1978 (1) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the search and seizure conducted by the Central Excise Authorities under the Gold Control Act, 1968.
2. Legality of the subsequent seizure by the Income-tax Authorities under section 132A of the Income-tax Act, 1961.
3. Validity of the Income-tax Officer's order dated 17th April, 1976, under section 132(5) of the Income-tax Act.
4. Whether the petitioners were entitled to a notice under section 132(5) as "persons concerned."

Detailed Analysis:

1. Legality of the Search and Seizure Conducted by the Central Excise Authorities:
The Central Excise Authorities conducted a search of the premises of Shri Ramlal Sharma under the Gold Control Act, 1968, and seized gold and gold ornaments. By order dated 4th November, 1975, the Collector, Customs and Excise, ordered absolute confiscation of primary gold and 3 sovereigns. The Collector also conditionally confiscated gold ornaments weighing 13,894 grams, allowing them to be redeemed by depositing a fine of Rs. 50,000.

2. Legality of the Subsequent Seizure by the Income-tax Authorities:
Before the gold ornaments could be returned, they were seized by the income-tax authorities on 24th January, 1976, from the Superintendent, Central Excise, Nagpur, under section 132A of the Income-tax Act, 1961. The Income-tax Officer, B-Ward, Itarsi, initiated proceedings under section 132(5) of the Act.

3. Validity of the Income-tax Officer's Order Dated 17th April, 1976:
The Income-tax Officer issued a notice to Ramlal Sharma, who submitted that the ornaments belonged to him and his family members. By order dated 17th April, 1976, the Income-tax Officer held that the source of acquisition of 5,582 grams of the ornaments was satisfactorily explained. The remaining ornaments weighing 8,464.450 grams were deemed unexplained investments representing income from undisclosed sources. The Income-tax Officer assessed tax and penalty at Rs. 6,04,964 and retained the gold ornaments to the extent they belonged to Ramlal Sharma. The remaining ornaments weighing 5,332 grams were returned to the respective claimants.

4. Whether the Petitioners Were Entitled to a Notice under Section 132(5):
The petitioners challenged the order of the Collector, Customs and Central Excise, dated 4th November, 1975, and the order dated 17th April, 1976, passed by the Income-tax Officer. The petitions became infructuous in so far as they challenged the order of the Collector, as it was set aside in appeal. The petitions were pressed only concerning the impugned order of the Income-tax Officer. The main argument was that the Income-tax Officer should have issued notices to the petitioners under section 132(5) as they were "persons concerned."

The court held that the "person concerned" under sub-section (5) is the person regarding whom the Income-tax Officer makes an order estimating the undisclosed income, calculating the tax, and determining the interest and penalty. The opportunity of being heard under sub-section (5) is not for determining the ownership of the assets but for estimating the undisclosed income and related tax liabilities. The person from whose custody the assets are seized is presumed to be the owner under sub-section (4A) and is the person against whom proceedings would be taken under sub-section (5). If the Income-tax Officer is satisfied that the assets were held by the person from whom they were seized on behalf of another, he may proceed against that other person under sub-section (7).

The court concluded that the petitioners were not entitled to a notice under section 132(5) as they were not the persons against whom the Income-tax Officer decided to proceed. The petitions were dismissed with no order as to costs, and the security amount deposited by the petitioners was ordered to be refunded.

Conclusion:
The court upheld the validity of the search and seizure operations conducted by both the Central Excise and Income-tax Authorities. The Income-tax Officer's order dated 17th April, 1976, was deemed valid as the petitioners were not entitled to a notice under section 132(5) of the Income-tax Act. The petitions were dismissed, and the security deposits were ordered to be refunded.