2018 (2) TMI 187 - HC - Income Tax

Commission of error by court below in passing the impugned order so far as Exh. 3 filed by the department - applicability of provisions of Section 132 - Held that - Under Section 132 on a requisition being made under Sub-section (I), the officer or authority referred to in Clause (a) or Clause (b) or Clause (c), as the case may be, of the subsection shall deliver the books of account, other documents or assets to the requisitioning officer either forthwith or when such officer or authority is of the opinion that it is no longer necessary to retain the same in his or its custody. Once the warrant of authorization is issued against any person, then the seized amount is required to be retained by the Income Tax Authority and without taking over of the said amount, no further proceedings can be started against any person, from whose custody the amount was recovered. The Lower Court has not properly appreciated the provisions of Section 132 of the Income Tax Act and rejected the claim of the applicant. This application succeeds and is hereby allowed. The order passed by the J. M. F. C, Kathor below Exh. 3 is hereby quashed and set aside. It is declared that the department is entitled to retain the cash till the final conclusion of the proceedings under the Income Tax Act. The Investigating Officer is permitted to handover the Muddamal currency notes amounting to ₹ 13,00,000/- (Thirteen Lakh) to the applicant-Deputy Director of Income Tax (Investigation), Unit-II, Surat at the earliest. It is clarified that prior to handing over the Muddamal currency notes, the Investigating Officer shall get the videography of the currency notes done as provided in the decision in the case of Sunderbhai Ambalal Soni vs. State of Gujarat, 2002 (10) TMI 773 - SUPREME COURT , and if necessary, to carry out the Panchnama with the serial numbers of the currency notes, if not already done. A copy of the Panchnama or the videography be placed before the court concerned and the same shall be furnished to the Income Tax Department so also to the respondent No. 2-original first informant. The applicant-department shall be free to undertake all actions permitted under the law, however, he shall make the Fixed Deposit of the entire amount of ₹ 13,00,000/- with any Nationalized Bank within a period of four weeks from the date of taking over such Muddamal currency notes, initially for a period of two years and, thereafter, the same shall be renewed from time to time till the finalization of such proceedings initiated by the applicant-department. Any appropriation, if, is to be made, the same shall be made only with the prior permission of this Court.

Issues Involved:
1. Legality and validity of the order passed by the J.M.F.C, Kathor.
2. Custody and interim release of seized currency.
3. Applicability of Article 227 of the Constitution of India.
4. Interpretation and application of Section 132 of the Income Tax Act.
5. Preliminary objection regarding maintainability of the application.
6. Rights of the Income Tax Department vs. rights of the original informant.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Order Passed by the J.M.F.C, Kathor:
The applicant, Deputy Director of Income Tax, challenged the order dated 4th October 2017, passed by the J.M.F.C, Kathor, which rejected the applications for interim release and possession of ?13,00,000/- in cash seized during a robbery investigation. The High Court scrutinized whether the lower court erred in its decision, particularly in its interpretation of Section 132 of the Income Tax Act. The court concluded that the lower court did not properly appreciate the provisions of Section 132 and thus, the order was quashed.

2. Custody and Interim Release of Seized Currency:
The police recovered ?13,00,000/- in cash during the investigation of a robbery. The Income Tax Department filed an application for the interim release of the seized currency, claiming it as unaccounted money subject to investigation under the Income Tax Act. The J.M.F.C rejected this application, prompting the department to challenge the decision in the High Court. The High Court ruled that the seized amount should be retained by the Income Tax Authority as per Section 132 of the Income Tax Act, and the Investigating Officer was directed to hand over the currency notes to the applicant.

3. Applicability of Article 227 of the Constitution of India:
The respondent raised a preliminary objection regarding the maintainability of the application under Article 227, arguing that the impugned order was revisable and should have been challenged through a revision application before the Sessions Court. The High Court overruled this objection, stating that it is within its supervisory jurisdiction under Article 227 to examine the legality and validity of the Magistrate's order.

4. Interpretation and Application of Section 132 of the Income Tax Act:
Section 132 of the Income Tax Act mandates that on a requisition being made, the officer or authority must deliver the seized assets to the requisitioning officer. The court emphasized that once a warrant of authorization is issued, the seized amount must be retained by the Income Tax Authority. The High Court referred to various precedents, including decisions in Lalit Bisnoi vs. State of Gujarat and Uday Navinchandra Sangani vs. Vikrant Pal Singh, to support its interpretation that the currency notes should be handed over to the Income Tax Department for further investigation.

5. Preliminary Objection Regarding Maintainability of the Application:
The respondent's counsel argued that the application was not maintainable under Article 227 and should have been filed as a revision application before the Sessions Court. The High Court dismissed this preliminary objection, asserting its authority to exercise supervisory jurisdiction and examine the merits of the case directly.

6. Rights of the Income Tax Department vs. Rights of the Original Informant:
The Income Tax Department claimed custody of the seized cash, arguing it was unaccounted money subject to investigation. The original informant, on the other hand, contended that the cash should be returned to him as he was the victim of the robbery. The High Court ruled in favor of the Income Tax Department, stating that the department is entitled to retain the cash until the final conclusion of the proceedings under the Income Tax Act. The court directed that the currency notes be handed over to the Deputy Director of Income Tax, with appropriate documentation and videography to ensure transparency.

Conclusion:
The High Court allowed the application, quashed the impugned order, and directed the Investigating Officer to hand over the seized currency notes to the Income Tax Department. The department was instructed to make a Fixed Deposit of the amount with a Nationalized Bank and renew it periodically until the finalization of the proceedings. The court emphasized the importance of adhering to the provisions of Section 132 of the Income Tax Act and ensuring proper custody and documentation of the seized assets.

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