1970 (12) TMI 2 - HC - Income Tax

Validity of proceedings relating to the search and seizure of their account books and other documents under section 132(1) of the Income-tax Act, 1961

Issues Involved:
1. Validity of search and seizure under section 132(1) of the Income-tax Act, 1961.
2. Retention period of account books and documents under section 132(8) of the Income-tax Act, 1961.
3. Application of retrospective amendments to section 132 of the Income-tax Act, 1961.
4. Impact of interim orders on the retention period of seized documents.

Issue-wise Detailed Analysis:

1. Validity of Search and Seizure under Section 132(1) of the Income-tax Act, 1961:
The petitioners challenged the validity of the search and seizure of their account books and other documents conducted by the income-tax department on June 7 and 8, 1963. Initially, the High Court allowed the petitions on the grounds of abuse of power and mala fide action by the income-tax authorities. However, the Supreme Court remanded the case, emphasizing that the allegations had been denied by the income-tax authorities and that evidence should be taken viva voce if the High Court deemed it necessary.

2. Retention Period of Account Books and Documents under Section 132(8) of the Income-tax Act, 1961:
The primary issue on remand was whether the income-tax department could retain the seized account books and documents beyond the statutory period as per section 132(8) of the Income-tax Act, 1961. The court noted that originally, there was no provision limiting the retention period. However, subsequent amendments introduced by the Finance Act of 1964 and the Income-tax (Amendment) Act of 1965 imposed a retention limit of 180 days unless extended with the Commissioner's approval.

3. Application of Retrospective Amendments to Section 132 of the Income-tax Act, 1961:
The court examined whether the amendments to section 132, introduced by the Finance Act of 1964 and the Income-tax (Amendment) Act of 1965, applied retrospectively to searches conducted before their enactment. Section 6 of the Amendment Act, 1965, was identified as a curative or validating provision, ensuring that all searches made before its commencement would be deemed conducted under the amended section 132(1). Thus, the searches in June 1963 were to be treated as if conducted under the amended provisions, thereby attracting the retention limits specified in section 132(8).

4. Impact of Interim Orders on the Retention Period of Seized Documents:
The court addressed the contention that the retention period should exclude the duration of interim orders issued by the Supreme Court and the High Court, which restricted the income-tax department's access to the documents. The court clarified that section 132(8) focused solely on the retention period, not on the opportunity to examine the documents. The Income-tax Officer retained custody of the documents until they were deposited with the Supreme Court on May 9, 1964. Despite the interim orders, the officer had the opportunity to seek the Commissioner's approval for extended retention post-July 15, 1969, but failed to do so.

Conclusion:
The court concluded that the petitioners were entitled to the return of their account books and documents, as the income-tax department had not obtained the necessary approval for their extended retention. The petitions were allowed, and the respondents were directed to return the seized documents within six weeks. The decision was influenced by subsequent legal enactments, and no order as to costs was made.

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