The Kerala High Court has held that the income tax department is empowered to seek interim custody of currency notes seized.
The bench of Justice P.B.Suresh Kumar and Justice C.Pratheep Kumar has observed that the direction in Union of India v. State of Kerala that the competent authority under the Act, on receipt of the seized currency notes, shall complete the proceedings contemplated against the person concerned within a period of six months and if not, the amount shall be redeposited and shall be released to the person from whom the amount has been seized, is not in accordance with law. The direction is unwarranted as the scope of the proceedings is only to decide the person who is best suited to have custody of the currency notes until the conclusion of enquiry or trial.
Background
The amount was seized by the Excise Officials. When the seized currency notes were produced before the concerned Jurisdictional Magistrates, the petitioner sought interim custody of the currency notes invoking Section 451 of the Code. The applications filed by the petitioners in the cases were rejected and the applications filed by the Union of India, on behalf of the competent authorities under the Act, were allowed.
When the petitioners preferred an application for interim custody of the currency notes, it was dismissed by the Jurisdictional Magistrate holding that the amount is subject to assessment under the Act.
It is trite that in proceedings under Sections 451 and 457 of the Code, the court only determines the person who is best suited to possess the seized property till the conclusion of the enquiry or trial and does not settle the right to ownership. The conflict in the decisions referred to above needs to be resolved keeping in mind the scope of the proceedings under Sections 451 and 457 of the Code.
Relevant Provisons
As per Sections 132A and 132B where in consequence of information, the competent authority has reason to believe that any person is in possession of any money and that such money represents either wholly or partly income which has not been, or would not be, disclosed for the purposes of the Act, then, the competent authority is empowered to search and seize the same. Section 132A of the Act deals with powers of the authorities under the Act to make requisitions.
Where in consequence of information, the competent authority has reason to believe that any assets represent either wholly or partly income which has not been, or would not have been, disclosed for the purposes of the Act by any person from whose possession or control such assets have been taken into custody by any officer or authority, then, the authority is empowered to make a requisition directing the officer or authority to deliver the same to the requisitioning officer and if a requisition is made, the officer or authority under any other law concerned, shall deliver the assets to the requisitioning officer.
The Explanation to Section 132A(1) declares that the reason to believe, as recorded by the Income-tax authority under this sub-section, shall not be disclosed to any person or any authority including the Appellate Tribunal.
Section 132A(3) clarifies that where any assets have been delivered to the requisitioning officer, the provisions contained in Section 132B shall, so far as may be, apply as if the assets requisitioned had been seized under sub-section (1) of Section 132 by the requisitioning officer from the custody of the person from whose possession or control such assets have been taken into custody by any officer or authority.
If the asset requisitioned is money, the Assessing Officer is entitled to apply money in the discharge of the liabilities of the person from whom it was obtained under the Act which includes not only the existing liabilities, but also liabilities determined on completion of assessment or reassessment or recomputation and also the assessment of the year relevant to the previous year in which the requisition is made.
The first proviso to clause (i) of sub-section (1) is an exception to the provision contained in the sub-section and the same confers a right on the person from whom the money has been seized to prefer an application to the Assessing Officer for release of the asset namely, money.
The proviso states that if the nature and source of acquisition of the money is explained to the satisfaction of the Assessing Officer, the amount of any existing liability may be recovered out of such money and the remaining portion, if any, may be released. The second proviso to clause (i) of sub-section (1) states further that such money or any portion thereof as is referred to in the first proviso shall be released within a period of 120 days from the date on which the requisition was executed. The correctness of the decisions rendered by this Court in Union of India and R.Ravirajan needs to be examined in the background of the aforesaid provisions of the Act.
Comparison Between Union of India & R.Ravirajan Cases : Summary
In Union of India, the competent authority under the Act had in fact issued a requisition in terms of Section 132A requiring the Sub Inspector of Police to deliver the currency notes seized by him and it was since the same had been deposited in the meanwhile with the Jurisdictional Magistrate, the competent authority approached the Jurisdictional Magistrate invoking Section 451 of the Code for interim custody of the same.
Whereas in R.Ravirajan, at the time of seizure, proceedings under Section 131 of the Act dealing with production of books of account and other documents, was pending against the person from whom the currency notes were seized. Even though the currency notes seized were not requisitioned in that case as done in Union of India, it is seen that application was preferred by the Union of India under Section 451 of the Code alleging that the seized currency notes represent the income of the person from unknown sources which is liable to be assessed and that, therefore, the competent authority is entitled to recover the tax from the seized amount in terms of Section 132B of the Act.
The Judge who dealt with R.Ravirajan was, however, of the view that Section 132A may not have any application to the facts of the case inasmuch as a requisition under Section 132A has not been made in that case and the same cannot be made to a court where the currency notes have been deposited.
Issue Raised
The central issue in these cases relates to the right of the authorities under the Income-tax Act, 1961 to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate or seized and reported to the Jurisdictional Magistrate in terms of Section 102 of the Code of Criminal Procedure.
Conclusion
The court opined that the competent authorities under the Act to hold the assets seized under Section 132 or requisitioned under Section 132A for appropriation towards existing and future liabilities of the assessee, except in cases where the assessee is able to explain the nature and source of the acquisition of the assets seized or requisitioned, provided the competent authority has reason to believe that the assets represent either wholly or partly the income which has not been or would not be disclosed for the purpose of the Act.
The court while answering the reference stated that direction for disbursement/ appropriation of the amounts after completing the proceedings contemplated under the Act can be issued only when the court exercises the power under Section 452 of the Code for disposal of the property at the conclusion of the enquiry or trial.
Case Title: Kasinath Rangonda Kanade V/S State Of Kerala
Citation: Crl.Mc No. 1742 Of 2024
