2023 (12) TMI 413 - HC - Income Tax

Cash seized by the Election Officer from the vehicle owned by the petitioner - cash was in demonitized currency notes of Rs. 500/- and Rs. 1000/- - scope Code of Conduct with regard to the elections of the Nagar Panchayat was in force and hence it was impermissible to carry cash of such value in the vehicle - RBI refused to accept Notes as its liabilities with regard to such notes ceased on 31/12/2016 and the notes of the said denominations were no longer a legal tender - petitioner received a communication from the Deputy Director of Income Tax (Inv.), Unit II, Nagpur in which it was stated that the specified bank notes (SBNs) could not be accepted for deposit without any Court orders HELD THAT - Income Tax Authorities while acting under the Act of 1961 had seized the amount of Rs. 30,00,000/-. The procedure prescribed by Section 131 of the Act of 1961 was duly followed. The amount seized was thereafter declared as an additional income of the petitioner followed by payment of requisite income tax and interest. There does not appear any justifiable reason to preclude the petitioner from receiving the aforesaid amount in lieu of the seized SBNs. Much prior to the appointed day, the seizure had been effected and requisite formalities had been completed. The provisions of Chapter XIII of the Act of 1961 and especially Sections 131, 132 and 132B indicate that seizure of the SBNs in the present circumstances been undertaken by a Law Enforcement Agency referred to in the proviso to Section 5 of the Act of 2017 and hence the petitioner is entitled to return of the aforesaid amount. The interests of justice and fairplay warrant issuing of such direction to the RBI, which direction would be an order envisaged by proviso (d) to Section 5 of the Act of 2017. For the aforesaid reasons, it is held that the petitioner is entitled to return of the amount of Rs. 30,00,000/- that was seized by the Election Officer on 17/11/2016. To facilitate refund of the said amount, the Reserve Bank of India is directed to accept the SBNs valued at Rs. 30,00,000/- and thereafter deposit the same in the PD account of the Principal Commissioner of Income Tax (Central), Nagpur. On such deposit, the Assistant Director of Income Tax (Inv.) II, Nagpur shall take necessary steps to ensure that the said amount is refunded to the petitioner on completion of the requisite formalities. The entire exercise be completed within a period of six weeks from today.

Summary

Issues involved:
The issues involved in the judgment are the seizure of cash during the election period, declaration of additional income by the petitioner, refusal of the Reserve Bank of India (RBI) to accept the specified bank notes (SBNs) for deposit, and the legal implications of the seizure under the Income Tax Act.

Seizure of Cash During Election Period:
On 17/11/2016, an amount of Rs. 30,00,000/- in cash was seized from the petitioner's vehicle by the Election Officer due to the Model Code of Conduct being in force for the Nagar Panchayat elections. The petitioner declared this amount as additional income for the Financial Year 2016-17 and offered to pay taxes on it. The Income Tax Department prepared an inventory of the seized cash, which included currency notes of various denominations. The petitioner later sought a refund of the seized amount, stating that it had been declared as additional income and taxes had been paid on it.

Refusal of RBI to Accept SBNs for Deposit:
The petitioner filed a Writ Petition seeking the return of the seized Rs. 30,00,000/- with interest and requested the RBI to accept the currency notes seized during demonetization for deposit. The Income Tax Department argued that the seized amount should be treated as a court-ordered seizure under the Income Tax Act, obligating the RBI to accept the deposit. However, the RBI cited the Act of 2017, which ceased liabilities related to specified bank notes after 31/12/2016, and required a court order for accepting such deposits.

Legal Implications of Seizure Under Income Tax Act:
The Income Tax Authorities contended that the seized amount under Section 132 of the Income Tax Act should be treated as a court-ordered seizure, equivalent to a court order. They communicated with various authorities to support this position. On the other hand, the RBI insisted on a specific court order to permit the deposit or exchange of the seized specified bank notes. The judgment referenced a similar case in the Madras High Court where the court directed the RBI to transfer the seized amount to the authorities who had seized it, emphasizing justice, fair play, and equity.

Conclusion:
The High Court held that the petitioner was entitled to the return of the seized amount of Rs. 30,00,000/- and directed the RBI to accept the specified bank notes and deposit them in the Income Tax account. The Income Tax Department was instructed to facilitate the refund to the petitioner within six weeks. The judgment emphasized the completion of requisite formalities for the refund, with no order as to costs.