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2015 (10) TMI 264 - MADRAS HIGH COURT

2015 (10) TMI 264 - MADRAS HIGH COURT - 2015 (330) E.L.T. 90 (Mad.) - Otherwise acquired foreign currencies - Proceedings under FERA, 1973 - holding the currency as owner thereof and handing a part of for safe custody with the appellant's mother and wife - ownership of foreign currencies - validity of statement before income tax authorities - Held that:- FERA and the Income Tax Act are two separate and independent Acts operating in two different fields. Therefore, we do not think that the appell .....

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the non inclusion of the value of these currencies in the income of the appellant in the first miscellaneous appeal, may have been driven by circumstances that provide for avoidance of double taxation. Hence, the first question of law is to be answered against the appellants.

The Appellate Tribunal itself has gone into the question relating to the expression 'acquire' in Section 8(1) and came to the conclusion that the non examination of Mrs.Seethalakshmi Nagaraj on the side of the d .....

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nian And T. Mathivanan, JJ. For the Petitioner : Mr B Kumar, SC for Mr B Satish Sundar For the Respondent : Mr M Dhandapani, Standing Counsel JUDGMENT Judgment was delivered by V. Ramasubramanian, J These two appeals are filed under Section 35 of the Foreign Exchange Management act, 1999 (hereinafter referred to as the FEMA) as against the order of the Appellate Tribunal for Foreign Exchange confirming the orders of adjudication passed against the appellants. 2. Heard Mr.B.Kumar, learned Senior .....

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Tamil Nadu Minerals Limited, which is a 100% export oriented unit, wholly owned by the State of Tamil Nadu, a raid was conducted at the premises bearing door No.M-26, 10th Street, 'M' Block, Anna Nagar, Chennai. During the raid, foreign currencies to the extent of US$ 5061, S$ 527 and 210 Malaysian ringgits were recovered. 4. When the raid was going on, the Chartered Accountant of the appellant in the first miscellaneous appeal, who is the appellant in the next appeal, came to the same .....

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them. Simultaneously, the Directorate of Enforcement also filed two independent criminal complaints against these appellants on the file of the Additional Chief Metropolitan Magistrate, Egmore, Chennai. 6. When the adjudication proceedings were pending, the FERA, 1973 was replaced by the FEMA, 1999 with effect from 1.6.2000. Therefore, the question as to whether the proceedings initiated under the 1973 Act could continue or not, became a contentious issue all over the country. Eventually, after .....

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ants filed two independent appeals in Appeal Nos.175 and 178 of 2008 before the Appellate Tribunal. The Appellate Tribunal confirmed the findings of the Adjudicating Authority with regard to the contravention of the provisions of the Act, but reduced the quantum of penalty to the extent of the pre-deposit made by the appellants at the time of filing of the appeals. Not satisfied with being let off so, the appellants have come up with the above appeals. 8. Since the present appeals are filed unde .....

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and circumstances of the case ? (ii) Whether the second respondent is right in holding that the version of Smt.Seethalakshmi Nagaraj (as regards holding the currency as owner thereof and handing a part of for safe custody with the appellant's mother and wife), would in any manner constitute violation of Section 8(1) of FERA is not a plausible one ? (iii) Whether the second respondent is right in holding that the version of Smt.Seethalakshmi Nagaraj (as regards holding the currency as owner t .....

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t her proprietary control over the same ? (v) Is the second respondent Tribunal right in ignoring the statements recorded from the appellant under Section 40 of FERA in which he has clearly explained the circumstances under which the currencies came to be found, including the version of it being owned and possessed by Smt. Seethalakshmi Nagaraj at all times ? (vi) Is the second respondent Tribunal right in finding that it was for the appellants to prove the urgency of the matter for handing over .....

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nd this Honourable Court in the income tax appeal are not relevant and criteria under the Income Tax Act and the Foreign Exchange Regulation Act, 1973 are different ? (viii) Are the second respondent Tribunal findings vitiated on account of perversity and errors apparent on its face, ignoring vital and relevant material and taking into consideration extraneous and irrelevant material in arriving at a conclusion that the appellant had 'otherwise acquired' the foreign currencies and thereb .....

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: (i) Whether the Adjudicating Authority and the Appellate Tribunal could have ignored the orders of assessment passed under the Income Tax Act, both in respect of the appellant in the first miscellaneous appeal and in respect of Mrs.Seethalakshmi Nagaraj, who, right from the beginning, claimed to be the owner of the foreign currencies seized from the premises that was raided ? and (ii) Whether, after this Court discharged the appellant in the first miscellaneous appeal in the prosecution launch .....

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also from the briefcase of the appellant in the second miscellaneous appeal, at the time when the premises was being raided. In the statement recorded from the appellant in the first miscellaneous appeal under Section 40, he claimed that the premises that was raided belonged to his mother and that those foreign currencies were actually entrusted by a family friend by name Mrs.Seethalakshmi Nagaraj to his mother, who was the owner of the premises, for safe custody. This statement recorded from th .....

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ls right from the beginning was that those currencies recovered from the premises and recovered from the briefcase belonged to one Mrs.Seethalakshmi Nagaraj. 12. It is not known whether Mrs.Seethalakshmi Nagaraj accounted for this money in her own income tax returns and paid income tax and the matter was allowed to rest there or not. When the Department of Income Tax attempted to include the value of the foreign currencies recovered from the appellant in the first miscellaneous appeal, within hi .....

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ue of these foreign currencies could not be taken to be the income of the appellant in the first miscellaneous appeal for the relevant assessment year, as it was claimed to belong to one Mrs.Seethalakshmi Nagaraj. 13. Therefore, (i) on the basis of the statements recorded under Section 40 from the appellants as well as Mrs.Seethalakshmi Nagaraj and (ii) on the basis of the deletion of the value of those currencies from the income of the appellant in the first miscellaneous appeal, in the proceed .....

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n not being an authorized dealer, any foreign exchange. 14. It is the contention of the learned Senior Counsel for the appellants that once it is found by the Department of Income Tax that this money did not belong to the appellant in the first miscellaneous appeal, the respondents are not entitled to come a different conclusion for the purpose of the FERA, 1973. Right from the beginning, the claim of ownership of these currencies was made only by Mrs.Seethalakshmi Nagaraj and that therefore, th .....

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to the ownership of the money, the appellants cannot be held guilty of contravention of Section 8(1). 16. We have carefully considered the above submissions. 17. At the outset, it should be pointed out that any conclusion reached by an authority under the Income Tax Act, 1961, need not necessarily lead to a finding that a person cannot be prosecuted under the FERA, 1973 or the FEMA, 1999. The Income Tax Act, 1961 is a peculiar piece of legislation where there Department of Income Tax is not conc .....

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need not be a pointer to the effect that he cannot be held guilty of violation of Section 8(1). 18. The above conclusion can be drawn even by a different method, if we have a careful look at Section 8(1). As we have indicated earlier, Section 8(1) uses several expressions. These expressions are : (i) purchase (ii) otherwise acquire (iii) borrow from (iv) sell (v) otherwise transfer (vi) lend to and (vii) exchange with. The liability to pay income tax need not arise, when any of these seven expre .....

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respondent is right in relying upon the decision of the Supreme Court in this regard in K.T.M.S.Mohamed Vs. Union of India [AIR 1992 SC 1831]. In the said decision, the Supreme Court pointed out that the purport of the Income Tax Act and the FERA, 1973 are different. In paragraph 24 of the said decision, the Supreme Court made it clear that the FERA and the Income Tax Act are two separate and independent Acts operating in two different fields. Therefore, we do not think that the appellants can .....

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on of the value of these currencies in the income of the appellant in the first miscellaneous appeal, may have been driven by circumstances that provide for avoidance of double taxation. Hence, the first question of law is to be answered against the appellants. Question of law (ii) : 21. Coming to the second question of law, the contention of Mr.B. Kumar, learned Senior Counsel for the appellants is that in the criminal prosecution, the appellant in the first miscellaneous appeal filed a petitio .....

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d been quashed, the orders of adjudication for contravention of the very same section cannot stand in the eye of law. In other words, the contention is that it is not permissible for an adjudicating authority to say that the appellants had contravened Section 8(1) of the Act, when the Criminal Court had declared that there was no contravention. 23. But, in response to the above contention, Mr.M.Dhandapani, learned Standing Counsel for the Department invited our attention to the decision of the S .....

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h an order of adjudication may ultimately result in the order of confiscation and the imposition of penalty, it is not strictly criminal in the sense in which we understand criminality. At the most, it could be taken to be quasi criminal. 24. However, relying upon the decision of the Supreme Court in Gopaldas Udhavdas Ahuja Vs. Union of India [(2004) 176 E.L.T. 3], it is contended by Mr.B.Kumar, learned Senior Counsel for the appellants that the moment it is found that when the criminal prosecut .....

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ame set of facts, on the basis of the same incriminating materials and on the basis of the statements of the same witnesses, two different conclusions could not be drawn. 26. But, we are of the considered view that the decision in Gopaldas Udhavdas Ahuja would have no application to the cases on hand at least for two reasons. The first reason is that in this case, the Directorate of Enforcement did not even have the opportunity to examine any witnesses before the criminal court. The appellant in .....

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