2025 (6) TMI 1492 - HC - Income Tax

Scope of supurdgimana u/s 457 of the CrPC - denial of handing over possession of seized articles to the applicant - Rejection of application only on the ground that an objection has come from the Income Tax Department saying that against the seized articles since they have already issued a warrant of authorization u/s 132A(1) and therefore possession of those articles cannot be handed over to the applicant - HELD THAT - In a criminal case if any stolen property is seized by the police from the accused then the Income Tax Department cannot claim possession over the said seized property by issuing notice u/s 132A of the Act 1961 for the reason that the same is a separate proceeding and can be initiated only after decision of the Court. In the present case after making a complaint by the applicant in respect of an event of theft committed in his house the police made investigation and seized the stolen articles from the accused and thereafter the applicant moved an application for handing over the possession of said seized articles in his favour annexing therewith documents of his ownership over those articles but the trial Court on an objection raised by the Income Tax Department has rejected the application. Trial Court on a mere objection raised by the Income Tax Department cannot reject the application preferred by the applicant for the reason that it is the duty of the Court to see whether the person claiming possession over the seized articles satisfies the Court by producing cogent evidence of his/her ownership or not. From the record of the trial Court it reveals that while claiming title over the seized articles the applicant has not only filed a certificate issued by the Tahsildar but also filed other relevant documents of his title over the same and as such after considering the same an order in this regard ought to have been passed but the Court has failed to do so. Under such circumstances the impugned order dated 08.04.2022 (Annexure-P/6) passed by the trial Court is not sustainable in the eyes of law and as such it is hereby set aside. The trial Court is directed to allow the application filed by the applicant subject to satisfaction of relevant documents showing his ownership over the seized articles filed along with the application.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the trial Court was justified in rejecting the application under Section 457 of the Code of Criminal Procedure (CrPC) for handing over possession of seized articles to the applicant, solely on the basis of an objection raised by the Income Tax Department under Section 132A(1) of the Income Tax Act, 1961.

- Whether the issuance of a warrant of authorization by the Income Tax Department under Section 132A(1) of the Income Tax Act precludes the trial Court from releasing seized property on supurdginama to the applicant in a criminal proceeding involving theft.

- The interplay between the provisions of the CrPC governing custody and release of seized property and the powers of the Income Tax Department under Sections 132, 132A, and 132B of the Income Tax Act regarding requisition and custody of assets suspected to be unaccounted income.

- The extent to which the Income Tax Department can intervene in a criminal proceeding concerning stolen property and claim possession of such property before the conclusion of criminal trial or inquiry.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legitimacy of rejecting application under Section 457 CrPC on objection by Income Tax Department under Section 132A(1) of the Income Tax Act

The legal framework involves Section 457 CrPC, which permits the Court to order the return of seized property to its rightful owner pending trial, and Section 132A(1) of the Income Tax Act, which empowers the Income Tax Department to requisition books of account, money, or other property for investigation of unaccounted income.

The trial Court rejected the applicant's application for possession of seized cash and gold on the ground that the Income Tax Department had issued a warrant of authorization under Section 132A(1) of the Income Tax Act, and the enquiry by the department was ongoing. The Court reasoned that since the property could be subject to confiscation if found unaccounted, it was improper to release possession to the applicant.

The applicant contended that the scope of supurdginama under Section 457 CrPC is to return articles to the rightful owner once investigation is complete, and that the Income Tax Department had no locus to oppose the application in the criminal proceeding. It was also argued that the applicant had produced documentary evidence of ownership, which the trial Court failed to appreciate.

The objector supported the trial Court's order, relying on precedent holding that when a warrant of authorization under Section 132A(1) is issued, the Judicial Magistrate First Class lacks authority to release the property on supurdginama. The objector cited a coordinate Bench decision which relied on a 1990 case holding similarly.

The Court distinguished the cited precedent, noting that in the present case, the police seized the property from accused persons in a theft case following a complaint by the applicant, who claimed ownership and produced evidence thereof. Unlike the precedent where the Income Tax Department seized property directly, here the property was recovered by police and the applicant sought its return. The Court emphasized that if the property is unaccounted, the Income Tax Department is free to initiate separate proceedings under the Income Tax Act, but such proceedings do not affect the criminal Court's power to consider an application under Section 457 CrPC.

Issue 2: Interaction between CrPC provisions and Income Tax Act powers regarding custody of seized property

The Court examined relevant case law, including a 1985 Allahabad High Court decision where the Income Tax Department issued a requisition under Section 132A(1) for seized money. The Magistrate had initially ordered release of the money to the claimant, but the Income Tax Department's appeal was allowed, permitting the Department to take possession. However, the High Court later quashed the proceedings initiated by the Department under Sections 132 and 132A of the Income Tax Act, holding that the proceedings were improper under the circumstances.

The Court also referred to recent Kerala High Court decisions analyzing Sections 132, 132A, and 132B of the Income Tax Act, which collectively empower competent authorities to hold assets suspected to be unaccounted income until the conclusion of enquiry or trial. The Kerala High Court clarified that the competent authority is the best suited person to hold such assets during the pendency of proceedings under the Income Tax Act, but this authority is subject to the person's ability to explain the nature and source of acquisition.

Further, the Kerala High Court rejected directions requiring completion of assessment proceedings within six months and release of assets thereafter, holding that such directions are unwarranted and that disposal of property post-trial is governed by Section 452 CrPC.

The Court observed that these principles apply in the context of Income Tax Act proceedings but do not automatically override the criminal Court's jurisdiction to consider applications under Section 457 CrPC for return of stolen property to its rightful owner.

Issue 3: Determination of rightful possession and ownership of seized property in criminal proceedings

The Court emphasized that in criminal cases involving stolen property, the Court must examine whether the applicant claiming possession satisfies the Court by producing cogent evidence of ownership. Mere objection by the Income Tax Department cannot be the sole basis to reject such an application.

In the present case, the applicant had filed documents including a certificate issued by the Tahsildar and other relevant ownership documents. The trial Court failed to consider these documents properly before rejecting the application.

The Court held that the trial Court's impugned order rejecting the application on the ground of an objection by the Income Tax Department was unsustainable. The Court set aside the order and directed the trial Court to allow the application subject to satisfaction of relevant ownership documents.

3. SIGNIFICANT HOLDINGS

- "In a criminal case, if any stolen property is seized by the police from the accused, then the Income Tax Department cannot claim possession over the said seized property by issuing notice under Section 132A of the Act, 1961 for the reason that the same is a separate proceeding and can be initiated only after decision of the Court."

- "The trial Court on a mere objection raised by the Income Tax Department cannot reject the application preferred by the applicant for the reason that it is the duty of the Court to see whether the person claiming possession over the seized articles, satisfies the Court by producing cogent evidence of his/her ownership or not."

- The Court clarified that the Income Tax Department's powers under Sections 132, 132A, and 132B of the Income Tax Act to requisition and hold assets suspected to be unaccounted income do not automatically preclude the criminal Court's jurisdiction to consider applications under Section 457 CrPC for return of stolen property to the rightful owner.

- The Court distinguished precedents relied upon by the objector, observing that facts where the Income Tax Department directly seized property differ materially from cases where police seized stolen property and returned it to the complainant.

- The Court directed the trial Court to allow the application under Section 457 CrPC subject to verification and satisfaction of ownership documents, thus reinforcing the principle that rightful ownership and possession are key considerations in supurdginama applications.