1973 (2) TMI 22 - HC - Income Tax

This is a petition under article 226 of the Constitution and is directed against a seizure of currency notes of the value of Rs. 2,02,500 by the Income-tax Officer, B-Ward, Chhindwara, under section 132 of the Income-tax Act, 1961. - Petition dismissed.

Issues Involved:
1. Validity of the search and seizure under section 132 of the Income-tax Act, 1961.
2. Interpretation of "reason to believe" under section 132(1).
3. Applicability of section 132(3) without an actual search.
4. Possession of undisclosed income by a third party.
5. Relevance of prior judicial decisions.

Issue-wise Detailed Analysis:

1. Validity of the search and seizure under section 132 of the Income-tax Act, 1961:
The petitioners challenged the seizure of currency notes amounting to Rs. 2,02,500 by the Income-tax Officer under section 132 of the Income-tax Act, 1961. They argued that the search and seizure could not be valid as the exact location of the currency notes was already known to the income-tax authorities, being in the possession of the Collector of Customs and Central Excise.

2. Interpretation of "reason to believe" under section 132(1):
The court examined the conditions under which the Director of Inspection or Commissioner of Income-tax can issue an authorisation for search and seizure. The relevant clauses of section 132(1) require that the Commissioner must have "reason to believe" that conditions under clauses (a), (b), and (c) are satisfied. The court held that there is nothing in section 132 that prevents the Commissioner from issuing an authorisation if he has definite knowledge about the possession of the money, bullion, etc. The expression "has reason to believe" signifies that the Commissioner is satisfied that the items to be searched are in the possession of a particular person. The court rejected the argument that the Commissioner cannot exercise his powers if he is sure about the possession of the undisclosed income.

3. Applicability of section 132(3) without an actual search:
The petitioners contended that an order under section 132(3) could only be issued after an actual search. The court clarified that the words "any such books of account, other document, money, bullion, jewellery or other valuable article or thing" in section 132(3) refer to items mentioned in clauses (a), (b), and (c) of section 132(1) and not necessarily to items discovered after an actual search. Therefore, it is not necessary that the item in respect of which an order is made under section 132(3) must be one discovered after an actual search.

4. Possession of undisclosed income by a third party:
The court addressed the contention that section 132(1)(c) requires the person who has not disclosed his income to be in possession of the money, bullion, etc. The court held that clause (c) speaks of "any person who is in possession" and does not specifically refer to the possession of the person who has not disclosed his income. The clause requires that the money, bullion, etc., should represent undisclosed income and be in possession of any person, which could be someone other than the person who has not disclosed the income. The court noted that the currency notes seized by the customs authorities were in the immediate possession of the Collector of Customs and Central Excise but were held on behalf of the petitioners.

5. Relevance of prior judicial decisions:
The court referred to two cases, Motilal v. Preventive Intelligence Officer, Central Excise and Customs, Agra, and Laxmipat Choraria v. K. K. Gunguli, which supported the petitioners' arguments. However, the court respectfully dissented from the views taken in these cases, providing reasons for its different interpretation.

Conclusion:
The court dismissed the petition, concluding that the search and seizure under section 132 of the Income-tax Act were valid. The court emphasized that the Commissioner of Income-tax could issue an authorisation for search and seizure even if the exact location of the undisclosed income was known. The order under section 132(3) did not require an actual search to precede it, and the possession of undisclosed income by a third party did not invalidate the seizure. The petitioners were ordered to pay costs, with counsel's fee set at Rs. 250.

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