1978 (1) TMI 46 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the search and seizure dated May 8, 1976, by the Special Police Establishment.
2. Validity of proceedings initiated under Section 132A of the Income Tax Act.
3. Validity of the orders passed by the Income Tax Officer (ITO) directing the retention of gold ornaments.
4. Jurisdiction of the High Court to entertain the petitions under Article 226 of the Constitution.

Detailed Analysis:

1. Validity of the Search and Seizure Dated May 8, 1976, by the Special Police Establishment:
The petitioners challenged the validity of the search and seizure conducted by the Special Police Establishment on May 8, 1976, claiming that the search and seizure of their ornaments were illegal. However, during the hearing, the counsel for the petitioners stated that they would not press for reliefs against the CBI at this stage, focusing instead on the reliefs claimed against the income-tax department. Consequently, the court did not delve into the validity of the search and seizure by the CBI.

2. Validity of Proceedings Initiated Under Section 132A of the Income Tax Act:
The core issue was whether the Commissioner of Income Tax (CIT) had valid grounds to believe that the seized ornaments represented undisclosed income, justifying the requisition under Section 132A of the Income Tax Act. The court examined the information available to the CIT, which included allegations of fraud by the firms M.T. Agencies and M.T. Company, and the seizure of gold ornaments by the CBI. The court found that the CIT lacked sufficient material to reasonably believe that the ornaments represented undisclosed income. The court concluded that the CIT's belief was not based on adequate information, rendering the proceedings under Section 132A and the subsequent order under Section 132(5) without jurisdiction and authority of law.

3. Validity of the Orders Passed by the ITO Directing the Retention of Gold Ornaments:
The ITO had issued orders on November 17, 1976, assessing additional tax and directing the retention of the ornaments for satisfying the determined dues. The court found that these orders were based on the invalid proceedings under Section 132A. Since the foundational requisition under Section 132A was without jurisdiction, the subsequent orders by the ITO were also invalid. The court quashed these orders and directed the return of the ornaments to the petitioners.

4. Jurisdiction of the High Court to Entertain the Petitions Under Article 226 of the Constitution:
The respondents argued that the petitions were not maintainable under Article 226 due to the existence of alternative remedies under the Income Tax Act. However, the court noted that the petitioners were seeking to enforce their fundamental rights under Article 31 of the Constitution, which guarantees that no person shall be deprived of their property save by authority of law. The court held that the bar under Article 226(3) did not apply to petitions directed towards enforcing fundamental rights. The court concluded that it had jurisdiction to entertain the petitions and grant relief under Article 226.

Conclusion:
The petitions were allowed, and the court quashed the proceedings initiated by the CIT under Section 132A and the orders dated November 17, 1976, passed by the ITO. The respondents were directed to return the seized ornaments and gold bonds to the petitioners immediately. The court's decision was based on the finding that the CIT lacked adequate grounds to believe that the seized ornaments represented undisclosed income, rendering the entire proceedings and subsequent orders invalid.