2023 (12) TMI 1440 - HC - Income Tax

Release of cash seized from the vehicle of petitioners - petitioners by placing reliance on a decision of this Court in Ravirajan R. v. State of Kerala 2023 (9) TMI 1557 - KERALA HIGH COURT submitted that the amount is not liable to be released to the department inasmuch as the Income Tax Department is disentitled to stake a claim u/s 132A in respect of money in the custody of a court HELD THAT - Having heard petitioner and the learned Standing Counsel for the 3rd respondent I find no reason to deviate from the view taken by this Court in Ravirajan (supra). Further the learned Standing Counsel for the 3rd respondent would bring to my notice that S.L.P. filed by the Union of India challenging the decision in Ravirajan (supra) was dismissed as per the order 2023 (12) TMI 1439 - SC ORDER . In the circumstances, the impugned order is liable to be set aside and C.M.P. liable to be allowed. Conditions on which the amount shall be released to the revision petitioners - Needless to say that when the amount is released in the circumstances of this case there shall be sufficient provision for ensuring that the amount if required is repaid/redeposited by the petitioners. In order to ensure such repayment/redeposit it is necessary that the petitioners furnish sufficient security. Hence it is ordered that an amount of Rs.1, 03, 00, 000/- will be released to the revision petitioners on their executing a bond undertaking that they shall repay/redeposit the amount as and when so directed by either the learned Magistrate or the 3rd respondent and furnishing bank guarantee drawn on a Nationalised or Scheduled Bank for the equal amount. The 3rd respondent shall finalise the process of assessment in accordance with law.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the amount of Rs.1,03,00,000/- seized from the petitioners can be released to the Income Tax Department under the provisions of the Code of Criminal Procedure and the Income Tax Act, 1961.

- Whether the Income Tax Department is entitled to claim the seized money under Section 132A of the Income Tax Act, 1961, while the money is in the custody of the court.

- Whether the learned Magistrate has the jurisdiction and authority under Section 451 of the Code of Criminal Procedure to direct the release of the seized money to the Income Tax Department and to impose a time frame for completion of assessment proceedings.

- Whether the petitioners are entitled to the release of the seized amount after the Income Tax Department failed to conclude the assessment proceedings within six months, as per the directions in a previous judgment.

- What conditions should be imposed on the release of the seized amount to ensure repayment or re-deposit if required.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement of the Income Tax Department to the seized amount under Section 132A of the Income Tax Act, 1961

- Relevant legal framework and precedents: Section 132A of the Income Tax Act, 1961 empowers the authorities to seize money or property suspected to be undisclosed income. However, the question arises whether the department can claim such money directly when it is in judicial custody.

- Court's interpretation and reasoning: The Court referred to the decision in Ravirajan R. v. State of Kerala, where it was held that the Income Tax Department is disentitled to stake a claim under Section 132A in respect of money in the custody of a court. The Court emphasized that the department cannot bypass procedural safeguards by directly claiming the money without completing assessment proceedings.

- Application of law to facts: Since the seized amount was in the custody of the court, the department could not claim it outright under Section 132A without following due process.

- Treatment of competing arguments: The Income Tax Department argued for release of the amount to it, but the Court found that such a claim was premature and not supported by law.

- Conclusion: The department is not entitled to the immediate release of the seized amount under Section 132A while the money remains under judicial custody.

Issue 2: Jurisdiction of the Magistrate under Section 451 of the Code of Criminal Procedure to direct release of the seized money and impose time limits on assessment

- Relevant legal framework and precedents: Section 451 of the Code of Criminal Procedure allows the Magistrate to deal with property seized during investigation. The Apex Court in J.R. Malhotra v. Additional Sessions Judge held that the Magistrate cannot direct revenue authorities to conclude assessment within a fixed time frame, as that would bypass statutory provisions.

- Court's interpretation and reasoning: The Court held that the Magistrate's order directing the Income Tax Department to complete assessment within six months and releasing the money to the department was incorrect and beyond jurisdiction. The Magistrate cannot impose such procedural timelines on the revenue authorities.

- Application of law to facts: The learned Magistrate relied on a previous order (Annexure II) directing release to the department with a six-month timeline. The Court found this reliance misplaced and held that such directions were not legally sustainable.

- Treatment of competing arguments: The petitioners challenged the Magistrate's order on this ground, and the Court agreed with the petitioners, rejecting the department's claim to enforce such timelines through the Magistrate's order.

- Conclusion: The Magistrate lacks authority to direct the release of seized money to the department by imposing assessment timelines.

Issue 3: Entitlement of petitioners to release of the seized amount after non-completion of assessment within six months

- Relevant legal framework and precedents: The previous order (Annexure II) allowed release of seized money to the claimants if the department failed to complete assessment within six months. The petitioners invoked Section 452 of the Code of Criminal Procedure to seek release on this basis.

- Court's interpretation and reasoning: The Court found that the petitioners were entitled to the release of the amount as no further proceedings were pending and the department failed to conclude assessment within the stipulated period. The Court relied on the principle that property seized should not be held indefinitely without due process.

- Application of law to facts: The department did not complete assessment within six months, and no other proceedings were pending. Hence, the petitioners' claim for release was justified.

- Treatment of competing arguments: The department opposed release, but the Court found the opposition untenable given the failure to complete assessment.

- Conclusion: Petitioners are entitled to the release of the seized amount subject to conditions ensuring repayment if required.

Issue 4: Conditions for release of the seized amount to ensure repayment or re-deposit

- Relevant legal framework: The Court has inherent powers to impose conditions on release of seized property to safeguard interests of the State and ensure availability of the property if needed later.

- Court's interpretation and reasoning: The Court ordered release of the amount to petitioners on executing a bond undertaking to repay/redeposit the amount if directed by the Magistrate or Income Tax Department. Additionally, the petitioners were required to furnish a bank guarantee for an equal amount from a Nationalised or Scheduled Bank.

- Application of law to facts: These conditions provide adequate security to the department while allowing the petitioners to access the seized amount pending final assessment.

- Treatment of competing arguments: The department's concerns were addressed by these security measures.

- Conclusion: Release subject to bond and bank guarantee is appropriate and lawful.

3. SIGNIFICANT HOLDINGS

- "The Income Tax Department is disentitled to stake a claim under Section 132A of the Income Tax Act, 1961 in respect of money in the custody of a court."

- "The Magistrate while exercising the powers under Section 451 of the Code cannot issue directions to the revenue to conclude the assessment proceedings within a time frame bypassing the provisions."

- "The order to hand over the amount to the revenue is incorrect."

- The Court confirmed that failure of the department to complete assessment within six months entitles the claimant to seek release of the seized amount, subject to furnishing adequate security.

- The seized amount of Rs.1,03,00,000/- shall be released to the petitioners on their executing a bond undertaking repayment/redeposit and furnishing a bank guarantee of equal amount from a Nationalised or Scheduled Bank.