Appropriation of sale proceeds of Gold seized during search operation under section 132, towards tax arrears-minutes of 55th meeting of regional Co-ordination Committee - Income Tax - 866/CBDT

INSTRUCTION NO. 866/CBDT Dated : August 16, 1975 Section(s) Referred: 132A(1) ,132A(3) Statute: Income - Tax Act, 1961 An extract from the minutes of the 55th Coordination Committee meeting held on 11th February, 1974, the reference made to the Ministry of Law and its opinion, are printed below, for information and necessary guidance. EXTRACT FROM THE MINUTES OF THE 55TH COORDINATION COMMITTEE MEETING HELD ON 11-2-1974 ....... 15. A mote was circulated by the Income-tax Department about the case of Kakumull. A quantity of 68 gold coins was seized by the Income-tax Department from the premises of one Kakumull at Madras. There are income-tax arrears to the extent of Rs. 4,05,723 to be realised in this case. Sri Sampath pointed out that the Income-tax Dept. desired to appropriate the seized gold coins towards the tax arrears. In this connection he brew the attention of the members to sec. 3 of the Gold (Control) Act, which provides that the Act does not apply to gold in the custody/control of Govt. departments. Shri Sampath stated that in cases of this type it is necessary to evolve guidelines so as to enable the Income-tax Dept. to initiate appropriation proceedings towards recovery of tax arrears. Shri Chidambaram agrees with Shri Sampath's interpretation. But he pointed out that there will be some practical difficulties in realising the market value of the primary gold or gold sovereigns by the Income-tax Dept. In this connection, Shri Chidambaram also pointed out that the gold appropriated in such cases cannot be brought by private parties as it will involve violation of gold (control) provisions and if sent to the Mint there is no provision to realise the value of the gold by direct payment or book transfer. Shri Chidambaram suggested that this issue may be taken up by the Income-tax Dept. for clarification by the Board of Direct Taxes, who might consult Gold Control Administrator. Economic Affairs Dept. Sarvashei Narayanan and Sandagopan agreed to this suggestion and said that they will make a reference to their Board in this connection......... Government of India Ministry of Finance (Department of Revenue and Insurance) Subject : Appropriation of sale proceeds of Gold seized during search operation under section 132, towards tax arrears-minutes of 55th meeting of regional Co-ordination Committee. Quite often primary gold in the from of biscuits or coins is recovered and seized along with other valuable found in the residential and business premises of parties during the course of search u/s 132 of the Income-tax Act. Since the possession of primary gold is prima facie violation of Gold Control Act, 1968, the facts of the case have to the notice of the Collector of Central Excise for appropriate action. Invariably, the gold so recovered is confiscated by the Customs and Central Excise authorities. In cases where the officers of the Enforcement and Central Excise Department are associated at the time of search itself, gold found in whatever form during search operations is confiscated by the Customs authorities on the spot. 2. Instances are not lacking where primary gold is detected from the carriers engaged in smuggling. Carriers are never found to be men of means. The gold is invariably confiscated but in view of section 68 of the Income-tax Act, the value of the gold has to be assessed in the hands of the carriers because investment therein remains unexplained in their hands and the identity of the real owner is never disclosed nor can it be established in most of the cases. The demand created in the hands of the carriers remains uncollected. 3. In cases of established businessmen when it is difficult to recover the income-tax demand from other assets, it becomes necessary to appropriate the sale proceeds of the gold seized during search operations towards tax arrears. 4. The issue that arises is whether the primary gold so seized can be sold by the Income-tax Department in the open market or if is sent to the Mint how the accounting of its sale proceeds is to done in the books of the Income-tax Department for appropriating its sale proceeds towards tax arrears. 5. Income-tax Act does not prohibit seizure of primary gold or gold sovereigns or gold ornaments found in excess of the limits prescribed by the Gold Control Act. Section 3 of the Gold Control Act clearly makes an exception in the case of gold belonging to the Government or the Reserve Bank. Any gold belonging or in possession, custody or control of Government or the Reserve Bank of India does not attract the provisions of the Gold Control Act. As soon as the gold is seized during the search operations, it gets into the custody of the Government and the Gold Control Act cases to apply to it. If the gold found the search operations is not seized by the Income-tax Department, only then it is liable for confiscated under the Gold Control Act. In this context, it is felt that appropriation of the seized gold articles or primary gold, in whatever, form, towards the income-tax arrears after the seizure during search operations would not be improper. 6. The matter was fully discussed in the 55th Meeting of the Co-ordination Committee at Madras. Relevant extract of the minutes is enclosed. As would be clear therefrom, the Collector of Central Excise concurred with the views expressed above but pointed out certain inherent difficulties which may have to be overcome before the sale of gold is resorted to by the Income-tax Department. The difficulties pointed out by him were as under:- (i) The gold seized during search operations cannot bought by private parties as the would involve violation of the provisions of the Gold Control Act. (ii) If instead of sale of gold in the open market, it is sent to the Mint, the value of the gold cannot be adjusted against the dues payable by the party as is no provisions to realise the value of gold in cash or by books transfer. (iii) Even if the sale of gold is permissible, the sale can be effected only at International rates and not at the market rate. 7. According to the provisions of Section 132A(1)(iii) read with section 132A(3), the assessee has a right to ask for the return of the seized gold in case it cannot be utilised to reduce his tax arrears. But before the gold can be returned, we have to inform the Central Excise Department who will confiscate it for violation of Gold Control Order on the assessee. 8. It is, therefore, necessary to evolve a procedure which may be in conformity with the provisions of Gold Control order and at the same tome may enable the Department to adjust the market value of gold towards tax arrears. It will be a workable proposition if the gold is sent to the Mint which should certify the market value prevalent on the day these things are handed over to them and on the basis of that certificate, an adjustment entry can be passed giving credit to the assessee to the extent of the value of the gold against the tax arrears due from him. 9. The parties who are found in possession of the primary gold or from whose premises primary gold or gold articles in excess of the limit prescribed by the Gold Control Act/Order are founds, can still be proceeded against for violation of the Gold Control independently. Recovery of gold from their premises and the appropriation of its value towards tax arrears due from them should constitute flawless evidence for establishing the violation of the Gold Control Order. Under these circumstances, the appropriation of the value of the gold towards tax arrears would not in any way prejudice the action under the Gold Control Act or other Customs and Central Excise laws. 10. Incidentally, it may be pointed out that if a suitable procedure is devised for the appropriation of the value of such gold towards tax arrears, it will go a long way in reducing the amount of tax arrears which is quite substantial in the case of carriers employed by smugglers of gold. 11. The matter was referred to the Gold Control Administration, who has expressed the following opinion:- "In my opinion where the confiscation is ordered under the Customs Act or under the Gold Control Act, there cannot be any question of the value of the confiscated gold being appropriated by the Income-tax Department towards arrears of income-tax although the gold in such cases might have been recovered initially during income-tax raids. If Income-tax Department adjusts the tax arrears or penalties adjusted under the income-tax laws against the value of gold confiscated under the Customs Act or the Gold Control Act, it would be giving to the offender an advantage to which he is not entitled in law. In the cases of absolute confiscation of gold, the property in the goods vests in the Central Government on confiscation and the same cannot be applied for the realisation of dues under other laws. In the cases where option is given and the party to redeem the gold on payment of fine in lieu of confiscation, the Income-tax Department could proceed against the gold coming into the possession of the parties as a result of payment of fines by them. For this purpose, if we evolve a procedure under which a copy of the adjudication orders passed by the Customs/Gold Control authorities is endorsed to the Income-tax Dept. should be amply safeguarded. (2) It may also be advisable to consult the Ministry of Law in the matter before a final decision can be taken. (3) CBDT may, however, in the meantime kindly see these papers particularly with reference to the Department of Economic Affairs note at page 6/n ante." 12. The Gold Control Administrator has also desired that the Ministry of Law may be consulted in the matter before a final decision is taken. 13. In the circumstances, the Ministry of Law may kindly give their advice in the light of the observations in paras 1 to 10 above as also the opinion of the Gold Control Administrator.