1970 (7) TMI 17 - HC - Income Tax

Constitutional validity of sub-sections (1)(c)(iii) and (5) of section 132 of the Income-tax Act, 1961

Issues Involved:
1. Constitutional validity of sub-sections (1)(c)(iii) and (5) of section 132 of the Income-tax Act, 1961.
2. Violation of Articles 14 and 19(1)(f) of the Constitution.
3. Legality of the seizure and validity of the show cause notice.
4. Whether the authorizations issued by the Commissioner of Income-tax were in colorable exercise of power.
5. The mandatory nature of the time limit for issuing a show cause notice under Rule 112A.

Summary:

Issue 1: Constitutional Validity of Section 132(1)(c)(iii) and (5):
The petitions challenge the constitutional validity of sub-sections (1)(c)(iii) and (5) of section 132 of the Income-tax Act, 1961, on the grounds of being violative of Articles 14 and 19(1)(f) of the Constitution. The court analyzed the provisions and concluded that the power conferred under these sections is not unfettered or uncanalised. The power is hedged in by several conditions and safeguards, and it is exercisable only in certain specified circumstances. The court held that the restrictions imposed by these provisions on the right to hold and enjoy property are reasonable in the interests of the general public and are saved by Article 19(5).

Issue 2: Violation of Articles 14 and 19(1)(f):
The petitioners argued that the provisions are violative of Article 19(1)(f) as they impose unreasonable restrictions on the right to hold and enjoy property. The court examined the provisions and found that they are enacted in public interest to catch tax evaders and get at undisclosed income. The court held that the restrictions imposed are reasonable and do not excessively invade the fundamental right of the individual beyond what is required by the social interest of the community.

Issue 3: Legality of the Seizure and Validity of the Show Cause Notice:
The court analyzed the procedure for search and seizure under section 132 and found that the power to authorize search and seizure is dependent on the existence of "reason to believe" and is not an absolute unfettered power. The court held that the search and seizure effected by the officers were legal and valid as the Commissioner had the requisite reason to believe that the petitioners were in possession of undisclosed income or property.

Issue 4: Authorizations Issued by the Commissioner:
The petitioners contended that the authorizations issued by the Commissioner were in colorable exercise of power. The court examined the material before the Commissioner and found that the evidence regarding the search and seizure of gold, foreign gold bar, jewelry, and currency notes by the Central Excise officers was relevant to the formation of the belief that the currency notes represented undisclosed income or property. The court held that the authorizations issued by the Commissioner were valid and not in colorable exercise of power.

Issue 5: Mandatory Nature of the Time Limit for Issuing a Show Cause Notice:
The petitioner in Special Civil Application No. 164 of 1970 argued that the show cause notice issued under Rule 112A was invalid as it was issued beyond the period of fifteen days from the date of seizure. The court examined the provision in Rule 112A and held that the requirement to issue the show cause notice within fifteen days is mandatory. The court found that the show cause notice issued to the petitioner was without jurisdiction and void as it was issued beyond the prescribed time limit.

Judgment:
Special Civil Application No. 163 of 1970 was dismissed with costs, and the rule issued in that petition was discharged. Special Civil Application No. 164 of 1970 was allowed to the limited extent that a writ of mandamus was issued quashing and setting aside the show cause notice dated 9th February 1970. There was no order as to costs for Special Civil Application No. 164 of 1970.

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