1973 (12) TMI 2 - SC - Income Tax

Court upholds Income-tax Act section, deems evidence from searches admissible. Petitions dismissed, no illegality found.

The court upheld the constitutionality of Section 132 of the Income-tax Act, 1961, finding it did not violate constitutional articles. It ruled that ... Search and seizure - reason to believe as prerequisite for authorisation under section 132 - summary enquiry under section 132(5) - application of safeguards of the Code of Criminal Procedure to statutory searches - admissibility of evidence obtained by illegal search - proportionality of restrictions on article 19(1)(f) and (g) - non-confiscatory character of summary retention under section 132(5)Search and seizure - reason to believe as prerequisite for authorisation under section 132 - application of safeguards of the Code of Criminal Procedure to statutory searches - proportionality of restrictions on article 19(1)(f) and (g) - Constitutionality of section 132(1) and section 132(5) of the Income-tax Act and rule 112A vis-a-vis articles 14, 19(1)(f) and (g) and 31 - HELD THAT: - The Court held that the power of search and seizure vested in the Director of Inspection or the Commissioner, exercisable only upon a 'reason to believe' as specified in sub-clauses (a), (b) and (c) and limited to enumerated purposes, constitutes a reasonable restriction on the freedoms in article 19(1)(f) and (g). The statutory scheme incorporates procedural safeguards: authorisation by senior officers, recording of reasons (rule 112(2)), limitation of authorised officers to ranks not below Income-tax Officer, specification of purposes, summary enquiry under section 132(5) with notice and Commissioner's prior approval, time-limits for retention of books and documents, and the application of provisions of the Code of Criminal Procedure 'so far as may be' to searches under section 132. These safeguards render the interference temporary and proportionate. The Court rejected the contention that the Director of Inspection is incapable of entertaining the requisite belief, observing that statutory provisions (sections 116, 118, 119, 120, 135) place the Director within the departmental hierarchy with access to material enabling an honest reasonable belief. Sub-clause (b) was held not to be overbroad; practical examples of clandestine concealment were recognised as legitimate bases for belief. Section 132(5)'s summary retention was held not to be confiscatory: it is a provisional measure to secure taxation dues, subject to regular assessment and to return with interest if excess is retained. Consequently section 132, 132A and rule 112A do not violate articles 14, 19 or 31.Section 132(1) and (5) and rule 112A are constitutionally valid and do not infringe articles 14, 19(1)(f) and (g) or 31.Admissibility of evidence obtained by illegal search - relevancy as test of admissibility under the Evidence Act - Whether information or material obtained as a result of an illegal search or seizure is inadmissible as evidence in departmental proceedings - HELD THAT: - The Court held that in the absence of an express or necessarily implied constitutional or statutory prohibition, admissibility of evidence is governed by relevancy under the law of evidence. The Constitution does not contain a provision analogous to the American Fourth or Fifth Amendments that would require exclusion of relevant material obtained by illegal search. Precedent and principles derived from English and Indian authorities (including Kuruma v. Queen and related Privy Council decisions) support the rule that relevance determines admissibility and that courts retain a prudential discretion, but there is no categorical exclusion of relevant evidence merely because it was obtained unlawfully. Applying this principle, the High Court correctly refused writs of prohibition restraining the Department from using material obtained in searches.Material obtained as a result of an illegal search is not per se inadmissible; the High Court rightly refused prohibition against use of such material.Search and seizure - summary enquiry under section 132(5) - non-confiscatory character of summary retention under section 132(5) - Legality of the searches and seizures in Writ Petition No. 446 of 1971 (Pooran Mal) and Writ Petition No. 86 of 1972 (Ganeriwala) - HELD THAT: - On the facts of each petition the Court examined allegations of mala fides, excess, oppression, improper choice of panchas, seizure of irrelevant documents and alleged departmental lack of grounds to form the requisite belief. In Pooran Mal the recorded grounds for authorisation, the circumstances of non-cooperation in filing returns or assessments, the results of the summary enquiry under section 132(5) (which prima facie showed undisclosed assets), and other material satisfied the Court that the Director of Inspection had reasonable grounds and that the search was not mala fide or excessive. In Ganeriwala the construction of a large godown not reflected in books, evidence seized (maps etc.), and the recorded grounds supported the reason to believe; objections about panchas, inventorying and duration of search were rejected as insubstantial or irregularities at most. The Court therefore found no illegality vitiating the searches in these petitions.Searches and seizures in the two writ petitions were lawful; the petitions are dismissed.Final Conclusion: The challenged provisions of section 132 (including subsection (5)), section 132A and rule 112A are constitutionally valid; evidence obtained in searches is admissible if relevant notwithstanding procedural irregularity in the search; on the facts the searches in the two writ petitions were not illegal and the petitions and appeals are dismissed with costs. Issues Involved:1. Constitutionality of Section 132 of the Income-tax Act, 1961.2. Alleged violations of Articles 14, 19(1)(f), 19(1)(g), and 31 of the Constitution.3. Legality of search and seizure operations.4. Use of evidence obtained from allegedly illegal searches.5. Allegations of mala fides, high-handedness, and oppressive behavior by tax authorities.Detailed Analysis:1. Constitutionality of Section 132 of the Income-tax Act, 1961:The petitioners challenged the constitutionality of Section 132, arguing it violated fundamental rights under Articles 14, 19(1)(f), (g), and 31. The court emphasized that the provisions are directed against individuals believed to have evaded taxes and justified the measures as necessary to combat tax evasion, which undermines economic stability. The court noted that search and seizure are recognized legal processes globally and are necessary for maintaining social security. The court found that the safeguards in Section 132, such as the requirement for reasonable belief and the involvement of high-ranking officers, rendered the provisions reasonable and non-arbitrary.2. Alleged Violations of Articles 14, 19(1)(f), 19(1)(g), and 31 of the Constitution:The court examined whether the restrictions imposed by Section 132 were reasonable. It held that the measures were justified given the significant issue of tax evasion and the need for fiscal authorities to have sufficient powers to prevent it. The court found the safeguards in Section 132 adequate, including the requirement for reasonable belief, authorizations by high-ranking officers, and adherence to procedures similar to those in the Criminal Procedure Code. The court dismissed the argument that Section 132 discriminated between different classes of tax evaders, stating that the provision applied equally but was effective only when undisclosed income could be located.3. Legality of Search and Seizure Operations:The court reviewed the specific instances of search and seizure in the cases at hand. It found no evidence of mala fides or excessive behavior by the tax authorities. In both writ petitions, the court noted that the searches were conducted based on reasonable belief and were not arbitrary. The court also dismissed allegations of high-handedness and oppressive behavior, stating that the inconvenience caused by search and seizure was an inherent part of the process.4. Use of Evidence Obtained from Allegedly Illegal Searches:The court addressed whether evidence obtained from an allegedly illegal search could be used in proceedings. It referred to the Indian Evidence Act, which permits the use of relevant evidence regardless of how it was obtained. The court cited precedents, including M.P. Sharma v. Satish Chandra, to support its position that evidence obtained from illegal searches is admissible. The court rejected the argument based on the 'spirit of the Constitution,' emphasizing that the admissibility of evidence is governed by statutory law, not abstract constitutional principles.5. Allegations of Mala Fides, High-Handedness, and Oppressive Behavior by Tax Authorities:The court examined the specific allegations in the writ petitions. In Writ Petition No. 446 of 1971, the court found no substantial evidence to support claims of mala fides or high-handedness during the search of the petitioner's residence and business premises. Similarly, in Writ Petition No. 86 of 1972, the court dismissed allegations of oppressive behavior and found the search and seizure operations justified based on reasonable belief. The court also addressed procedural objections, such as the selection of panchas and the seizure of documents, finding no irregularities that would invalidate the searches.Conclusion:The court upheld the constitutionality of Section 132 of the Income-tax Act, 1961, and found that the provisions did not violate Articles 14, 19(1)(f), (g), or 31 of the Constitution. It ruled that evidence obtained from searches, even if allegedly illegal, is admissible in proceedings. The court dismissed the writ petitions and appeals, finding no illegality in the search and seizure operations conducted by the tax authorities.