld the Settlement Commission's order, confirming that the term "money" under section 132B(4) of the Income-tax Act does not include shares. Consequently, the petitioner was not entitled to interest on the shares retained beyond six months from the date of the order under section 132(5) of the Act. The writ petition was dismissed, and the order of the Settlement Commission was confirmed. No costs were awarded, and the connected miscellaneous petition was closed.

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