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1. ISSUES PRESENTED AND CONSIDERED
(i) Whether the seizure of cash by the Flying Squad/Static Surveillance Team during elections was in conformity with the Standard Operating Procedure dated 29.05.2015 and 19.08.2021 issued by the Election Commission of India.
(ii) Whether handing over the seized cash to the Income Tax Department was authorised under the said Standard Operating Procedure and lawful.
(iii) Whether the Income Tax Department could lawfully retain the seized cash in its P.D. account and decline release with reference to proceedings under Section 132A of the Income Tax Act, 1961.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (i): Compliance with the Election Commission's Standard Operating Procedure in effecting the seizure
Legal framework
The Court examined clauses 9, 13 and 16 of the Standard Operating Procedure dated 29.05.2015 issued by the Election Commission of India for seizure during elections. Clause 9 mandates that in case of suspicion of commission of crime, seizure of cash shall be by the in-charge Police Officer of the Static Surveillance Team in the presence of the Executive Magistrate, and a complaint/FIR must be filed in the competent court within 24 hours. Clause 13 requires that, after seizure, the seized amount be deposited as directed by the court, and only a copy of seizure of cash exceeding Rs. 10 lakhs be forwarded to the Income Tax authority. Clause 16 requires constitution of a three-member Committee (CEO Zilla Parishad/CDO/PD DRDA; Nodal Officer Expenditure Monitoring; District Treasury Officer) to suo motu examine each seizure; if there is no FIR/complaint or no link with any candidate/political party/election campaign, the Committee must pass a speaking order and release the cash; if release exceeds Rs. 10 lakhs, only intimation to the Income Tax Nodal Officer is mandated. It also mandates that no seized cash/valuables be kept in malkhana/treasury for more than seven days after the date of poll unless an FIR/complaint is filed.
Interpretation and reasoning
The Court found as an admitted fact that the Flying Squad/Static Surveillance Team seized Rs. 15.80 lakhs from the petitioner's representative at Chennai Central Railway Station on 05.04.2024. It noted that (a) no FIR or complaint was ever registered or filed before any competent court within 24 hours or even thereafter, contrary to clause 9; (b) the seized cash was not deposited in the treasury as contemplated by clause 13; and (c) only a copy of seizure was required to be sent to the Income Tax authority, not the physical cash. The Court further found that the Committee envisaged under clause 16 was never involved; it did not examine the seizure, did not consider any nexus of the seized cash with any candidate, political party or election campaign, and passed no speaking order either upholding the seizure or directing release. The sequence of events showed that the seized amount was directly handed over to the Income Tax Department on the same day at about 14:30 hours, bypassing the mandatory procedures laid down in the S.O.P.
Conclusions
The Court held that the Flying Squad/Static Surveillance Team and the concerned officials of the Election Commission failed to follow the mandatory Standard Operating Procedure dated 29.05.2015 and 19.08.2021. The seizure was effected and dealt with in a manner contrary to clauses 9, 13 and 16 of the S.O.P. and in violation of principles of natural justice, rendering the seizure and subsequent handling procedurally illegal.
Issue (ii): Legality of handing over the seized cash to the Income Tax Department
Legal framework
The Court again relied on clauses 9, 13 and 16 of the S.O.P. dated 29.05.2015. Clause 13 permits forwarding a copy of seizure of cash exceeding Rs. 10 lakhs to the Income Tax authority but does not authorise handing over the seized cash. Clause 16(iv) merely requires that, where release of cash exceeds Rs. 10 lakhs, the nodal officer of Income Tax shall be kept informed before effecting such release; no provision empowers transfer of custody of the seized cash to the Income Tax Department.
The Court also referred to the Division Bench judgment of the Patna High Court in M/s. Indian Traders v. State of Bihar & Ors., which dealt with an identical situation where cash seized by the Flying Squad under Election Commission guidelines was transferred to the Income Tax Department. That judgment held that the Election Commission's guidelines do not authorise the Income Tax Department to requisition or retain such seized cash, that seizure not made under Section 132 of the Income Tax Act cannot be treated as an income tax seizure, and that the transfer of such cash to the Income Tax Department is without jurisdiction. The Supreme Court's dismissal of the special leave petition against that judgment was noted, thereby confirming its reasoning.
Interpretation and reasoning
The Court observed that the S.O.P. only contemplates: (a) seizure by the Police/SST in accordance with CrPC; (b) deposit of seized cash in treasury under court's direction; (c) forwarding a copy of seizure (not cash) to the Income Tax authority when the amount exceeds Rs. 10 lakhs; and (d) prior intimation to the Income Tax Nodal Officer before releasing cash exceeding Rs. 10 lakhs. There is no clause authorising direct handing over of seized cash to the Income Tax Department. The conduct of the Flying Squad/Static Surveillance Team in handing over the cash to the Income Tax Department on the same day, without treasury deposit, without FIR, and without Committee scrutiny, was held to be outside the ambit of the S.O.P. The Court treated the situation as materially identical to that considered by the Patna High Court, and followed the ratio that the guidelines nowhere empower authorities connected with conduct of elections to transfer seized cash to the Income Tax Department or empower the Income Tax Department to requisition that cash under the Election Commission's S.O.P.
Conclusions
The Court concluded that the action of the Election Commission officials/Flying Squad/Static Surveillance Team in handing over the petitioner's cash of Rs. 15.80 lakhs to the Income Tax Department was illegal, arbitrary, without jurisdiction, without authority or sanction of law, and contrary to the S.O.P. dated 19.08.2021 and 29.05.2015 issued by the Election Commission of India.
Issue (iii): Authority of the Income Tax Department to retain the cash in P.D. account with reference to Section 132A proceedings
Legal framework
The Court considered the nature of the seizure and the scope of Section 132 and Section 132A of the Income Tax Act, 1961 as invoked by the Department. The Department had issued a warrant of requisition under Section 132A on the basis of the seizure by the Flying Squad and deposited the requisitioned cash into its P.D. account, and commenced proceedings including issuance of notices under Sections 131, 148 and 143(2). The petitioners relied on Section 132B and the Manual of Office Procedure regarding release of assets within fixed time frames, and on the decision of the Patna High Court in M/s. Indian Traders, which held that where seizure emanates from an Election Commission raid and not from an income tax search under Section 132, the Income Tax Department lacks jurisdiction to treat it as a Section 132 seizure or to requisition cash absent a valid statutory basis.
Interpretation and reasoning
The Court emphasised that the initial seizure of cash was not made by the Income Tax Department under Section 132 of the Income Tax Act but by the Flying Squad/Static Surveillance Team under the Election Commission's S.O.P. during elections. It held that the respondents failed to appreciate this distinction and wrongly assumed that they could exercise jurisdiction over the seized cash as though it emanated from a Section 132 search. The Court adopted the reasoning of the Patna High Court that guidelines under the Election Commission's S.O.P. do not empower the Income Tax Department to requisition or retain cash seized in an Election Commission operation, and that such transfer and retention is without jurisdiction. Consequently, the pendency or initiation of proceedings under Section 132A or reassessment provisions could not cure the foundational illegality in taking over custody of cash that was never validly seized under the Income Tax Act. The Court therefore held that the Income Tax Department's retention of cash in its P.D. account, based solely on the invalid transfer from the Flying Squad, lacked statutory authority.
Conclusions
The Court held that the Income Tax Department's action in assuming custody and continuing to retain the cash in its P.D. account is absolutely without jurisdiction and without sanction of law, because: (a) the original seizure was under the Election Commission's S.O.P., not under Section 132 of the Income Tax Act; (b) the S.O.P. does not authorise transfer of seized cash to the Income Tax Department; and (c) the Department cannot rely on Section 132A proceedings to validate custody derived from an unlawful transfer. The Court therefore directed that the seized amount of Rs. 15.80 lakhs be released to the petitioner, "without reference to the proceedings pending under Section 132A(1) of the Income Tax Act." It further directed the Income Tax Department to release the cash within four weeks, and in default, to pay interest at 9% per annum on the seized amount from the date of seizure till release.
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