1975 (10) TMI 16 - HC - Income Tax

Summary

Issues Involved:
1. Ambit and scope of powers u/s 132(3) of the Income-tax Act, 1961.
2. Legal relationship between customer and banker concerning money deposited in a bank.
3. Validity and implications of the order issued u/s 132(3) of the Act.

Summary:

1. Ambit and Scope of Powers u/s 132(3) of the Income-tax Act, 1961:
The primary issue in these appeals is the extent of the powers of the authority to pass an order u/s 132(3) of the Income-tax Act, 1961. The court examined whether the order, exhibit P-1, issued by the Income-tax Officer, was valid under the said section. The judgment under appeal had set aside the order on the grounds that once money is deposited in a bank, it becomes the bank's property, and thus, an order u/s 132(3) could not be issued against the bank.

2. Legal Relationship Between Customer and Banker:
The court acknowledged the well-established legal principle that money deposited in a bank account by a customer becomes the property of the bank, which has full control over it. The bank is only obliged to honor the customer's cheques drawn upon the account. The court proceeded on this basis to decide the case, noting that the monies in deposit, as evidenced by the seized passbooks, belonged to the bank and were under its control.

3. Validity and Implications of the Order Issued u/s 132(3):
The court considered whether an order u/s 132(3) could be issued against the bank. It concluded that while the proper procedure would be to address the customer directly, the order issued to the bank had the same effect of preventing the customer from operating the account. The court found that the monies deposited in the bank were impracticable to seize, justifying the action under sub-section (3). The court held that the form of the order, though directed at the bank, did not warrant setting it aside under Article 226 of the Constitution, as it effectively prevented the respondents from dealing with the money.

Conclusion:
The court set aside the judgment under appeal, allowed the writ appeals, and dismissed the original petitions. It directed that further steps be taken expeditiously to assess the respondents if they are liable under the Act. The court emphasized that freezing bank deposits for an extended period is prejudicial to both the respondents and the revenue.