Freedom of Movement: Lookout circulars cannot be maintained indefinitely after domestic tax proceedings end; conditional vacation required.

Where domestic income-tax proceedings have finally concluded and no demand remains outstanding, the note clarifies that maintaining lookout circulars indefinitely without a proximate, concrete basis unlawfully restrains freedom of movement and fails proportionality review under Articles 14, 19(1)(g) and 21; accordingly the circulars must be set aside subject to proportionate safeguards. The operative effect requires petitioners to furnish an undertaking not to alienate or create third-party rights in assets outside India and to give advance notice to the tax authorities, upon which the lookout restrictions shall be vacated.

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Issues: Whether the continued issuance and maintenance of lookout circulars against the petitioners after completion of income-tax proceedings and in absence of any outstanding demand or pending proceeding violates the petitioners' fundamental rights and whether such lookout circulars should be set aside.

Analysis: The petitioners were subjected to search on 17.03.2021 and a lookout circular was issued in April/May 2021. Assessment orders for relevant assessment years were passed and appealed; the appellate orders were partly allowed and subsequently affirmed by the Income Tax Appellate Tribunal which quashed the assessments under Section 143(3) of the Income-tax Act, 1961. As of the date of this order no demand remains outstanding and no proceedings under the Act of 1961 are pending. The respondents contend that foreign reference under the Foreign Tax and Tax Research Division (FT&TRD) under the DTAA is pending to elicit overseas information, and therefore the lookout circular should be maintained. The Court found that where domestic tax proceedings have culminated and no demand is outstanding, maintaining a lookout circular for an indefinite period while foreign information is being sought results in an open-ended suspension of the petitioners' freedom to travel. The petitioners have cooperated with authorities and there has been no notice requiring their presence since June 2021. The Court balanced the department's investigatory interest with the petitioners' constitutional protections under Articles 14, 19(1)(g) and 21 of the Constitution of India and concluded that indefinite restraint without a proximate or concrete basis is impermissible. The Court conditioned lifting of the lookout circulars on the furnishing of an undertaking by the petitioners not to alienate or create third-party rights in assets outside India and to inform the Income Tax Department thirty days prior to any intended alienation.

Conclusion: The continued lookout circulars against the petitioners are set aside. The petitioners shall furnish an undertaking that they will not alienate, transfer or otherwise create third party rights in respect of assets held outside India and will give the Income Tax Department thirty days' advance notice if they intend to do so; upon such undertaking being filed by 15.03.2026 the lookout circulars shall stand vacated. The petitions are allowed and pending application disposed of.

Ratio Decidendi: Where domestic tax proceedings have been finally concluded and no demand remains outstanding, an administrative restraint such as a lookout circular cannot be maintained indefinitely in the absence of a proximate, concrete basis; indefinite suspension of the fundamental right of freedom of movement is impermissible unless proportionate measures and safeguards are in place.

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