Income tax department not entitled to make application to Court for returning seized property. Sessions Court dismissed Revision Application
ABCAUS Case Law Citation:
ABCAUS 3209 (2019) (12) AC
Important case law relied upon by the parties:
Union Bank of India Vrs. Judicial Magistrate 1983 ITR
Deputy Director of Income Tax (Investigation) Vrs..State of Gujarat and Anr  319 ITR 292 (Guj)
2009 ALL MR (Cri.) 3665
In the instant case, the Income Tax Department (ITD/Revenue) had filed a revision applicant before the Additional Sessions Judge u/s 397 of the Cr.P.C. challenging the legality and validity of the order passed by the C.J.M. Court rejecting the application filed by Dy. Director of Income Tax for release of the cash in their custody during the pendency of trial and allowed the application for releasing the amount in the interim custody of the assessee/ intervener.
In this case, a Private Limited Company had filed a report to the Police Station stating that their vehicle carrying cash from other State was stopped by the Police Officer who along with other accused took the custody of vehicle from the driver and stolen part of the cash from the total amount in the car and he took the car and driver to police station and informed the seizure of the remaining amount to the Income Tax Department.
On the said report, the crime was registered for the offence punishable u/s 395, 120B of the I.P.C against unknown person. During the investigation, the amount was seized and was reported to the Magistrate. The informant filed for interim custody of seized amount as per Sec. 457 of Cr.P.C.
In the meantime, on reporting of seizure of cash by police, the Income Tax Department filed applications for permanent custody of the seized amount. The claim of the Income Tax Department was that on receipt of letter of police intimating seizure it invoked Section 132A of Income Tax Act, 1961 and issued warrant/authorization to Deputy Director of Income Tax to take the custody of the driver and other person carrying money in the vehicle for the reason of nondisclosure of this income for income tax assessment. But the police refused to deliver the custody except with the orders of the Magistrate.
However, the Chief Judicial Magistrate (CJM) allowed the Application filed by the company and rejected the application filed by the Deputy Director of Income Tax Department.
ITD challenged the order of the CJM on the ground that the C.J.M. committed grave error of law in recording that the provision u/s 132A of Income Tax Act is merely protection of non-disclosure of secret inputs, but it does not prohibits voluntarily disclosure of the reason by Income Tax Department when it is coming as a claimant before Court of law. Therefore there is no need to first seize the amount and then initiate the inquiry into previous years return.
It was submitted that the provision u/s 226 (4) of the Income Tax Act is not relevant and did not apply to the facts of the present case. Section 226 deals with recovery of tax form the assessee when assessment is completed. In the present case the amount which was seized did not belong to the Police. Further the persons from whom the amount was seized had stated that they were not aware about whether cash belonged to the company
The ITD further submitted that from the facts found during inquiry made by the Income Tax Department it was proved beyond doubt that there was no control of the company over the cash seized. The cash was being requisitioned as per provisions of Section 132A of the Income Tax Act which clearly gives the right and authority to the Income Tax Department to requisitioned the cash even before any assessment of tax is made. Therefore, the order passed by the C.J.M. by giving interim custody of the seized amount to the company was totally illegal and perverse.
The ITD relied upon the judgment wherein it was held that the inquiry u/s 457 of Cr.P.C. is only a summary inquiry. The Income Tax Act is specialised law which has been enacted for specific purpose of realisation of tax due from the citizen. The provisions of Special law always over ride the provisions of a General Law. Under section 132 of IT Act, the requisition officer would be the persons entitled to seized assets. It is not the function of Magistrate to embark upon an inquiry into the nature of assets and the ownership of the same in a summary way which has to be conducted by the I.T.O. u/s 132(5)
The Department relied upon another judgment in which it was held that the scope of enquiry u/s 451 of the CrPC., 1973 and that u/s 132A of the Income Tax Act, 1961, is quite different. U/s 451, the criminal court has limited power to make inquiry. However, the court has no power to go in detail and, hence, specific provision is made in the Act u/s 132A. U/s 132A, neither the court nor the police authority has the power to release the currency notes.
On the other hand, the informant submitted that the Income Tax Department had not fixed any liability upon the company and therefore claim in of the ITD was only speculative and unfounded. Since the police department had already deposited the entire cash amount in the bank account and therefore the physical custody as such of the cash was already non existence and thus it could not assist any investigation either of the police or of the I.T. Dept as alleged.
It was further submitted that the entire cash was found in the bundles wrapped by the company in a warping paper bearing the trade mark logo and trade mark of the company. Further the Income Tax Department was not prevented from fixing the liability of tax over the company if at all permissible in law.
The respondent/informant relied upon the judgment of the Hon’ble jurisdictional High Court which held that the purpose of enactment of Section 132A is not to authorised to any officer to make an application to a Court for return of any property. The purpose of the provision cannot be stretched to make an application to the Court which is routinely done by the department without restoring to any particular provisions of the Income Tax Act. It is further held that as per Sec. 226(4) the assessing officer or Tax Recovery Officer may apply to the Court in whose custody there is money belonging to the assessee for payment to him of the entire amount of such money, or if it is more than the tax due, an amount sufficient to discharge the tax.
The informant again relied upon the another judgment of the Hon’ble jurisdictional High Court wherein wherein the question which was arose for determination was as to whether the court of Judicial Magistrate or the Session Judge was under obligation to produce the cash or direct the police or permit the police to produce the cash before the Deputy Commissioner of Income Tax perusal to the requisition issued u/s 132A of Income Tax Act 1961. It was held that the Income Tax Department even could not have made application to the Court for return of property as the property was directed to be deposited in the Bank by the Court as by virtue of court’s order the property had become custodia legis and it is the court only who could have decided as to in what manner the property could be disposed off. As such, there is no paucity of legal provision in the Income Tax Act under which the authority may recover the tax and penalty if any from the respondent.
Income tax department not entitled to make application to Court for returning seized property
In view of the observations made by the Hon’ble jurisdictional High Court which was binding precedent upon the Sessions Court and considering the facts and circumstances of the case, the Court held that it was clear that the income tax department are not entitled to make an application to the Court for return of property.
On the question of the legality and validity of the order, the Sessions Judge observed that the C.J.M. in his order rejecting the claim of Income Tax had given reason that Section 132A gives wide discretion to Income Tax Department for search and seizure. However, it comes with a rider that such an action can be taken where the case amount is undisclosed the income of the petitioner.
The learned Sessions Judge further noted that the crime had been registered on the report given by the informant on behalf of the company and on such report the investigation was carried out, The Court noted that if at all the amounts seized by the police was of ‘Hawala’ then naturally nobody came forward to lodge the report. For lodging the report for such huge amount the informant had given the details of the huge amount before the police. Therefore police reported the seizure to the Magistrate. On such seizure learned Magistrate after giving thoughtful consideration passed the impugned order.
Therefore the Sessions Judge opined that the impugned order was in accordance with law and the same was liable to be confirmed. Accordingly, the Revision was dismissed.
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