2012 (5) TMI 20 - HC - Income Tax

Writ petition - Warrant u/s 132A - Rule 112D(1) of the Income Tax Rules - Powers to requisition books of account - Powers of criminal court - held that - the restriction placed by the provisions of Sections 132, 132-A or Rules 112-A are not unreasonable restrictions on the freedom under Articles 19 (1) (f) and (g) or Article 14 of the Constitution. The provisions of Sections 132 (1) (5), 132A and R. 112A are directed against persons who are believed on good grounds to have illegally evaded the payment of tax on their income and property. Therefore, drastic measures to get at such income and property with a view to recover the government dues would stand justified in themselves. In the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent large-scale tax evasion. Provisions of Section 451 of the Code of Criminal Procedure - A plain reading of the aforesaid provision leaves no doubt that the said Section makes the Criminal Court custodia legis of the property produced before the court in connection with the case regarding which an offence appears to have been committed or which appears to have been used for the commission of the offence. Criminal courts are appropriate authority or the person in terms of sub-section (2) of Section 132A to issue for requisition books of account.

Issues Involved:
1. Legality of the warrant of authorization under Section 132A of the Income Tax Act, 1961.
2. Jurisdiction of the Criminal Court regarding the custody of seized silver articles.
3. Compliance with procedural requirements under the Income Tax Act and the Constitution of India.

Detailed Analysis:

1. Legality of the Warrant of Authorization under Section 132A of the Income Tax Act, 1961:

The petitioners challenged the warrant of authorization dated February 16, 2011, issued under Section 132A of the Income Tax Act, 1961, arguing that as regular assessees, the seized silver articles were disclosed in their books of accounts and Income Tax Returns. They contended that the provisions of Section 132A were not applicable, and the authorization was issued without jurisdiction, violating Articles 14 and 19 of the Constitution of India.

The Income Tax authorities countered that the silver ornaments were found in a hidden compartment without any documentary proof. Statements recorded under Section 131 of the Act revealed that the petitioners could not provide evidence of ownership or source of the silver. The authorities had a bona fide belief, as required under Section 132A, to issue the notice.

The Court noted that the power to issue a warrant under Section 132A is vested in high-ranking officers and can only follow a reasonable belief that conditions under Section 132A(1)(a), (b), or (c) exist. The Court found that the materials on record justified the issuance of the warrant and that the authorities acted within their jurisdiction.

2. Jurisdiction of the Criminal Court Regarding the Custody of Seized Silver Articles:

The petitioners argued that the silver articles were in the custody of the Criminal Court at the time of the warrant's issuance, making the warrant invalid. The Court referred to Section 451 of the Code of Criminal Procedure, which states that the Criminal Court is custodia legis of the property produced before it. The Supreme Court's decision in Smt. Basava Kom Dyamogouda Patil v. State of Mysore clarified that production before the Court includes control exercised by the Court over the property.

The Court rejected the petitioners' contention, affirming that the Criminal Court was the appropriate authority in terms of Section 132A(2) and that the warrant was validly issued.

3. Compliance with Procedural Requirements under the Income Tax Act and the Constitution of India:

The petitioners claimed that the action taken under Section 132A was in gross violation of Articles 14 and 19 of the Constitution of India. They argued that the seizure of stock-in-trade violated their fundamental right to carry on business. The Court referred to precedents (Pooran Mal v. Director of Inspection and Bhupendra Ratilal Thakkar v. Commissioner of Income-Tax) to assert that the restrictions under Sections 132 and 132A were reasonable and justified in preventing tax evasion.

The Court emphasized that the High Court's jurisdiction under Article 226 of the Constitution is limited to examining whether the conditions for issuing the authorization were met and whether the authority had a reasonable belief based on information. The Court found no evidence of mala fides or unreasonable action by the authorities and upheld the validity of the warrant.

Conclusion:

The Court dismissed the Special Civil Application, finding no merit in the petitioners' arguments. The warrant of authorization under Section 132A was upheld as valid, and the Court clarified that the dismissal does not affect the petitioners' right to defend themselves in subsequent proceedings under the Income Tax Act. The Court also stated that its observations should not influence the outcome of those proceedings. No costs were awarded.

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