1967 (1) TMI 16 - HC - Income Tax

Whether the Commissioner, in issuing the authorisations, can be said to have entertained such reasonable belief as is required by the first sub-s. of s. 132 - no case has been made out of any failure to comply with the provisions of s. 132 or of any disobedience or disregard thereof either in the matter of the issue of authorisations for search or seizure or in the matter of actual searches and seizures of documents

Summary

Issues Involved:
1. Constitutionality of Section 132 of the Income-tax Act, 1961.
2. Justification and manner of the searches conducted under Section 132.

Detailed Analysis:

Constitutionality of Section 132 of the Income-tax Act, 1961

Argument on Ultra Vires and Unconstitutionality:
The petitioners contended that Section 132 is ultra vires and unconstitutional, arguing that it violates fundamental rights under Articles 14, 19(1)(d), (f), (g), 21, and 31(1) of the Constitution. They claimed that Section 132 imposes unreasonable restrictions and lacks sufficient guidance, leading to arbitrary and discriminatory application.

Court's Analysis:
1. Legislative Competence:
- The court noted that Parliament has the legislative competence to enact Section 132, relating to taxes on income and incidental powers to prevent tax evasion.

2. Fundamental Rights:
- Article 14 (Equality Before Law):
- The court examined whether the classification under Section 132 is reasonable and related to the objective of preventing tax evasion. It held that the classification is reasonable as it targets individuals withholding evidence or possessing undisclosed income. The section provides clear criteria for action, ensuring non-arbitrary application.
- Article 19 (Protection of Certain Rights):
- The court referenced the Supreme Court's judgment in M.P. Sharma v. Satish Chandra, stating that search and seizure are temporary interferences and reasonable restrictions in public interest. The restrictions under Section 132 are deemed reasonable, aimed at preventing tax evasion.
- Article 21 (Protection of Life and Personal Liberty):
- Since Section 132 is a valid law, any deprivation of liberty during searches is in accordance with the procedure established by law, thus not violating Article 21.
- Article 31 (Right to Property):
- The court held that temporary seizure of assets for tax recovery does not constitute deprivation of property under Article 31.

3. Guidance and Safeguards:
- The court found that Section 132 provides adequate guidance and safeguards, including the requirement for a reasonable belief based on information, adherence to procedures similar to those in the Code of Criminal Procedure, and judicial oversight.

Conclusion on Constitutionality:
The court concluded that Section 132 is not ultra vires or unconstitutional and does not violate the fundamental rights guaranteed under Articles 14, 19, 21, and 31 of the Constitution.

Justification and Manner of Searches Conducted

Petitioners' Allegations:
The petitioners alleged that the searches were conducted without justification and in a high-handed manner, violating their rights and safeguards provided by law.

Court's Analysis:
1. Reasonable Belief:
- The court examined whether the Commissioner had a reasonable belief based on information in his possession. It reviewed the reports and information provided by the Assistant Director of Inspection, which indicated non-disclosure of income and possession of undisclosed wealth by the petitioners.
- The court held that the belief entertained by the Commissioner was reasonable and based on substantial material, thus justifying the issuance of search authorizations.

2. Conduct of Searches:
- The court scrutinized the manner of the searches, noting that the officers followed instructions to exercise restraint and only seize relevant documents. The detailed inventory of seized items supported the officers' adherence to guidelines.
- The court found no evidence of high-handedness or arbitrary action by the officers during the searches.

Conclusion on Searches:
The court concluded that the searches were conducted in compliance with Section 132, with reasonable belief and adherence to procedural safeguards. The allegations of high-handedness and unjustified searches were not substantiated.

Final Judgment:
The writ petition was dismissed. The court upheld the constitutionality of Section 132 of the Income-tax Act, 1961, and found the searches conducted under it to be justified and in accordance with the law. The respondents were allowed to retain the seized books and papers, to be dealt with as per Section 132. No order as to costs was made.