Income Tax authorities can seek interim custody of seized currency under Section 451 CrPC for undisclosed income cases

Kerala HC held that Income Tax authorities can seek interim custody of seized currency notes under Section 451 of CrPC when they have reason to believe the assets represent undisclosed income. The court clarified that competent authorities under Sections 132A and 132B of the Income Tax Act are best suited to hold such assets during enquiry or trial, contrary to the view in R. Ravirajan case. However, the court rejected the six-month time limit imposed in Union of India case, stating disbursement directions can only be issued under Section 452 CrPC after conclusion of proceedings. The reference was answered upholding Union of India's approach with modifications.

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Issues Involved:
1. Right of authorities under the Income-tax Act, 1961 to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate.
2. Conflict between the judgments in Union of India v. State of Kerala and R. Ravirajan v. State of Kerala regarding interim custody of seized currency notes.
3. Interpretation and application of Sections 132A and 132B of the Income-tax Act, 1961 in the context of interim custody of seized currency notes.
4. Authority of the competent authority under the Income-tax Act to seek interim custody of currency notes under Section 451 of the Code of Criminal Procedure.

Detailed Analysis:

1. Right of Authorities to Seek Interim Custody:
The central issue in these cases pertains to the right of authorities under the Income-tax Act, 1961 to seek interim custody of currency notes seized and produced before the Jurisdictional Magistrate or reported to the Magistrate under Section 102 of the Code of Criminal Procedure. The court examined the provisions of Sections 132A and 132B of the Income-tax Act to determine whether the authorities are entitled to interim custody of the seized currency notes.

2. Conflict Between Judgments:
In Union of India v. State of Kerala, the learned Single Judge opined that the authorities under the Income-tax Act are entitled to seek interim custody of currency notes based on Sections 132A and 132B. Conversely, in R. Ravirajan v. State of Kerala, another learned Single Judge held that without a valid order of assessment and demand for Income-tax, the party from whom the amount is seized is entitled to seek interim custody. This conflict prompted the matter to be referred to a Larger Bench for resolution.

3. Interpretation and Application of Sections 132A and 132B:
The court provided a detailed interpretation of Sections 132, 132A, and 132B of the Income-tax Act. Section 132 deals with search and seizure, empowering competent authorities to search and seize money suspected to represent undisclosed income. Section 132A allows authorities to requisition such assets from other officers or authorities. Section 132B outlines the application of seized or requisitioned assets, allowing the Assessing Officer to apply such money towards the discharge of liabilities under the Act.

4. Authority to Seek Interim Custody Under Section 451 of the Code:
The court emphasized that in proceedings under Sections 451 and 457 of the Code, the court determines the person best suited to possess the seized property until the conclusion of the inquiry or trial, without settling ownership rights. The court upheld the view in Union of India that the competent authority under the Income-tax Act is entitled to seek interim custody of currency notes, provided it is alleged that the asset represents undisclosed income. The court clarified that the competent authority has the right to prefer an application under Section 451 of the Code for interim custody if the asset has been produced before the Jurisdictional Magistrate.

Conclusion:
The court resolved the conflict by upholding the view in Union of India, subject to observations regarding the directions for completion of assessment proceedings and appropriation of amounts. The court clarified that directions for disbursement or appropriation of amounts can only be issued under Section 452 of the Code at the conclusion of the inquiry or trial. The matters were directed to be placed before the regular bench for disposal on merits.

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