1991 (5) TMI 49 - HC - Income Tax

Summary

Issues:
Detention under COFEPOSA Act, Competent Authority's order under Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, legality of properties acquisition, jurisdiction of Competent Authority, clubbing of properties for fine under section 9 of the Act.

Analysis:

The appellant was detained under the COFEPOSA Act, and the Competent Authority issued a notice under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act for two properties. The Competent Authority allowed the appellant to pay a fine to avoid forfeiture of the properties. The appellant challenged this order.

Regarding Property at No. (1), the Competent Authority found that the appellant could only establish the legal source for a portion of the amount spent on acquiring the property. The source for the remaining amount was deemed to be from illegal activities. Similarly, for Property at No. (2), the appellant could not prove the legal source for the entire amount spent on the motorcycle, leading to a similar conclusion.

The Competent Authority combined the amounts spent on both properties and found that the appellant could only establish the legal source for a portion of the total expenditure. The option to pay a fine to avoid forfeiture was based on this assessment. The appellant did not appear in person but submitted written arguments challenging the jurisdiction of the Competent Authority to proceed against properties acquired before detention under the COFEPOSA Act.

The High Court held that the provisions of the Act apply to all persons covered by the Act, regardless of when the properties were acquired. The notice issued by the Competent Authority was found to be valid under section 6(1) of the Act. However, the High Court found that the Competent Authority erred in clubbing the two properties together for the purpose of imposing a fine under section 9 of the Act.

The High Court set aside the order of the Competent Authority and remanded the case for fresh consideration. It was clarified that each property of an affected person should be treated as a separate entity for the purposes of imposing fines under the Act, and properties cannot be clubbed together. The judgment emphasized the need for a proper assessment of the legal sources of income for each property individually.