TaxTMI 
TaxTMI 
2005 (3) TMI 62
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Additional Solicitor General, assisted by Mr. U. Bhuyan, learned counsel, appearing on behalf of the respondents in the four appeals aforementioned. We have also heard Mr. K.P. Pathak, learned Additional Solicitor General, assisted by Mr. U. Bhuyan, learned counsel, appearing on behalf of the appellant in Writ Appeal No. 306 of 2004, which has arisen out of W.P.(C) No. 7008 of 2000 aforementioned, and Mr. K. N. Choudhury, learned senior counsel, assisted by Mr. P. Upadhyaya, learned counsel for the respondents in Writ Appeal No. 306 of 2004. For a better appreciation of the issues involved in the present set of writ appeals, we set out herein below, in brief, the facts of each of the writ petitions, the stand of the Revenue and also the reasons, which have led to the preferring of these appeals by both the petitioners as well as the respondents. Facts: (i) W.P.(C) No. 1552 of 2000: (a) The case of the petitioner in this writ petition is, in brief, as follows: The petitioner, M/s. M. S. Associates, is a partnership firm, duly registered under the provisions of the Indian Partnership Act, 1931 with Smt. Jyoti Limbu and Smt. Tilmaya Chong as its two partners, having ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itioner firm. The report of the CAG contains sweeping adverse remarks against the petitioner firm indicating that the firm was involved in some sort of scam with the Directorate of Lotteries, Nagaland. The search and seizure were carried out during the period, when the CAG's report was pending with the State Legislature of Nagland. The respondent authorities also initiated proceedings under section 158BB of the Act. Hence, the search and seizure conducted in the office premises of the petitioner firm at Tinsukia, Guwahati and some other places on June 23, 1999, be declared as illegal, unconstitutional and void ab initio and directions be given to the income-tax authorities not to take any action under the provisions of the Act and to return the documents/valuables seized in pursuance of the said search. (b) The respondents resisted the prayers made by the writ petitioner, the case of the respondents being, in brief, as follows: The search and seizure was carried out in consequence of the information, which was in the possession of the Department and in full compliance with the provisions of section 132 of the Act. During the course of the search of the premises of Shri M. K. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r asserted that it has a branch office at Silpukhuri, Guwahati, and M/s. Guwahati Agencies function as agent of the petitioner firm and sells lottery tickets, on behalf of the petitioner firm, in the State of Assam and income derived from such sales has been duly reflected in the books of account. (ii) W.P.(C) No. 137 of 2000: (a) By this writ petition, the petitioner Shri Ajoy Kumar Subba, challenged the search and seizure conducted by the Income-tax Department under section 132 of the Act of 1961 at the residence of the petitioner at Tinsukia, the case of the petitioner in this writ petition being, briefly stated, thus: The petitioner is an employee of M/s. Jyoti and Company, an agent of lotteries organised by the State Government. In addition to his said employment, the petitioner is in the business of sale of cassettes under the name and style of M/s. A. B. Series. The petitioner has been regularly filing income-tax returns before the authority concerned and final assessment has been made thereon after due scrutiny and satisfaction. Though the petitioner is, ordinarily, a resident of Assam, yet in view of his employment, he has been residing at Gaziabad, U.P., since 1996.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ubba, Mr. A. K. Subba, Mr. S.R. Subba, and the petitioner, but the search and seizures were, as a matter of fact, effected against the said firm and not the individuals named hereinbefore. The searches were conducted in violation of the provisions of section 132 of the Act inasmuch as no information had been in the possession of the authorities concerned as was required under the law. Thus, the search and seizure have been challenged in this writ petition too on the same grounds as in the writ petitions aforementioned. (b) The case of the respondents, in brief, is as follows: No illegality had been committed by the authority in issuing the warrants of authorisation. The writ petitioner is a partner having 51 per cent. shares in M/s. M. S. Associates with effect from April 1, 1994, which is the sole distributor of lottery tickets organised by the State of Nagaland. The petitioner firm also did not deposit the sale proceeds with the State Government. The search had to be conducted in pursuance of the information in possession of the Department that documents and valuables representing income were not disclosed for assessment. The respondents denied that respondent No. 6, who had i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... committed by the authorities concerned in issuing the warrants of authorization and that the wife of writ petitioner No. 2 has been, with effect from April 1, 1994, a partner having 51 per cent. share in M/s. M. S. Associates, which functions as sole distributor of lottery tickets on being so appointed by the State of Nagaland. The firm M/s. M. S. Associates did not deposit the sale proceeds with the State Government. The search was conducted in pursuance of the information, which the Department had in its possession, to the effect that documents and valuables representing income had not been disclosed for assessment. In view of the seizure of the unaccounted valuables and documents, the authority concerned is justified in taking consequential action under sections 158BC and 158BD of the Act of 1961 for the purpose of finalising block assessment and if the assessee becomes aggrieved by the block assessment he may prefer an appeal to the Commissioner of Income-tax (Appeals) under section 246A of the Act. Altogether three issues were formulated by the learned single judge for decision in the writ petitions mentioned hereinabove, the issues being as follows: "(1) Whether the wr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of warrants of authorisation suffered from no illegality. With the opinion so expressed, the learned single judge dismissed the writ petitions. Aggrieved by the conclusion so reached, that the said report of the CAG could not have been acted upon for the purpose of taking action under section 132(1), the Revenue has, in Writ Appeal No. 306 of 2004, impugned the said finding. However, so far as the writ petitioners are concerned, they, being aggrieved by the decision of the learned single judge that this court lacks jurisdiction to entertain the writ petitions except the writ petition, namely, W.P.(C) No. 7008 of 2000 aforementioned and that no case for interference could be made out by the writ petitioners warranting interference by the High Court, have preferred the remaining four appeals enlisted above, namely, 240 of 2004, 239 of 2004, 350 of 2004 and 354 of 2004, which have arisen out of W.P.(C) Nos. 1552 of 2000, 7008 of 2000, 6965 of 2000 and 137 of 2000 aforementioned. Upon hearing the appeals, we find that broadly speaking, five questions have arisen for determination in the present set of appeals and these questions are as follows: (i) Whether the High Court lac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reference to any cause of action or where it arises, but insists on the presence of the person or authority 'within the territories' in relation to which the High Court exercises jurisdiction." Thus, in Saka Venkata, AIR 1953 SC 210, the Supreme Court had expressed the view, in no uncertain words, that in the absence of a specific provision in article 226 on the lines of the Code of Civil Procedure, the High Court could not have exercised jurisdiction on the plea that the whole or part of the cause of action had arisen within its jurisdiction. This view was followed in subsequent cases. The consequence was that only the High Court of Punjab could exercise jurisdiction under article 226 of the Constitution against the Union of India and other instrumentalities of the Union Government located in Delhi. To remedy this situation, clause (1A) was inserted by the 15th Amendment Act, 1963, conferring thereby on the High Court's jurisdiction to entertain a petition under article 226 against the Union of India or any other body or authority, located in Delhi if the cause of action arose, wholly or in part, within its jurisdiction. Clause (1A) was later on, renumbered as clause (2) of art....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in paragraphs 5, 7, 18, 22, 26 and 43 are sufficient in law to establish that a part of the cause of action had arisen within the jurisdiction of the Calcutta High Court." In the case of Navinchandra N. Majithia v. State of Maharashtra [2000] 7 SCC 640, while relying, inter alia, on the decision in Oil and Natural Gas Commission v. Utpal Kumar Basu [1994] 4 SCC 711, the apex court has observed as follows: "From the provision in clause (2) of article 226 it is clear that the maintainability or otherwise of the writ petition in the High Court depends on whether the cause of action for filing the same arose, wholly or in part, within the territorial jurisdiction of that court. In legal parlance the expression 'cause of action' is generally understood to mean a situation or state of facts that entitles a party to maintain an action in a court or a tribunal; a group of operative facts giving rise to one of more bases for suing; a factual situation that entitles one person to obtain a remedy in court from another person (Black's Law Dictionary). In Stroud's Judicial Dictionary a 'cause of action' is stated to be the entire set of facts that gives rise to an enforceable claim;....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove, if traversed, to entitle him to a judgment in his favour by the court. In Chand Kour v. Partab Singh, [1888] ILR 16 Cal 98 (PC); 15 IA 156 Lord Watson said: "... the cause of action has no relation whatever to the defence which may be set up by the defendant, nor does it depend upon the character of the relief prayed for by the plaintiff. It refers entirely to the ground set forth in the plaint as the cause of action, or, in other words, to the media upon which the plaintiff asks the court to arrive at a conclusion in his favour." Therefore, in determining the objection of lack of territorial jurisdiction the court must take all the facts pleaded in support of the cause of action into consideration albeit without embarking upon an enquiry as to the correctness or otherwise of the said facts. In other words the question whether a High Court has territorial jurisdiction to entertain a writ petition must be answered on the basis of the averments made in the petition, the truth or otherwise whereof being immaterial. To put it differently, the question of territorial jurisdiction must be decided on the facts pleaded in the petition. Therefore, the question whether in the inst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ants of authorisation stood belied by the materials available in the office file, we are constrained to hold, contrary to the averments made by the parties concerned and the admitted case of the respondents. When respondent No. 5, namely, DIT (Investigation), Guwahati, who is one of the authorities within the territorial jurisdiction of this court, issued warrants of authorisation on the basis of the belief, which he had so formed, and when the formation of this belief was based on the information shared with him by the DIT (Investigation), New Delhi, and the DIT (Investigation), Calcutta, there remains no escape from the conclusion that the search and seizure aforementioned took place within the territorial jurisdiction of this court on account of the "belief" formed by respondent No. 5 with regard to existence of facts warranting issuance of warrants of authorisation under section 132(1) of the Act and that a part of the cause of action, thus, did arise within the territorial jurisdiction of this court. The learned single judge, we may note, did not perhaps, notice that the powers of the High Court to issue writs outside its jurisdiction is widened by the 42nd Amendment to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Source of information, points out Mr. Pathak, is not material for the purpose of section 132(1) and, hence, there can be no limitation, on the part of authorities specified in section 132, to act upon an information derived from a report of the CAG even if the report has not been discussed and no decision has been taken thereon by the State Legislature concerned. In other words, Mr. Pathak submits that the report of the CAG, in the present case, was a valid piece of information within the meaning of section 132(1) and could have been legally acted upon by the authorities concerned and having acted upon the said report, the authorities have not, in any way, violated any of the provisions of the Constitution or of the law contained in that behalf. Mr. Pathak also contends that the learned single judge's observation to the effect that the use of the CAG's report, when the same was under consideration of the House, would amount to breach of privilege of the House is erroneous inasmuch as the writ petitioners could not have raised the question of privilege on behalf of the Nagaland Legislative Assembly, for, the writ petitioners do not represent the State Legislative Assembly of Nag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....port, according to Mr. Choudhury, as information, in the possession of the authorities concerned, is in violation of the provisions of article 151. Elaborating his above submissions, Mr. Choudhury points out that in the present case, the CAG's report was used by the concerned officer for the purpose of forming their "belief" under section 132(1) of the Act, though the CAG's report is the property of the House, which alone has exclusive jurisdiction to deal with the same, and, thus, the CAG's report, contends Mr. Choudhury, cannot be treated to have ever been in constitutional and legal possession of the officers mentioned in section 132 and no belief could have been formed on the basis of possession of such a report. Mr. Choudhury points out that the expression "possession" according to the Shorter Oxford Dictionary means "hold as own property", "actual holding or occupancy". Parliament, according to Mr. Choudhury, did not intend that the concerned officer could use "any" information; rather the information "in his possession" would mean the legal and constitutional possession of the concerned officer. If the concerned officer cannot in law or under the Constitution hold any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d during the period of such review/investigation, no question on the audit report is permitted to be raised in the House till the PAC has considered the report. It is also submitted by Mr. Choudhury that if the PAC recommends an action to be taken and the same is accepted and acted upon by the Government, an action taken report is submitted before the House, which is discussed on the floor of the House. Situated thus, it is clear, contends Mr. Choudhury, that when the House or its Committee assumes exclusive jurisdiction even to the extent of taking follow-up action on the CAG's reports, no Government or executive authority can conduct a parallel investigation and undermine thereby the authority of the Committee and/or of the House to deal with such a report. It is pointed out by Mr. Choudhury that the fact that the House of Commons is not subject to the control of the courts in its administration of that part of the statute law, which has relation to its internal procedure, was finally established in Bradlaugh v. Gossett [1884] 12 QB 271, wherein Lord Coleridge, C.J., said: "what is said or done within the walls of Parliament cannot be inquired into in a court of law..". It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en disclosed to the income-tax authority. Quoting extensively from Erskine May's Law, Privileges, Proceedings and Usage of Parliament Mr. Choudhury points out that according to May, "Parliamentary privilege is the sum of the peculiar rights enjoyed by the House collectively as a constituent and by members of the House individually, without which they could not discharge their functions, and which exceed those possessed by other bodies of individuals. Thus privilege, though part of the law of land, is to a certain extent an exemption from the ordinary law". Taking us also through the decision in Stockdale v. Hansard [1839] 9 Ad and E1, Mr. Choudhury points out that in this case, Lord Denman J., observed.- "'Whatever is done within the walls of either assembly must pass without question in any other place,' Patterson J. observed, 'Beyond all dispute, it is necessary that the proceedings of each House of Parliament should be entirely free and unshackled, that whatever is said or done in either House should not be liable to examination elsewhere/and Coleridge J. observed, 'That the House should have exclusive jurisdiction to regulate the course of its own proceedings, and a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erning the CAG's report begins and terminates within the walls of the House. The House has the exclusive jurisdiction over the CAG's report, the same being a matter of its own internal proceedings, and, as such, anything said or any proceeding undertaken by the House with regard to the CAG's report is wholly immune from scrutiny by the executive or the court. This is, according to Mr. Choudhury, the essence of the parliamentary system of Government and the executive or the courts can have no say in the matter. Hence, the executive (i.e., in the present case, the respondents) cannot rely on the said CAG's report and/or form a belief for the purposes of initiating against the petitioner firm any action under section 132 of the Act. Moreover, the final report of the PAC is binding on the executive, particularly, that wing of the executive, which has the authority to investigate. Even assuming for the sake of argument that the respondents can form a "belief" on the basis of the report of the CAG, yet when the matter is referred to the PAC, the very basis for formation of the "belief" and the consequent assumption of jurisdiction under section 132 of the Act would disappear if the PAC w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neral or Director or the Chief Commissioner or Commissioner, as the case may be, may authorise any Joint Director, Joint Commissioner, Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, or (B) such Joint Director or Joint Commissioner, as the case may be, may authorise any Assistant Director or Deputy Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer, (the officer so authorised in all cases being hereinafter referred to as the authorised officer) to- (i) enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such books of account, other documents, money, bullion, jewellery or other valuable article or thing are kept; (ii) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (i) where the keys thereof are not available; (iia) search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, if the authorised officer has reason to suspect that such person has secreted about his person any such books of account, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er clause (iii): Provided also that nothing contained in the second proviso shall apply in case of any valuable article or thing, being stock-in-trade of the business." A bare reading of sub-section (1) of section 132 shows that this sub-section visualises three different situations in which the Director General, or the Director or the Chief Commissioner or Commissioner or Joint Commissioner may issue warrants of authorisation for search and seizure. These three situations are available in clauses (a), (b) and (c) of sub-section (1) of section 132. In the case at hand, we are concerned with the situation visualised by clause (c), for, in the case at hand, the conditions precedent specified in clauses (a) and (b) were, admittedly, not present, for invoking the powers of authorisation for search and seizure. Let us, now, determine as to what are the conditions precedent prescribed in clause (c) of sub-section (1) of section 132, which can enable a person to invoke the power to issue authorisation for search and seizure. A close reading of clause (c) of sub-section (1) of section 132, which is relevant for the purpose of the present appeals, envisages four conditions prece....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts use. Bearing in mind the scope and ambit of section 132(1)(c), we proceed to determine the issue at hand, namely, as to whether the CAG's report could have been taken into consideration by the respondent authorities concerned for the purpose of initiating action under section 132(1) of the Act before the same was disposed of by Nagaland State Legislative Assembly and, if so, what could have been the scope of the role of the CAG's report. Before, however, we deal with the question, so posed, it is imperative to note, if we may reiterate, that section 132(1)(c) will come into play only when the authority concerned invokes the power contained in section 132(1) to issue authorisation for a search and seizure; but for the purpose of initiating an investigation to determine as to whether requisite materials to form "belief" exist or not or in order to decide if such authorisation should be issued or not, strict adherence to section 132(1)(c) is not imperative meaning thereby that while, for the purpose of issuing the authorisation, the officer concerned must have the requisite information as envisaged by section 132(1)(c) and cannot act on gossip or rumour, or intuition or hunch, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....admissibility of evidence and the Income-tax Act or any other similar law in force does not exclude relevant evidence from being admitted on the ground that it was obtained under an illegal search and seizure, it will be wrong to invoke the supposed spirit of our Constitution for excluding such evidence. Bearing in mind, thus, the fact that for the purpose of starting an investigation into evasion of tax, the source of information is not material, the fact that section 132 of the Act is constitutionally valid and that the test of admissibility of evidence, in India, lies in the relevancy of the evidence, sought to be admitted, and not in its legality and that the evidence, obtained by illegal means, can be refused to be admitted only when the Constitution or any other law prohibits use of such evidence, it is, to our mind, pertinent to point out as to why the learned single judge concluded that the CAG's report could not have formed the legal basis for formation of the "belief" as is required under section 132(1)(c) of the Act. While dealing with the question as to whether the CAG's report could have been acted upon by the authorities concerned, the learned single judge observed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive and its prior user would amount to infringement of the privilege of the House. In the instant case, as stated earlier, the Public Accounts Committee did not find reason to accept the report of the CAG and the matter thus stood disposed of. The report, during this period, being exclusively the property of the House could not be said to be in the possession of the Revenue authorities within the meaning of section 132 of the Act. There is no dispute in the case at hand that the warrants of authorisation were issued during the period when the CAG report was under consideration of the Assembly. This document could not be treated as a public document under section 75 of the Evidence Act read with section 2(17)(g) and (h) of the Code of Civil Procedure. This view gains support from the decision of the Delhi High Court in B.L. Wadhera v. Union of India (C.W.P. No. 1716 of 2000 decided on May 16, 2001) in which case the Delhi High Court refused to issue any direction to the respondent authority to perform their Constitutional duty to ensure that all the Ministries/Departments submit respective replies/ action taken notes on the report of the CAG. Therefore, any action taken by any autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t extent. Keeping in mind the reasons as to why the learned single judge has concluded that the CAG's report could not have formed the legal basis for issuance of warrant of authorisation, let us have a small survey of the various provisions of the Constitution, which may have a bearing in determining the question raised before us. Article 148 lays down that there shall be a Comptroller and Auditor General of India, who shall be appointed by the President. Under article 150, the accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the Comptroller and Auditor General of India, prescribe. The duties and powers of the CAG are embodied in article 149, which is quoted hereinbelow: "149. Duties and powers of the Comptroller and Auditor-General.- The Comptroller and Auditor-General shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, shall perform such duties and exercise such powers in relation to the accounts of the Union and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the auditing of the accounts of the State and the CAG cannot audit the accounts of a citizen and, hence, any observation made in a CAG's report against evasion of tax by a citizen cannot form the basis for initiating action under section 132(1)(c) of the Act. While dealing with the above aspect of the matter, it needs to be noted that the CAG's report, generally speaking, is a report on the scrutiny of the accounts maintained by the State. Duty it is of the CAG to point out as to whether the State has maintained its accounts in accordance with the Rules framed under article 150. This report may include the amount, which is receivable by the State, but has not been realised by the State or the amount, which is liable to be paid by the State, but has not been paid by the State. The report may also include financial transactions of the State, such as, expenses incurred by the State, which the State has not been able to account for. If any tax is deductible at source in consequence of any contract, which the State might have entered into with a citizen, the CAG will be within the ambit of its role if it points out that the taxes to be deducted at source from such a citizen have not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilege in forwarding the report to the Finance Minister. What, however, we are concerned with is as to whether the scheme, which the Constitution envisages for dealing with the CAG's report, has any room permitting the respondent/authorities concerned to take action on a report of the CAG, which alleged that the taxes liable to-be paid by Mr. M. K. Subba and others had not been paid, even though the report had not been laid before, and considered by, the Legislative Assembly of Nagaland. The authorities, which Mr. Choudhury has relied upon, deal with the privilege of the House as regards its internal proceedings. The House has absolute power to regulate the business of the House in accordance with the procedure that it may choose to adopt. If in the process, any injustice is done, the law provides no remedy thereto and if a wrong conclusion is reached by the House, this will amount to nothing but an error, which even a court may commit in taking a decision, the difference, however, being that the decision of the House may not be subject to appeal. It is in this light that the decision in Bradlaugh [1884] 12 QB 271 needs to be read and viewed. Similarly, in Tej Kiran Jain, AIR 197....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quote, hereinbelow, article 194, which runs as follows: "194. Powers, privileges, etc., to the Houses of Legislatures and of the members and committees thereof.-(1) Subject to the provisions of this Constitution and to the rules and standing orders regulating the procedure of the Legislature, there shall be freedom of speech in the Legislature of every State. (2) No member of the Legislature of a State shall be liable to any proceedings in any court in respect of anything said or any vote given by him in the Legislature or any committee thereof, and no person shall be so liable in respect or the publication by or under the authority of a House of such a Legislature of any report, paper, votes or proceedings. (3) In other respects, the powers, privileges and immunities of a House of the Legislature of a State, and of the members and the committees of a House of such Legislature, shall be such as may from time to time be defined by the Legislature by law, and, until so defined, shall be those of that House and of its members and committees immediately before the coming into force of section 26 of the Constitution (Forty-fourth Amendment) Act, 1978. (4) The provisions of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that under clause (3) of article 194, the House of the Legislature of a State has the power to define, by making law, its privileges. In other words, the Legislature may, by making law, define the ambit of its own privileges. This shows that the Legislature may expressly define the ambit of its privileges by enacting a specific law in this regard or it may enact a statute in such a way that it reduces, by implication, the ambit of its own privileges, which it might have otherwise, enjoyed. It is in the backdrop of such a power, which the Legislature has, that one has to determine the real controversy in issue before us as posed by question No. II. Strictly speaking, even the budget, which is presented in the House, or the debate of the House on the budget, so presented, may be made a privileged proceeding of the House in the sense that Parliament or the State Legislature may, by law, choose to keep the discussion on the budget confined within the walls of the House; but if Parliament or the State Legislature chooses to make its proceedings on the budget public, the information derived from such proceedings can indeed be acted upon for Parliament or the State Legislature concern....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be acted upon? The answer to this question has to be an emphatic "no", for while it is undoubtedly for the House to decide whether it would take action on the information of non-deduction of tax at source by the Government from a taxpayer, it is the duty of the Directorate of Investigation (Income-tax) to ensure that no one evades payment of tax. Since it is the duty of the Directorate of Investigation to ensure that no citizen evades payment of tax, it logically follows that if the Directorate of Investigation comes to know about evasion of tax through either a draft or final report of the CAG, there can be no impediment, on the part of the Directorate, to act upon such information, for the source of information through which the Directorate comes to know about the contents of such a report is inconsequential and immaterial. In the case at hand, it is the Legislative Assembly of the State of Nagaland which could have perhaps claimed privilege in respect of the contents of the CAG's report in question; but neither the Speaker of the State Assembly was made a party to the writ petition nor has the State Assembly of Nagaland claimed any privilege in respect of the said report. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estigation into "information" of cognizable offence and the officer concerned has not made such an investigation on account of non-receipt of any information in this regard, he cannot be legally stopped from carrying out investigation to determine if Z has really been killed by Y merely because a Member of the House has, in the meanwhile, raised the question on the floor of the House. The conclusion drawn from such a situation is that when the law enjoins upon the police officer to investigate the correctness of such an information, which he might have derived through any source, he cannot shirk his responsibility to investigate, no matter if the source of information is not legally and constitutionally authorised to pass out such an information. The police officer can be debarred only if the Constitution or any law, expressly or by implication, prohibits such an investigation. Assuming that the Member of a House makes a claim that there is an imminent threat to the life of any Member of the House; can the police authorities concerned refrain from taking action, in this regard, merely on the ground that the question of threat has been raised on the floor of the House and the same h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, though it is the power of the officers specified in section 132(1) to issue warrant of authorisation, the same provisions can also be construed as forming part of the duty of those officers to issue warrant of authorisation if the conditions precedent maintained in section 132(1) are satisfied. Lest the evasion of tax may bleed the economy white and make the Government bankrupt, the power to act even on "information", which is believable, has to be conferred on the authorities concerned. It is, indeed, a power of great significance, yet it has been held to be constitutionally valid. At this stage, the reasons as to why section 132 has been so liberally worded and why such liberally worded provision has been held to be constitutionally valid can be gauged from the decision of the apex court in Pooran Mal [1974] 93 ITR 505, the relevant portions of which read as follows: "... one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. It is a well known fact of our economic life that huge sums of unaccounted money are in circulation endangering its very fabric. In a country which has adopted high rates of taxation a major portion o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en a constitutional bar on the part of the Legislature itself to waive such a privilege, then, the situation would have, perhaps, been a little different. Can information derived from such a statement, which has not been made public by the House, form the basis for an investigation to ascertain if "Y" or "Z" has or has not made payment of tax? Will the authority concerned be liable for breach of privilege of the House if, on coming to know about such an accusation made on the floor of the House, the authorities concerned decide to proceed with the matter? When the Legislature has wisely used the word "information" in section 132 without specifying the status of the source from which the information has to be received in order to enable the revenue authorities to act upon the same, the conclusion which is irresistible to draw is that the legislative intendment is that if on receiving information from any source including the proceedings of the House, which have not been made public, that a person, (who may or may not be a Member of the House), is involved in evasion of tax, and if the authorities concerned have reason to believe the information so received to be true, the authority/....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 132(1) from acting upon the information which may be derived by the authorities concerned from the report of the CAG, which has not been laid and discussed by the State Legislature, it would be, in our opinion, realistic to hold that the legislative intendment is that even if the authority concerned received the information about evasion of tax from the report of the CAG, which has not been laid in the House concerned or discussed in the House concerned, there is no legal impediment on the part of the authorities concerned to act upon such information; rather, it will be the duty of the authorities concerned, to act on such information. Moreover, a bare reading of section 132 clearly shows that the authority specified in section 132(1) has to have in his possession "information"; such an "information" may be a piece of information or a set of different pieces of information. Since the Legislature has used the expression "in consequence of information in possession", it means that it is the information, which has to be in the possession of the authority specified in section 132(1) and not the report/document from which the information is derived or received. Thus, even when the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nts/authorities had in their possession within the meaning of section 132(1) of the Act, any "information" other than the CAG's report, enabling them to initiate action(s) thereunder, it is necessary to recall that at para. 41 of this judgment, we have already clarified as to what the conditions, precedent are for invoking of the powers under section 132(1)(c). We have also stated therein that the conditions precedent are as under: (i) There must be information in the possession of the Director General, etc. (ii) In consequence of such information, the officer concerned must have a reason to believe, (iii) The belief being that any person is in possession of any money, bullion, jewellery, or other valuable article or thing, (iv) The officer concerned must have further reason to believe that such money, bullion, jewellery etc., represents either wholly or partially, income or property, which has not been disclosed or would not be disclosed, for the purposes of the Act. It is important to note that to enable an officer to issue the warrant of authorisation under section 132(1)(c), he must be in possession of the kind of information which clause (c) of section 132(1) en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it is not necessary for the authorising authority to reach that "belief" by a process akin to a judicial process. His "reason" and his "belief" do not constitute a judicial or a quasi-judicial act nor is the act of issuing authorisation a judicial or quasi-judicial function. Where the facts show that the authorising authority had bona fide reason for formation of the belief, the search can be held to be valid and the court would not substitute its own opinion as to the reasonableness of the "belief" formed by the authority concerned. Since the "belief" is that of the authority concerned, the sufficiency of the "reason" for forming of the "belief" is not for the court to judge; but it is open to an assessee to show that there in fact existed no "belief" or that the "belief" was not at all a bona fide one or that the belief was based on vague, irrelevant or non-specific information. To that limited extent, the court may look into the conclusion arrived at by an authority and examine whether there was any material available on record to form the requisite "belief" and, further, whether the material had a rational connection or live link with the formation of "belief". Let us, no....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to believe" predicates that the authority holds the belief induced by the existence of reasons for such belief. It contemplates existence of "reason" on which the "belief" is founded and not merely a "belief" in the existence of reasons inducing the belief. Such a belief should not be based on mere suspicion and it must be founded upon information. It is correctly pointed out by Mr. Choudhury that a mere report/letter/note of a Government Department sent to the income-tax authority cannot be regarded as information for the purposes of section 132 of the Act. Reference is made, in this regard, by Mr. Choudhury to Ajit Jain v. Union of India [2000] 242 ITR 302 (Delhi) approved by the apex court in Union of India v. Ajit Jain [2003] 260 ITR 80, wherein a note by the CBI to the income-tax authorities was not treated as information. In Coca-Cola Export Corporation v. ITO [1998] 231 ITR 200 (SC), the two letters written by the Government of India to the assessee were treated as no "information" within the meaning of section 132(1) in the possession of the Income-tax Officer. In Vindhya Metal Corporation v. CIT [1985] 156 ITR 233 (All), approved by the apex court in CIT v. Vindhya Met....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the relevant material and the actual application of mind of the authorising authority, who issued the warrant. Bearing in mind the principles of law mentioned hereinabove, when we revert to the question at hand, namely, as to whether the respondents/authorities had, in their possession, within the meaning of section 132(1) of the Act, any "information", other than the CAG's report, enabling them to initiate action(s) thereunder, what attracts our attention most prominently, is that the Revenue had in their counter affidavits, as correctly noted by the learned single judge, stated to the effect that the searches were an all India affair in consequence of information in possession of the respondent authorities including report of the discreet inquiries and that these reports had led the authorities to conclude that the concerned group was in the possession of books of account, papers and documents, wherein undisclosed transactions had been recorded and that the same would never be produced before the income-tax authorities. In view of what the Revenue had averred in their affidavits, it had become essential for the learned single judge to scrutinise the office files/record....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he note of satisfaction does not indicate that the report of the CAG was the prime consideration of the income-tax authorities in forming the required 'belief. 56. Similar is the decision with regard to the note of satisfaction of the authorities at Guwahati. The note of satisfaction at Guwahati was drawn on the report of the DDIT (Investigation), Siliguri, wherein information has been disclosed of accumulation of property undisclosed to tax. Though this note of satisfaction also refers to the report of the CAG, the satisfaction was drawn primarily on the basis of the information collected from various sources by the DDIT at Siliguri relatable to the concerned group at Guwahati." Reacting to the observations made by the learned single judge as quoted hereinabove, it has been submitted, on behalf of the writ appellants, that the learned single judge has derived his own satisfaction from the contents of the files without disclosing the same to the writ petitioners, though the Revenue did not claim any privilege in respect of these documents. Turning to the question as to whether the materials relied upon by the respondents authorities concerned for issuing the warrant of aut....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssuing authorisation. Though Mr. Choudhury has laid great emphasis on the fact that since the respondents/authorities concerned have not claimed any privilege, they ought to have disclosed to the writ petitioners the materials, which were relied upon for issuing warrant of authorisation, we, as already indicated hereinabove, find this submission, made on behalf of the writ petitioners, somewhat, misconceived in law, for, when the action of the authorities concerned is challenged, the respondents/authorities in the light of the decision in Seth Brothers [1969] 74 ITR 836 (SC), are required to satisfy the court as regards the regularity of their action. It is not a part of the duty of the revenue authorities to disclose to the person, who challenges the warrant of authorisation, as to what materials were available against him, which had led to the issuance of warrant of authorisation. It is only when the authorities concerned resolve to impose tax or penalties, etc., that they would have to disclose to the person concerned as to why tax or penalty were being imposed. While dealing with the question at hand, it is also important to bear in mind that the "information" received or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....court, while examining the proceedings under section 34 of the Indian Income-tax Act, 1922, held that the stage of the proceeding for recording of reasons by the Income-tax Officer and obtaining of sanction of the Commissioner are administrative in character and are not quasi-judicial. There is no requirement in any of the provisions of the Act laying down as a condition for initiation of the proceedings that the "reasons" and/or material and/or information must be communicated to the assessee as and when a challenge is made before the court of law on the ground that such reasons and/or material and/or information did not exist. Disclosure of the materials to the persons against whom the action under section 132(1) is taken is not mandatory, for, the very disclosure would affect or hamper the investigation. Further, many a time, the source of information could easily be inferred from the materials relied upon and it is not in the interest of the public that the authority concerned should reveal the source through which the authority received the information, for, the information might be collected by the promise of confidentiality; even otherwise, to avoid embarrassment to the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion derived therefrom was investigated into. In the course of investigation, materials were collected and it was on these materials that the "belief" of the authorities concerned rested. This is, therefore, not one of those cases, where one can say that the material was non-existent for the purpose of formation of belief. While dealing with this aspect of the matter, we have to keep in mind that it is the existence of the "belief", which can be challenged by the assessee, but not the sufficiency of the "reason" for the "belief". In Seth Brothers [1969] 74 ITR 836, the apex court has made it clear that the power exercised by the Commissioner under section 132 is not a judicial or quasi-judicial power and the court cannot substitute its own opinion for that of the Commissioner. When there was information, the concerned authority had reason to believe upon such information and issued the authorisation, the court would not sit in appeal if such belief was formed in good faith. The existence of belief is necessary, but not the sufficiency of the belief. The court should not substitute its own reasons and thereby step into the shoes of the concerned authority. The Patna High Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w of Shri M. K. Subba published in a magazine called Roto Gham, but Shri Subba denied having given any such interview and in Writ Petition No. 7008 of 2000, the Sikkim High Court has held that the said magazine was a fake and fabricated one. While dealing with the above aspect of the matter, it must be remembered that the object of article 226 of the Constitution is the enforcement and not the establishment of right or title and, hence, a petition under article 226 cannot be converted into a suit and the High Court cannot take up adjudication of the disputed facts. The High Court does not, generally, enter upon a determination of questions, which demand an elaborate examination of evidence to establish the right to enforce. There are sound reasons behind this rule. Remedies by way of judicial review under article 226 are fundamentally different from the other remedies. Instead of substituting its own decision for that of some other bodies, as happens when an appeal is allowed, the High Court, on review under article 226, is concerned only with the question whether the action or order under attack should be allowed to stand or not. It is often stressed by the court that judicial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed, in the present case, that the magazine Roto Gham was a fake and fabricated one. In such a situation, the mere fact that subsequent to the issue of the authorisation, a finding has been rendered that Roto Gham is a fabricated magazine, cannot evaporate the other incriminating materials, which were available on record. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of his action. If the action is maliciously taken or power under section 132(1) is exercised for a collateral purpose, it is liable to be struck down by the court. In other words, if the conditions for exercise of the power are not fulfilled, the proceeding is liable to be quashed; but where the power is exercised bona fide and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers, will not vitiate the exercise of the power. Where the DIT (Investigation) entertains the requisite "belief" and, for reasons recorded by him, authorised a designated officer to enter and search premises for books of account and documents relevant to, or useful for, an....