2024 (9) TMI 1568 - HC - Income Tax

Right of the Income tax authorities to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate or seized and reported to the Jurisdictional Magistrate in terms of Section 102 of the Code of Criminal Procedure (the Code) - Powers to requisition books of account, etc. u/s 132A - HELD THAT - When the Act confers power on the competent authority under the Act to issue a requisition and obtain assets of assessees and adjust the same towards their liabilities, if the competent authority has reason to believe that the asset represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act, according to us, the best suited person to hold the currency notes which have been seized in cases of this nature until the culmination of the enquiry or trial, would be the competent authority under the Act provided it is alleged that the asset represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act. Even though this Court held in Abdul Khader 1998 (11) TMI 76 - KERALA HIGH COURT that Section 132A does not empower the competent authority to make a requisition to a court for delivery of assets, it was made clear in the said case that the competent authority under the Act is entitled to seek interim custody of the seized assets. In the said view of the matter, according to us, the view expressed in Union of India that the competent authority under the Act is entitled to seek interim custody of the currency notes in the facts of the said case, is in order. A close reading of the judgment in J.R. Malhotra 1975 (12) TMI 170 - SUPREME COURT would indicate that the case dealt with therein relates to a seizure effected prior to the introduction of Sections 132A and 132B of the Act. What the learned Judge omitted to take note of, is the power conferred on the competent authorities to hold any assets if it has reason to believe that the same represents either wholly or partly income or property which has not been, or would not be disclosed for the purposes of the Act. Of course, the said power is subject to the exception provided for in the first proviso to clause (i) of sub-section (1) of Section 132B. If the competent authority has reason to believe that the amount seized represents wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act and is unable to issue a requisition in terms of Section 132A of the Act for the reason that asset has been produced by the officer or authority who seized the same before the Jurisdictional Magistrate, as clarified by this Court in Abdul Khader, the competent authority shall be held to be authorised to prefer an application seeking interim custody of the currency notes under Section 451 of the Code, for otherwise, Sections 132A and 132B, would become futile. Needless to say, the view expressed in R. Ravirajan that the provisions contained in Sections 132A and 132B are not relevant in the context, does not appear to us to be correct. As we propose to uphold the view expressed in Union of India, it is necessary to clarify that the direction in Union of India that the competent authority under the Act, on receipt of the seized currency notes, shall complete the proceedings contemplated against the person concerned within a period of six months and if not, the amount shall be redeposited and shall be released to the person from whom the amount has been seized, is not in accordance with law. Such a direction is unwarranted inasmuch as the scope of the proceedings is only to decide the person who is best suited to have custody of the currency notes until the conclusion of enquiry or trial. According to us, direction for disbursement/ appropriation of the amounts after completing the proceedings contemplated under the Act can be issued only when the court exercises the power u/s 452 of the Code for disposal of the property at the conclusion of the enquiry or trial. The reference is answered upholding the view taken in Union of India.

Issues Involved:
1. Right of authorities under the Income-tax Act, 1961 to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate.
2. Conflict between the judgments in Union of India v. State of Kerala and R. Ravirajan v. State of Kerala regarding interim custody of seized currency notes.
3. Interpretation and application of Sections 132A and 132B of the Income-tax Act, 1961 in the context of interim custody of seized currency notes.
4. Authority of the competent authority under the Income-tax Act to seek interim custody of currency notes under Section 451 of the Code of Criminal Procedure.

Detailed Analysis:

1. Right of Authorities to Seek Interim Custody:
The central issue in these cases pertains to the right of authorities under the Income-tax Act, 1961 to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate or reported to the Magistrate under Section 102 of the Code of Criminal Procedure. The court examined the provisions of Sections 132A and 132B of the Income-tax Act to determine whether the authorities are entitled to interim custody of the seized currency notes.

2. Conflict Between Judgments:
In Union of India v. State of Kerala, the learned Single Judge opined that the authorities under the Income-tax Act are entitled to seek interim custody of currency notes based on Sections 132A and 132B. Conversely, in R. Ravirajan v. State of Kerala, another learned Single Judge held that without a valid order of assessment and demand for Income-tax, the party from whom the amount is seized is entitled to seek interim custody. This conflict prompted the matter to be referred to a Larger Bench for resolution.

3. Interpretation and Application of Sections 132A and 132B:
The court provided a detailed interpretation of Sections 132, 132A, and 132B of the Income-tax Act. Section 132 deals with search and seizure, empowering competent authorities to search and seize money suspected to represent undisclosed income. Section 132A allows authorities to requisition such assets from other officers or authorities. Section 132B outlines the application of seized or requisitioned assets, allowing the Assessing Officer to apply such money towards the discharge of liabilities under the Act.

4. Authority to Seek Interim Custody Under Section 451 of the Code:
The court emphasized that in proceedings under Sections 451 and 457 of the Code, the court determines the person best suited to possess the seized property until the conclusion of the inquiry or trial, without settling ownership rights. The court upheld the view in Union of India that the competent authority under the Income-tax Act is entitled to seek interim custody of currency notes, provided it is alleged that the asset represents undisclosed income. The court clarified that the competent authority has the right to prefer an application under Section 451 of the Code for interim custody if the asset has been produced before the Jurisdictional Magistrate.

Conclusion:
The court resolved the conflict by upholding the view in Union of India, subject to observations regarding the directions for completion of assessment proceedings and appropriation of amounts. The court clarified that directions for disbursement or appropriation of amounts can only be issued under Section 452 of the Code at the conclusion of the inquiry or trial. The matters were directed to be placed before the regular bench for disposal on merits.

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