1979 (7) TMI 1 - SC - Income Tax

Assessment is completed before the seizure is effected and while the assets are still in the custody of the court, the appropriate remedy for the revenue is to make an application under s. 226(4) - After assessment, money of assessee lying in court custody cannot be seized under s. 132 and adjusted against tax arrears

Summary

Issues:
1. Interpretation of Section 132 of the Income Tax Act.
2. Application of Section 226(4) of the Income Tax Act.
3. Ownership of the seized money.
4. Jurisdiction of the Magistrate and District Magistrate.
5. Legal remedy for the revenue department.

Detailed Analysis:
1. The main issue in this case was the interpretation of Section 132 of the Income Tax Act. The appellant argued that Section 132 applied to assets in the custody of the court and that the Income Tax Officer (ITO) could request the court to deliver the assets to him. However, the court held that once an assessment is completed, there can be no seizure under Section 132, as seizure under this section relates to a pre-assessment stage. The appropriate remedy for the revenue department in such cases is to make an application under Section 226(4) of the Income Tax Act.

2. Another issue was the application of Section 226(4) of the Income Tax Act. The court emphasized that if an assessment is completed before the seizure is effected and the assets are in the custody of the court, the revenue department should proceed by making an application under Section 226(4). In this case, the ITO had filed a petition under Section 226(4) to claim the seized money, which was found to be the correct legal course of action.

3. The question of ownership of the seized money was also a crucial issue in this case. The Magistrate, based on the available material, found that the money seized from the respondent belonged to another individual. The court upheld the Magistrate's decision, stating that the Magistrate was justified in holding that the money belonged to the rightful owner and not to the person from whom it was seized.

4. The jurisdiction of the Magistrate and District Magistrate was challenged through criminal revision petitions filed by the revenue department. The District Magistrate confirmed the Magistrate's order, and the High Court dismissed the criminal revision petition filed by the ITO, Assessment IV, on the grounds that Section 132(1)(iii) of the Income Tax Act did not apply to the facts of the case. The High Court's decision was upheld by the Supreme Court, emphasizing the Magistrate's jurisdiction in determining ownership of the seized money.

5. Lastly, the legal remedy available to the revenue department was discussed. The court clarified that once an assessment is completed, the appropriate remedy for the revenue department is to make an application under Section 226(4) of the Income Tax Act. In this case, the earlier petition under Section 132 was considered infructuous due to subsequent events, and the court rejected the appeal filed by the ITO, Assessment IV, as the order of the District Magistrate had become final.

In conclusion, the Supreme Court upheld the decisions of the lower courts, emphasizing the correct legal procedures to be followed under the Income Tax Act and affirming the Magistrate's jurisdiction in determining ownership of seized assets.