2022 (1) TMI 657 - HC - Income Tax

Court releases seized amounts to Income Tax Department under Income Tax Act

Union of India Versus State of Kerala, Abdul Razak P.

The court set aside the Magistrate's order and allowed the petitioner's application. The seized amounts were ordered to be released to the Income Tax ... Entitlement to have the amount released u/s 451 of the Cr.PC - claim was made by the petitioner by relying upon Section 132-A(i)(c) of the Income Tax Act - interim custody of the article or asset produced before the learned Magistrate during the course of investigation in a crime - petitioner as sent a notice to the Sub Inspector of Police, Thirunelly in this regard, but by the time the notice was served upon the Sub Inspector of Police, who has seized the amount from the 2nd respondent, the amount was already deposited before the Judicial First Class Magistrate Court, Mananthavady - who is the proper person with whom the amount can be entrusted? - HELD THAT:- Even if the amount which is the subject matter of the dispute in this case is released to the petitioner herein, there is a specific procedure contemplated for getting the amount released in favour of the 2nd respondent, from whose custody the amounts were seized. The only stipulation is that, for getting the aforesaid amount released in favour of the 2nd respondent, he has to convince the authorities as to the source of income and to pay the amount of taxes which is assessed on the said income in accordance with the provisions of the Income Tax Act. On the other hand, if the amount is released to the 2nd respondent herein, it is likely to cause difficulties in initiating proceedings under Section 132-A and the further proceedings thereon. Therefore, the balance of convenience is in favour of the petitioner herein which was not taken into consideration by the learned Magistrate. The question of balance of convenience arises because, as far as the proceedings under Section 451 of the Cr.PC is concerned, it is relating to the interim custody of the asset alone and it is not intended for taking a decision on the question of the title/right of the parties over the articles. Therefore, the relevant consideration is as to who is the proper person with whom the amount can be entrusted. Since the petitioner herein is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A of Income Tax Act, preference should have been given to the petitioner in the facts and circumstances of the case. Thus the learned Magistrate committed a mistake in this regard. Even while dismissing the application submitted by the petitioner herein, the learned Magistrate ordered to retain 30% of the amount for securing the interest of the Income Tax Department. Apparently, an amount of 30% was fixed under the impression that the same would take care of the amount likely to be payable by the 2nd respondent towards tax element. However, such an exercise is beyond the scope of the jurisdiction under Section 451 of the Cr.PC and was unwarranted. The liability of tax is to be determined by the authorities concerned under the Income Tax Act after completing the proceedings contemplated therein It is evident from the facts that, the petitioner was having in his possession, huge amount of cash, which by itself is a violation of the provisions of Income Tax Act. Apart from the above, so far, he failed to explain the source of the said income to the satisfaction of the competent authorities viz. the income tax authorities. In such circumstances, the proper course which should have been adopted by the learned Magistrate is to order the release the said amount to the petitioner herein so as to enable the parties to undergo the procedure contemplated under Sections 132-A, 132-B or 153A of the Income Tax Act as the case may be. It is true that the amount was seized from the 2nd respondent, but by virtue of the provisions of the Income Tax Act, he was bound to disclose the source of the same before the authorities and to pay the tax, as per the rates applicable. Apparently no such exercise is done in this case, at the instance of the 2nd respondent and hence proceedings under section 132-A or 153A are necessitated. Even if the said amount is released to the petitioner herein, it is possible for the 2nd respondent to make a claim of the amount, by following the procedure prescribed in the Income Tax Act. But if the amount is released to the 2nd respondent, it may cause difficulties in implementing the provisions of the Income Tax Act. Petition allowed and the amounts shall be released to the Income Tax Department for completing the proceedings under Sections 132-B or 153A or any other proceeding under the Income Tax Act, as the case may be, upon the competent officer of the petitioner executing a bond undertaking to complete such proceedings within a period of six months from the date of such release. In case of failure on the part of the petitioner in completing the proceedings as mentioned above, within the stipulated time, the amount shall be deposited by the petitioner, with the Judicial First Class Magistrate-II, Mananthavady, thereupon the 2nd respondent shall be entitled to move the Learned Magistrate for getting the same released in his favour, and the same can be released in his favour, subject to such conditions, which the Learned Magistrate may deem fit. Issues Involved:1. Entitlement of the petitioner to have the seized amount released in their favor under Section 451 of the Cr.PC.2. Proper procedure for dealing with the seized amount under the Income Tax Act, specifically Sections 132-A, 132-B, and 153A.3. Determination of interim custody of the seized amount and the balance of convenience.Detailed Analysis:1. Entitlement of the Petitioner to Have the Seized Amount Released Under Section 451 of the Cr.PC:The petitioner, the Union of India, Income Tax Department, challenged the order of the Judicial First Class Magistrate Court, Mananthavady, which dismissed their application (Crl.M.P.No.704/2017) and partially allowed the 2nd respondent's application (Crl.M.P.No.384/2017) by releasing 70% of the seized amount to the 2nd respondent upon furnishing a bank guarantee or security of immovable property. The petitioner argued that the learned Magistrate erred by not considering their entitlement under Section 132-A(i)(c) of the Income Tax Act, which authorizes the requisitioning of assets not disclosed for tax purposes.2. Proper Procedure for Dealing with the Seized Amount Under the Income Tax Act:The court highlighted the statutory provisions under Section 132-A and Section 132-B of the Income Tax Act. Section 132-A allows the Income Tax Department to requisition assets from any authority in possession of undisclosed assets. Section 132-B outlines the application of seized or requisitioned assets, including the recovery of tax liabilities from such assets. The court emphasized that the 2nd respondent failed to explain the source of the seized amount, warranting proceedings under the Income Tax Act. The court noted that the proper procedure involves the Income Tax Authorities assessing the tax liability and, if satisfied with the source of acquisition, releasing the remaining amount to the claimant.3. Determination of Interim Custody of the Seized Amount and the Balance of Convenience:The court examined the scope of Section 451 of the Cr.PC, which pertains to the interim custody of articles or assets produced before the Magistrate during an investigation. The court cited precedents, stating that the Magistrate should ensure the security of the asset rather than determining ownership. The court found that the learned Magistrate's decision to retain 30% of the amount for the Income Tax Department's interest was beyond the scope of Section 451 and unwarranted. The court concluded that the balance of convenience favored the petitioner, as releasing the amount to the 2nd respondent could hinder the implementation of the Income Tax Act provisions.Conclusion:The court set aside the Magistrate's order and allowed the petitioner's application (Crl.M.P.No.704/2017). The amounts were ordered to be released to the Income Tax Department to complete proceedings under Sections 132-B or 153A of the Income Tax Act within six months. If the petitioner fails to complete the proceedings within the stipulated time, the amount shall be redeposited with the Judicial First Class Magistrate-II, Mananthavady, allowing the 2nd respondent to move for its release subject to conditions deemed fit by the Magistrate.Judgment:1. Crl.M.P.No.384/2017 is dismissed.2. Crl.M.P.No.704/2017 is allowed, and the amounts shall be released to the Income Tax Department for completing proceedings under Sections 132-B or 153A within six months.3. If the petitioner fails to complete the proceedings within the stipulated time, the amount must be redeposited with the Judicial First Class Magistrate-II, Mananthavady, allowing the 2nd respondent to move for its release, subject to conditions deemed fit by the Magistrate.