B.J.DIVAN, J. -
(1.)THE petitioner herein is a resident of Surat and the respondent is the Income -tax Officer, Ward -C, Surat Circle, Surat. The petitioner is carrying on business of manufacturing cloth and sale of yarn and this business is being carried on at Surat. It is the petitioner's case that he had business and social relations with one Ratilal Desai of Bombay. On or about July 1, 1969, the petitioner had gone to Bombay and had met Ratilal Desai. After some preliminary negotiations, Ratilal Desai suggested to the petitioner that he wanted to invest a sum of Rs. 2,00,000 this being the amount which he had realised from the sale of an ice factory at Hyderabad. Ratilal Desai suggested that he wanted to invest this amount in some business which the petitioner might suggest. The petitioner informed Ratilal Desai that there was a considerable scope for investment of funds in cloth business in Surat and, therefore, Ratilal Desai should invest the said sum of Rs. 2,00,000 in the petitioner's factory at Surat. The petitioner and Ratilal Desai thereupon decided to form a partnership firm in which it was also agreed to admit the son of Ratilal Desai as one of the partners. This son of Ratilal Desai was at that time in the United States. The terms of the agreement arrived at between Ratilal Desai and the petitioner were reduced to writing in the shape of an agreement executed on stamp paper and Ratilal Desai gave an amount of Rs. 1,70,000 out of the sum of Rs. 2,00,000 which Ratilal Desai was to contribute towards the capital of the proposed partnership firm. It is the petitioner's case that Ratilal Desai had withdrawn a sum of Rs. 2,00,000 from his account with the State Bank of Hyderabad, Secretariat Branch, Hyderabad, on June 18, 1969, and out of this amount of Rs. 2,00,000 the said amount of Rs. 1,70,000 was paid by Ratilal Desai to the petitioner. The petitioner passed a regular receipt to Ratilal Desai in respect of the said sum of Rs. 1,70,000. The petitioner retained with him one copy of the agreement or deed of partnership and the original document on stamp paper was retained by Ratilal Desai. Ratilal Desai had also asked the petitioner to invest the moneys if the petitioner so desired in purchasing goods at auctions held by the customs department. It is the petitioner's case that the relevant books of accounts both of the petitioner and of Ratilal Desai record this transaction in connection with the amount of Rs. 1,70,000. On or about July 10, 1969, the respondent raided the premises of the petitioner and the raid was carried out under the provisions of section 132 of the Income -tax Act, 1961, (hereinafter referred to as 'the Act'). Amongst various articles seized from the petitioner the respondent seized an amount of Rs. 1,70,000 and 23 guineas. It is the case of the petitioner that at the time when he passed the receipt for the sum of Rs. 1,70,000 to Ratilal Desai, he had set out in the receipt the numbers of 10 Government currency notes of Rs. 10,000 each. There were ten such notes and thus, so far as the amount of Rs. 1,00,000 out of Rs. 1,70,000 was concerned, it could be identified by reference to the numbers of the currency notes of Rs. 10,000 each. It is the petitioner's case that then notes of Rs. 10,000 each were found from the locker and the numbers of those currency notes tallied with the numbers of the 10 notes of Rs. 10,000 each mentioned in the receipt passed by him to Ratilal Desai. The respondent had also seized the regular books of accounts maintained by the petitioner in which there were relevant entries indicating that the amount of Rs. 1,70,000 belonged to Ratilal Desai. It is the case of the petitioner that he protested to the respondent against the manner in which this raid was carried out and he submitted to the respondent that the action under section 132 was taken for purposes which were extraneous to the Act. Subsequently, respondent held protracted inquiries and it is the case of the petitioner that pressure was sought to be brought upon the petitioner in order to induce the petitioner to submit to a settlement of the whole case against him but the petitioner declined to submit to any such pressure. It is the case of the petitioner that the respondent examined the petitioner in respect of the prizes won by the petitioner in some prize competitions and about another prize won by the petitioner's wife in a crossword puzzle competition and the respondent, according to the petitioner, continuously asked the petitioner to submit to a settlement and accept the position that the prizes won by the petitioner and his wife were bogus and were only devices adopted by the petitioner introduce his own concealed moneys in his books of account. The petitioner, according to him, declined to submit himself to the said pressure and contended that the prizes were won by the petitioner and his wife in a genuine and straightforward manner in an open contest. The petitioner had also called upon the respondent to examine the organizers of the said crossword puzzles and give to the petitioner proper opportunity to cross examine them but this was not done. Ultimately, the respondent passed an order on October 9, 1969, under section 132(5) of the Act and by that order the respondent held that the amount of Rs. 1,70,000 did not belong to Ratilal Desai but belonged to the petitioner. The respondent also held that the prizes won by the petitioner and his wife represented undisclosed income of the petitioner and he further held that the value of 23 guineas found from the locker also represented the petitioner's income from undisclosed sources. The respondent estimated the total undisclosed income of the petitioner of Rs. 4,69,161 and he assessed the tax liability of the petitioner under section 132(5) of the Act at Rs. 3,44,787. Against this tax liability, the assets seized in the course of the search came to Rs. 1,73,220 being the cash amount of Rs. 1,70,000 and the value of 23 guineas found at the time of the search of the locker. The petitioner has challenged the action of the respondent in passing the order that he did on various grounds. When the petition was filed, the petitioner had challenged the vires of section 132 of the Act and the main grounds of challenge to the impugned order are, firstly, that on the evidence on record it must be held that Rs. 1,70,000 belonged to Ratilal Desai and not to the petitioner and the finding arrived at by the respondent that this amount of Rs. 1,70,000 belonged to the petitioner was perverse. The second contention which was urged before us was that the whole inquiry conducted by the respondent was contrary to the provisions of rule 112A of the Income -tax Rules, 1962.
(2.)AS regards the challenge to the vires of section 132, we may point out that in Ramjibhai Kalidas v. I. G. Desai, Income -tax Officer, a Division Bench of this High Court consisting of Bhagwati C.J. and T. U. Mehta J. has held that the provisions of the Income -tax Act relating to search and seizure contained in sub -sections (1) (c) (iii) and (5) of section 132 are not violative of articles 14 and 19(1)(f) of the Constitution and are not null and void. The restrictions imposed by the impugned provisions on the right of the citizen to hold and enjoy property under article 19(1)(f) are reasonable restrictions in the interests of the general public and are saved by article 19(5). It was also held that the power conferred under section 132, sub -sections (1) (c) (iii) and (5), is not unfettered or uncanalised. It is a power which is hedged in by several conditions and safeguards and it is exercisable only in certain specified circumstances and subject to certain defined conditions and the section clearly indicates the policy or principles which is to guide the exercise of the power. The challenge to the constitutionality of the impugned provisions on the ground of violation of articles 14 and 19(1)(f) was, therefore, unfounded and could not be sustained. It was further held that the classification made by section 132 between evaders of tax who are not in such possession was reasonable, for the object of the section was to get hold of undisclosed income or property and that could only be done by effecting search and seizure from those who are in possession of it. It was further held that there was no overlapping between the provisions of section 132 and section 147 and it was not possible to say that it was open to the income -tax authorities to adopt one procedure or the other according to their absolute discretion. Section 132 could not, in the circumstances, be said to be violative of the equal protection clause contained in article 14. In view of this decision of the Division Bench of this High Court, the learned Advocate -General appearing on behalf of the petitioner has not argued before us the question of the constitutional validity of the provisions of section 132 though he has not given up that point.
Before we take up the second contention urged on behalf of the petitioner, it will be necessary to refer to a few facts. On June 18, 1969, Ratilal Desai and withdrawn an amount of Rs. 2,00,000 from the State Bank of Hyderabad, Secretariat Branch, Hyderabad. On July 1, 1969, an agreement of partnership was executed by the petitioner and Ratilal Desai. On that very day, that is, on July 1, 1969, the petitioner passed a receipt for the sum of Rs. 1,70,000 mentioning the numbers of ten Government currency notes of Rs. 10,000 each, out of the total amount of Rs. 1,70,000. The receipt in terms mentions :
'........ you have given me to -day in cash Rs. 1,70,000 (Rupees one lakh seventy thousand only) in which there are 10 currency notes each of Rs. 10,000 (ten thousand) denomination, the numbers of which are as under. The aforesaid amount has been taken in accordance with the agreement of partnership executed by us to -day.'
and then the numbers of the ten currency notes of Rs. 10,000 each are set out. On July 10, 1969, the respondent, being the authorised officer under the provisions of section 132, raided the premises of the petitioner. These premises were situated at a building called Shiv Ashish. The petitioner had a locker in a safe deposit vault at Surat People's Co -operative Bank. The locker stood in the name of the petitioner's wife, Shantaben. On July 11, 1969, a key was handed over by the petitioner to the respondent but the key did not fit the locker in that particular safe deposit vault. On July 14, 1969, a notice was given by the respondent to the petitioner and thereafter in pursuance of that notice the petitioner's statement on oath was recorded by the respondent. On July 16, 1969, the petitioner wrote a letter to the Income -tax Officer contending that the amount of Rs. 1,70,000 which was in the locker which was yet to be opened, belonged to Ratilal Desai and he also mentioned the circumstances under which the amount of Rs. 1,70,000 came to be in that locker. In the impugned order dated October 9, 1969, the Income -tax Officer, the respondent herein, has observed that this letter or application was handed over by the petitioner after the locker was broken open but in the affidavit -in -reply in terms he has admitted that the letter was handed over or sought to be handed over by the petitioner to the respondent before the locker was broken open. When the locker was broken open, an amount of Rs. 1,70,000.25 and 23 guineas were found in the locker and these amounts were seized by the respondent. On July 17, 1969, the petitioner addressed another letter to the Income -tax Officer and on July 30, 1969, Ratilal Desai filed his affidavit before the respondent supporting the different documents on which the petitioner and Ratilal Desai were relying in support of their contention that the amount of Rs. 1,70,000 belonged to Ratilal Desai. On October 9, 1969, the impugned order was passed by the Income -tax Officer.
(3.)A perusal of the Income -tax Officer's order shows that apart form the material which he had gathered by questioning the petitioner himself and form the petitioner and from Ratilal Desai whom he had also examined and from Ratilal's statement, the respondent relied upon certain admissions alleged to have been made by Ratilal Desai before the Commissioner of Income -tax, Gujarat II, being a statement recorded on October 3, 1969. It is also becomes clear that in order to arrive at his conclusions regarding the prizes won by the petitioner and his wife at prize competitions, the respondent relied in the impugned order on certain information available to him and in order to find out whether the prizes which were won by the petitioner and his wife at the different prize competitions were genuinely won by them or not, he relied upon certain materials gathered in the course of a search of the premises of the organizers of price competitions. Those premises apparently were situated in Daman within the territories of Diu, Daman and Goa. He has also relied upon the materials gathered on examination of the books of accounts, records, etc., of the organizers of the prize competitions in order to come the conclusion that the prize competitions were not genuine and he came to the conclusion :
'Huge credits referred to above were to enable the withdrawals of the so -called prizes. Cheques did not come from the organizers of the Harifai (competitions) and the only alternative is the prize winner, the assessee himself in this case. The fact that the prize winner has received the money and is enjoying it shows that it is only his own money that has been used for declaring and awarding this so -called prize.'