TMI Blog1973 (12) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... for the search as also the search and seizure were illegal. The challenge was based on constitutional and non-constitutional grounds. For the appreciation of the constitutional grounds it is not necessary to give here the detailed facts of the four cases. It is sufficient to state that in all these cases articles consisting of account books and documents and in the writ petitions, also cash, jewellery and other valuables, were seized by the income-tax authorities purporting to act under the authorisation for search and seizure issued under section 132 of the Act. Broadly speaking, the constitutional challenge is directed against sub-sections (1) and (5) of section 132 of the Act and incidentally also against rule 112A on the ground that these provisions are violative of the fundamental rights guaranteed by articles 14, 19(1)(f), (g), and 31 of the Constitution. The non-constitutional grounds of challenge are based upon allegations to the effect that the search and seizure were not in accordance with section 132 read with rule 112. This challenge will have to be considered in the background of the facts of the individual cases. Chapter XIII of the Act deals with income-tax author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced such books of account or other documents as required by such summons or notice, or (b) any person to whom a summons or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other documents which will be useful for, or relevant to, any proceeding under the Indian Income-tax Act, 1922 (XI of 1922), or under this Act, or (c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property which has not been disclosed for the purposes of the Indian Income-tax Act, 1922 (XI of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property), he may authorise any Deputy Director of Inspection, Inspecting Assistant Commissioner, Assistant Director of Inspection or Income-tax Officer (hereinafter referred to as the authorised officer) to--- (i) enter and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner,--- (i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him ; (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (XI of l922), or this Act ; (iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default, and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized : Provided that if, after taking into account the materials available with him, the Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any par thereof relates, he may calculate the tax on such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he may, within thirty days of the date of such order, make an application to such authority, as may be notified in this behalf by the Central Government in the Official Gazette (hereinafter in this section referred to as the notified authority), stating therein the reasons for such objection and requesting for appropriate relief in the matter. (12) On receipt of the application under sub-section (10) the Board, or on receipt of the application under sub-section (11) the notified authority, may, after giving the applicant an opportunity of being heard, pass such orders as it thinks fit. (13) The provisions of the Code of Criminal Procedure, 1898 (V of 1898), relating to searches and seizure shall apply, so far as may be, to searches and seizure under sub-section (1). (14) The Board may make rules in relation to any search and seizure under this section; in particular, and without prejudice to the generality of the foregoing power, such rules may provide for the procedure to be followed by the authorised officer--- (i) for obtaining ingress into such building or place to be searched where free ingress thereto is not available ; (ii) for ensuring safe custody of any b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade over or paid to the persons from whose custody the assets were seized. (4) (a) The Central Government shall pay simple interest at the rate of nine per cent. per annum on the amount by which the aggregate of money retained under section 132 and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (iii) of sub-section (5) of that section exceeds the aggregate of the amounts required to meet the liabilities referred to in clause (i) of sub-section (1) of this section. (b) Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under subsection (5) of section 132 to the date of the regular assessment or reassessment referred to in clause (i) of sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments. Rule 112A which is also challenged as it prescribes the procedure for the enquiry under section 132(5) is as follows : " 112A. Inquiry under section 132.---(1) Where any money, bullion, jewellery or other valuable article or thing (hereinafter referred to as assets) are seized, the Income-tax Officer sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come or property. When the authorisation is given by the Director of Inspection or the Commissioner, as the case may be, it must be limited to the five purposes mentioned in sub-clauses (i) to (v) of sub-section (1). Sub-section (14) provides for the making of rules in relation to any search or seizure. Accordingly, rule 112 has been framed which says that the powers if search and seizure under section 132 shall be exercised in accordance with sub-rules (2) to (14) under rule 112. These are detailed rules setting out the procedure for making the search and seizure and for the custody of what has been seized. Sub-section (5) of section 132 deals with the special cases where, on search, money, bullion, jewellery and other valuables believed to be undisclosed income or property are seized. What is seized cannot be kept by the departmental authorities with them indefinitely. Sub-section (5) requires that a summary enquiry must be made by the Income-tax Officer with a view to ascertain how much of the seized valuables should be retained against unpaid tax dues. The balance must be forthwith released. The second proviso to sub-section (5) further shows that the money and valuables may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment dues would stand justified in themselves. When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in article 19(1)(f) and (g), 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 of the unaccounted money should normally fill the Government coffers. Instead of doing so it distorts the economy. Therefore, in the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion. Search and seizure are not a new weapon in the armoury of those whose duty it is to maintain social security in its broadest sense. The process is widely recognized in all civilized countries. Our own criminal law accepted its necessity and usefulness in sections 96 to 103 and section 165 of the Criminal Procedure Code. In M. P. Sharma v. Satish Chandra the challenge to the power of issuing a search warrant under section 96(1) as violative of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re be held that the legislature has power to provide for search and seizure in connection with taxation laws in order that evasion may be checked." It is now too late in the day to challenge the measure of search and seizure when it is entrusted to income-tax authorities with a view to prevent large scale tax evasion. Indeed, the measure would be objectionable if its implementation is not accompanied by safeguards against its undue and improper exercise. As a broad proposition it is now possible to state that if the safeguards are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by the measure reasonable. In the case just cited there was a proviso to sub-section (2) of section 41 which prescribed that all searches under the sub-section shall, so far as may be, made in accordance with the provisions of the Code of Criminal Procedure. After pointing out that section 165 of the Criminal Procedure Code would apply mutatis mutandis to searches made under sub-section (2), this court observed : " We are, therefore, of opinion that safeguards provided in section 165 also apply to searches made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (5) is to reduce the inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion, etc., is seized, it can also be immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under sub-section (5), and, lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behaviour. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after sei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no substance in this argument. The Director of Inspection, as already seen in section 116 of the Income-tax Act, is an officer in the income-tax department next only in authority to the Board of Direct Taxes. Section 118 shows that all Inspecting Assistant Commissioners and Income-tax Officers, besides being subordinate to the Commissioners, are also subordinate to the Director of Inspection. Under section 119(2) every Income-tax Officer employed in the execution of the Act is required to observe and follow such instructions as may be issued to him for his guidance by the concerned Director of Inspection. Moreover, under section 120, the Director of Inspection is required to perform such functions of any other income-tax authority, apparently, including the Income-tax Officers and his direct superiors, as may be assigned to him by the Board. Under section 135 the Director of Inspection is competent to make any enquiry under the Act and for that purpose he is invested with all the powers that an Income-tax Officer has under the Act in relation to the making of enquiries. It would, therefore, follow that in the course of his duties the Director of Inspection has ample opport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able belief may be entertained under sub-clause (b). As an illustration, however, we may point out a case which falls completely under subclause (b). An assessee may be filing his returns from year to year regularly and his assessments may be also completed in due course over years. His books of account and documents have been duly checked from year to year and the assessing officer is also completely satisfied that the returns are correct. But it might so happen that this apparently honest assessee has invested large funds in properties and other financial deals, reliable information about which finds its way to the Director of Inspection. In such a case no oracle is needed to tell the Director of Inspection that if a requisition is made on the assessee to produce his documents in connection with these financial deals and investments, the assessee will most certainly omit to produce or cause to be produced such documents. On the other hand, there is danger that all these documents may be destroyed because the very fact that a requisition is made with a view to investigate concealed deals would put the assessee on his guard and the relevant documents may either disappear or be dest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o meet the tax dues found to be eventually payable. If by reason of the enquiry under section 132(5), which is admittedly a summary enquiry, an amount in excess of the dues is retained, the same is liable to be returned with interest at 9 per cent. under section 132A. We are not, therefore, inclined to hold that the restrictions placed by any of the provisions of section 132, 132A or rule 112A are unreasonable restrictions on the freedoms under article 19(1)(f) and (g). It was next argued that section 132(1) and (5) are violative of the fundamental right under article 14 on the ground : (1) that they make unjust discrimination between evaders of tax, distinguishing those who are believed to be in possession of undisclosed income or property from those evaders of tax who are not believed to be in possession, and (2) that although all evaders are liable to be proceeded against under section 147 of the Act, yet only some of them who are found in possession of undisclosed income or property are liable to be subjected to the procedure under section 132(5). We find no substance in this argument. All evaders of tax can be proceeded against under section 132. Only in some cases the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Government is in a position to secure its tax dues before the regular assessment is concluded. But that does not introduce any different procedure for the regular assessment of such an assessee's income which remains the same for all tax evaders. In one set of cases the fiscal authorities make sure of recoveries, in the other, they are unable to do so---not because the provisions of section 132 do not operate on them, but because action under that section by search and seizure is futile. Therefore, there is no substance in the contention that two different procedures for assessment are adopted and, hence, there is a discrimination under article 14. The plea on behalf of the assessees, in effect, only amounts to this : " It is true that we are tax evaders. But if other evaders successfully dodge the collection of the tax by causing their concealed income to disappear, why should we not get the same facility ? " Some points of lesser substance were mentioned in the petition memos in support of the challenge under articles 14 and 19(1)(f) and (g). They were, however, not urged at the time of the hearing, as on the other grounds urged, it was impossible to hold that the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the search and seizure. This petition, therefore, fails and is dismissed with no order as to costs." Balwant Singh's case referred to above is reported in [1969] 71 I.T.R. 550. We understand that an appeal had been filed to this court but was not prosecuted. That decision not only upheld the constitutionality of section 132 of the Income-tax Act, but also held that there was nothing in article 19 of the Constitution which forbids the use of evidence obtained as a result of an illegal search. Consistently with that view the relief for a writ of prohibition was rejected and hence the two Civil Appeals before us. Dr. Singhvi who appeared on behalf of the appellants in the two appeals frankly conceded that there was no specific article of the Constitution prohibiting the admission of evidence obtained in an illegal search and seizure. But he submitted that to admit such evidence is against the spirit of the Constitution which has made our liberties inviolable. In this connection he referred to some American cases which seem to recognize the validity of his submission. As to the argument based on " the spirit of our Constitution ". we can do no better than quote from the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy of a citizen's home was specifically safeguarded under the Constitution, although reasonable searches and seizures were not taboo. Repelling the submission, this court observed at page 1096 : " A power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. When the Constitution makers have thought fit not to subject such regulation to constitutional limitations by recognition of a fundamental right to privacy, analogous to the American Fourth Amendment, we have no justification to import it, into a totally different fundamental right, by some process of strained construction. Nor is it legitimate to assume that the constitutional protection under article 20(3) would be defeated by the statutory provisions for searches." It, therefore, follows that neither by invoking the spirit of our Constitution nor by a strained construction of any of the fundamental rights can we spell out the exclusion of evidence obtained on an illegal search. So far as India is concerned its law of evidence is modelled on the rules of evidence which prevailed in English law, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus : " Certain decisions of the Supreme Court of the United States of America were also cited in argument. Their Lordships do not think it necessary to examine them in detail. Suffice it to say that there appears to be considerable difference of opinion among the judges both in the State and Federal Courts as to whether or not the rejection of evidence obtained by illegal means depends on certain articles in the American Constitution. At any rate, in Olmstead v. United States, the majority of the Supreme Court were clearly of opinion that the common law did not reject relevant evidence on that ground." In Kuruma's case, Kuruma was searched by two police officers who were not authorised under the law to carry out a search and, in the search, some ammunition was found in the unlawful possession of Kuruma. The question was whether the evidence with regard to the finding of the ammunition on the person of Kuruma could be shut out on the ground that the evidence had been obtained by an unlawful search. It was held it could not be so shut out because the finding of ammunition was a relevant piece of evidence on a charge for unlawful possession. In a later case before the Privy Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, no writ of prohibition in restraint of such use could be granted. It must be, therefore, held that the High Court was right in dismissing the two writ petitions. The appeals must also fail and are disimissed with costs. The two writ petitions filed in this court now remain for consideration and what is to be considered is whether there has been any illegality in the search and seizure because of the alleged contravention of the provisions of section 132 of the Act or rule 112. Writ Petition No. 446 of 1971.---The petitioner, Pooran Mal, is a partner in a number of firms---some of them doing business in Bombay and some in Delhi. His permanent residence is 12A, Kamla Nagar, Delhi. His business premises in Delhi are A. 14/16, Jamuna Bhavan, Asaf Ali Road, New Delhi. It would appear that on an authorisation issued by the Director of Inspection, his residence and business premises in Delhi were searched on 15th and 16th October, 1971. On the 15th, his premises in Bombay were also searched and at that time it appears the petitioner was present in Bombay. When his residence was searched on 15th and 16th, there were in his house the petitioner's wife, two or three adult s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned caused him the least inconvenience. All througout the search, it is alleged, Sharda Devi and her two educated sons, Dinesh and Vinod, were present at the time of the search. It is not denied that considerable jewellery was seized. The jewellery seized in the house was worth Rs. 37,043 and though it is the case of the petitioner that part of it belonged to his mother-in-law, Smt. Kailashbai, who is now dead, it is stated on oath on behalf of the department that in the statements recorded on 15th and 16th October, 1971, Smt. Sharda Devi had claimed the whole of the jewellery as her own, though in the last wealth-tax return she had valued her jewellery at Rs. 5,000 only. So far as the panchas are concerned, it is denied that they were not known to the inmates of the house. In fact, it is alleged by the department that pancha Mathuradas was a resident in the same house and had been called at the suggestion of Sharda Devi. It is not denied that the search went on for a long time because a number of documents and account books were seized in the course of the search and so also a lot of jewellery and cash. The allegation that the small boxes of the children containing their pocket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... throughout non-co-operative. Assessment for the year 1967-68 is still pending and no return has been filed for the year 1968-69 or for later years. We are not at all satisfied that the petitioner was co-operative, and, therefore, the Director of Inspection would have no possible ground for entertaining a reasonable belief as required by sub-clauses (a), (b) and (c) of sub-section (1) of section 132. To satisfy ourselves we called for the grounds recorded by the Director before the authorisation was issued and we are quite satisfied that there were grounds for him to entertain reasonable belief as required under the sub-clauses. As already pointed out the summary enquiry made under sub-clause (5) of section 132 discloses that the assets seized were for the most part undisclosed income and property. Indeed, the accident that undisclosed property is found on a search may not be a justification for the authorisation of a search if, in fact, there had been no grounds for entertaining reasonable belief. But finding of assets as expected by the Director of Inspection on the information received by him would at least support the view that the authority concerned had reliable information on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly entered in the inventory. This allegation also is denied. In para. 21 of the counter-affidavit the Assistant Director of Inspection has stated that during the course of the petitioner's examination and the recording of his statement on October 8, 1971, the petitioner had stated that his Roker Bakis for the accounting years 1970-71 and 1971-72, did not contain any entries regarding the expenditure on the construction of the godown, and as such those Roker Bahis were not seized from the custody of the petitioner. The other reason was that the petitioner had requested that they may not be seized as otherwise the petitioner would face difficulties in carrying on his business. It must be remembered that the search and seizure had been ordered because the petitioner had recently constructed a huge godown near his residential premises with the floor area of approximately 6,700 sq. ft. on which a large investment was estimated to have been made from income which had not been disclosed in the books of account produced or returns filed by the petitioner. Since the petitioner himself told the authorities that the Roker Bahis for the two years did not contain any entries regarding the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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