1988 (8) TMI 14 - HC - Income Tax

Summary

Issues Involved:
1. Constitutionality of section 132(5) of the Income-tax Act.
2. Legality of the search and seizure conducted by the Income-tax Department.
3. Obligation of Income-tax officials to collect amounts covered by seized promissory notes.
4. Applicability of section 226(3)(x) of the Income-tax Act.
5. Constructive res judicata concerning the plea of wrongful retention of promissory notes.

Issue-wise Detailed Analysis:

1. Constitutionality of section 132(5) of the Income-tax Act:
The petitioners initially challenged the constitutionality of section 132(5) of the Income-tax Act in Writ Petition No. 1699 of 1971. This court upheld the validity of section 132(5) and the search conducted by the Income-tax Department, along with the consequent seizure of the account books and promissory notes.

2. Legality of the search and seizure conducted by the Income-tax Department:
The search and seizure conducted on April 7, 1971, by the Income-tax Department officials at the petitioners' business and residential premises were upheld by this court. The court dismissed the initial writ petition challenging the search and seizure, thereby affirming the legality of the actions taken by the departmental officials.

3. Obligation of Income-tax officials to collect amounts covered by seized promissory notes:
The petitioners contended that the Income-tax officials were obligated to collect the amounts covered by the seized promissory notes and adjust them towards the arrears of tax. The court found no factual basis for this contention, noting that the petitioners had taken back 86 promissory notes and refused to take back the rest, which were mostly time-barred. The court concluded that the departmental officials acted fairly by offering to return the promissory notes and that the petitioners' refusal to take back the time-barred notes negated their claim.

4. Applicability of section 226(3)(x) of the Income-tax Act:
The petitioners argued that the Income-tax Officer should have treated the executants of the promissory notes as assessees under section 226(3)(x) of the Act. The court rejected this argument, stating that no details were provided regarding the notices issued to the executants and their failure to make payments. The court emphasized that the mere issuance of notices does not operate as an attachment under section 226(3)(x) unless the debtor fails to make payment and the Income-tax Officer initiates further proceedings.

5. Constructive res judicata concerning the plea of wrongful retention of promissory notes:
The court noted that the petitioners had not raised the plea of applying section 226(3)(x) in their earlier civil suits seeking damages for wrongful retention of the promissory notes. The court held that on the principle of constructive res judicata, the petitioners could not raise this plea now. The court also pointed out that the petitioners were trying to approbate and reprobate by taking inconsistent positions in different litigations.

Conclusion:
The court dismissed the writ petitions, finding no merit in the petitioners' contentions. The court concluded that the petitioners' arguments lacked factual basis, and the plea regarding section 226(3)(x) was barred by constructive res judicata. The court affirmed the legality of the search and seizure and upheld the actions of the Income-tax Department officials. No costs were awarded.