1979 (1) TMI 9 - HC - Income Tax

Summary

Issues Involved:

1. Validity of Section 132(3) of the Income Tax Act, 1961, under Articles 14 and 19 of the Constitution.
2. Compliance with the provisions of Section 132 in the present case.
3. Locus standi of the petitioners to file the writ petitions.
4. Procedural correctness of the attachment under Section 132(3).
5. Provisional assessment and its implications.

Issue-wise Detailed Analysis:

1. Validity of Section 132(3) of the Income Tax Act, 1961:

The petitioners contended that Section 132(3) violated Articles 14 and 19 of the Constitution. The court examined the legislative history and the purpose of Section 132, which was to prevent tax evasion. The court referred to the Supreme Court's decisions in ITO v. Seth Brothers and Pooran Mal v. Director of Inspection, which upheld the constitutionality of Section 132. The court found that the provision did not violate Articles 14 and 19, as it was a necessary measure to prevent tax evasion and was applied with adequate safeguards.

2. Compliance with the Provisions of Section 132:

The court examined whether the authorities had complied with Section 132 in the present case. The court found that there was a valid authorization under Section 132(1) based on information from the CBI, which led to the belief that the Federation had undisclosed income. The court held that the belief was reasonable given the large unexplained deposits in the Federation's bank accounts. The court also found that the procedural requirements, such as showing the warrants to the banks and issuing a prohibitory order to Chandrasekaran, were met.

3. Locus Standi of the Petitioners:

The respondents argued that the petitioners, being creditors and decree-holders, had no locus standi to file the writ petitions. The court agreed, stating that the petitioners had no interest in the assets of the Federation and had not taken any steps to attach the assets before or after the judgment. The court held that only the Federation had the standing to challenge the attachment, and thus, the writ petitions filed by the creditors were dismissed.

4. Procedural Correctness of the Attachment under Section 132(3):

The petitioners argued that the attachment of bank deposits was not permissible under Section 132(3) as it referred to tangible assets. The court rejected this argument, stating that the term "valuable thing" in Section 132(1)(c) included incorporeal assets like bank deposits. The court also clarified that the term "practicable to seize" in Section 132(3) was used in a wide sense, allowing for the attachment of assets that could not be physically seized. The court found that the attachment was procedurally correct and within the scope of Section 132.

5. Provisional Assessment and Its Implications:

The court examined the provisional assessment made by the ITO in compliance with the court's earlier directions. The court clarified that the provisional assessment was not a final order under the Act but an estimate to determine the tax liability. The court noted that the ITO had not concluded that the funds belonged to the farmers or the lift irrigation society, and the final determination would be made during the assessment proceedings. The court dismissed the contention that the provisional assessment affected the validity of the attachment.

Conclusion:

The writ petitions filed by the creditors were dismissed for lack of locus standi. The court upheld the validity of Section 132(3) and found that the authorities had complied with the procedural requirements of Section 132. The attachment of the bank deposits was deemed procedurally correct and within the scope of the Act. The provisional assessment was recognized as an interim measure, and the final determination of the ownership of the funds would be made during the assessment proceedings.