2020 (8) TMI 243 - HC - Income Tax

Release of Custody of cash invoking Section 451 of the Cr.P.C. - petitioner seeking custody of cash, invoking Section 451 of the Cr.P.C.- power of the authorities to requisition for delivery of unexplained assets or cash from the custody of the concerned officer or the authority in possession of the same - HELD THAT - Unexplained amount of cash was possessed by a person, has to apply to the court under Section 226(4) for payment of the money due under the tax. This Court by order dated 28.5.2020 has called upon the petitioner to report whether assessment proceedings have been initiated and finalised and also to report the amount recoverable towards payment of tax etc. under the Act. The petitioner submitted a statement on 11.6.2020 intimating that assessment was completed as against the first respondent making a demand for an amount of ₹ 20,12,420/- towards tax and interest etc. It was intimated that the amount directed to be retained in JFCM Court being only ₹ 15,23,480/- was insufficient to cover the entire liability of the first respondent, assessee. It is contended that when penalty leviable under Sections 271(1)(c) is also quantified, the assessee will be liable for payment of more amount. Going through the counter affidavit filed by the first respondent, his contention appears to be that the cash seized from his possession is an accounted money for which he is not liable to be assessed for the amount as fixed by the authorities under the Act. The assessment order dated 29.12.2018 produced before this Court shows that the first respondent was assessed after following the procedure prescribed by the Act. He cannot therefore contend in this proceeding that he is not liable for payment of tax, interest and penalty unless the order itself is challenged before the appropriate authority competent to entertain appeal under the Act. As to the amount for which he could be finally held liable, it is for the authorities under the Act to determine and quantify the sum. Such an inquiry cannot be undertaken by the Magistrate while deciding the petitions filed under Section 451 of the Cr.P.C. seeking release of cash amount from the court. Therefore, the apportionment of the amount as between the claimants and release of 40% of the cash amount in deposit to the petitioner as if such portion of the amount would satisfy the claim of the Income Tax authorities is factually and legally wrong. That part of the impugned order allowing the first respondent to get release of 60% of cash in deposit on tender of bank guarantee, therefore, requires to be modified. Appropriate remedy open to the Income Tax officer is to apply Section 226(4) of the Act for payment of money towards tax and other amounts due. That means, once the assessment proceedings have become final and conclusive, the authorities under the Act are entitled to apply to the learned Magistrate for release of the portion of amount due and recoverable from the first respondent under law. The amount necessary for satisfying the liability of the first respondent will have to remain in the custody of the court despite any claim being raised by parties demanding interim custody, pending finalisation of the assessment proceedings.

Summary

Issues:
1. Custody of cash seized by police and claimed by individuals.
2. Interpretation of Section 451 of the Cr.P.C. regarding release of cash.
3. Application of Section 132 A of the Income Tax Act for possession of cash.
4. Legal proceedings for recovery of tax, interest, and penalty.
5. Authority of Income Tax officer to claim cash seized by police.

Analysis:
The judgment involves a challenge by the Assistant Director of Income Tax against the order of the Magistrate regarding the custody of cash amounting to ?38,08,700 seized by the Deputy Superintendent of Police. The first respondent claimed legal possession of the cash, stating it was proceeds from selling gold brought from Dubai. The Magistrate allowed partial release of the cash, leading to a dispute over the entitlement to possess the amount.

The Income Tax authorities invoked Section 132 A of the Income Tax Act, claiming exclusive possession of the currency notes during assessment proceedings. The petitioner argued that the entire amount should be released to the department as the cash was unaccounted for and liable to tax and penalty. However, the court found that the Income Tax authorities cannot demand the release of cash deposited in court under Section 132 A, as clarified in previous legal precedents.

The court highlighted the need for the Income Tax officer to follow the procedure under Section 226(4) of the Act for payment of tax due, rather than demanding the release of cash seized by the police. The assessment proceedings against the first respondent were completed, making him liable for tax, interest, and penalty as determined by the authorities under the Act. The court emphasized that the Magistrate cannot determine the liability of the individual during proceedings under Section 451 of the Cr.P.C.

Ultimately, the court directed the Magistrate to retain the entire cash amount in deposit until the finalization of assessment proceedings against the first respondent. The authorities under the Act were granted the right to recover the amount due, ensuring that any liability determined through legal processes would be satisfied. The judgment clarified the appropriate legal remedy for the Income Tax officer to claim the amount owed by the individual, emphasizing the importance of following the prescribed procedures under the Income Tax Act.