(1.) THE same question arises for determination in these two petitions and the answer to the question depends on the interpretation to be placed on S. 132 of the Income-tax Act, 1961, for short the Act. To start with we shall read the section. (Section omitted)
(2.) THE facts which led up to the petition, O. P. 2226 of 1972 are the following: A sum of Rs. 50,000/- was seized from the petitioner by the Central Excise Department on 14th May 1971 at 11 p. m. when the petitioner, one Sri Assainar, was travelling from Payyannoor to Kottayam in a stage carriage. THE seizure was made because it was suspected that the said amount represented the value of contraband gold. THE seizure was made under S. 110 (1)of the Customs Act, but it was found on investigation that the money seized was not liable to confiscation. In fact no notice as contemplated by S. 110 (2) of the Customs Act, 1962 was issued. So the money seized was liable to be returned as provided by sub-s. (2) of S. 110 of the Customs Act, 1962. At that stage the income-tax Officer who was empowered by the Commissioner as envisaged by sub-s. (1) of S. 132 of the Act intervened and issued a notice purporting to be under r. 112-A of the Incometax Rules, 1962 to the petitioner requiring him to explain the source of the abovesaid sums of Rs. 50,000. Counsel for the Revenue made available to us what is called "panchanama" which from the terms thereof indicated that there has been a search of the office of the Customs Authorities and that the amount was seized. THE notice under R. 112-A of the Income-tax rules is Ext. P-1 and the order under sub-s. (5) of S. 132 of the Act has been produced as Ext. P-2. By the order Ext. P-2 the amount payable by way of tax on the sum Rs. 50,000 which was taken to be the total income of the petitioner for the year in question was fixed at Rs. 19,550 and the balance amount has been returned to the petitioner. THE order Ext. P-2 is challenged in this petition. We shall state the grounds of the challenge later after stating the facts which led up to the petition, O. P. 2884 of 1972 for the grounds taken in the two petitions, are the same. Now turning to the facts in O. P. 2884 of 1972 they are very similar to the case that we have already stated excepting that the seizure took place pursuant to the provisions in the Foreign Exchange Regulation Act, 1947. THE amount that was seized in that case was Rs. 50,010. 15. A penalty of rs. 25,000 was imposed under the Foreign Exchange Regulation Act, 1947. THE balance amount available with the Enforcement Directorate was the sum of Rs. 25,010. 15. At that time the Income-tax Officer intervened and issued a notice similar to Ext. P-1 in O. P. 2226 of 1972 which is Ext. P-2 in this case and having obtained the custody of the sum of Rs. 25,010. 15 proceeded to determine the liability of the petitioner in the O. P. by Ext. P-3 Order and fixed it at rs. 52,097. THE entire sum of Rs. 25,010. 15 was adjusted towards the liability and demand has been made on the petitioner for the balance amount due to the income-tax Department.
The whole procedure adopted in these two cases has been challenged as unwarranted by law. Shortly stated the argument which, it is seen, has been accepted by more than one High Court was that the seizure contemplated by sub-s. (1) (c) of S. 132 of the Act is a seizure after search; a search which will bring to light things hidden and without such a search there cannot be a seizure under clause (c) (iii) of sub-s. (1) S. 132. This is so because under sub-clause (in) of clause (c) of sub-s. (1) of S. 132 it is stated that the seizure must be of money or other valuable article or thing found "as a result of the search". In cases where it was known that certain amounts were with an officer or even in cases where they were visible on a table in an open hall there can be no seizure and no order can be passed under sub-s. (3) of S. 132, for sub-s. (3) of S. 132 will come into operation only in cases where a seizure is "impracticable". So the Calcutta High Court found that sub-s. (3) of S. 132 which enables the issuance of an order by the income-tax Officer to some other authority to hold the money or other article and not to deal with it without the permission of the officer is inapplicable in cases where a search was unnecessary. The decision is in K. E. Johnson and others v. Laxmipal Choraria and another 1974 (93) ITR 489. The Allahabad High court came almost to the same conclusion with a very slight difference in the reasoning and the decision is in Motilal and others v. Preventive Intelligence officer, Central Excise and Customs, Agra and others 1971 (80) ITR 418. these were the two decisions mainly relied on by counsel for the petitioner on this aspect of the argument that has been advanced before us. A similar view has been taken by a learned judge of this Court dealing with a criminal revision petition in regard loan order passed under S. 523 of the Criminal Procedure code. That decision is in K. Choyi, Income-tax Officer, Assessment IV, Calicut v. Syed Abdulla Bafakki Thangal and another 1973 (91) ITR 144:1972 KLT 1076. Earlier Justice Isaac sitting with Justice Raghavan, as he then was, came to the conclusion that a criminal court exercising the discretion vested under the criminal Procedure Code must return the goods seized for the purpose of the criminal cases to the person who under a statute similar to the Income-tax Act had power to seize it. It was said that it would be unrealistic to insist that the article must be returned to the person from whom it was seized. Reliance was placed on the well-known passage in the decision in Smt. Godavari Shamrao parulekar v. The State of Maharashtra and others AIR. 1964 SC 1128. The passage runs thus: "the State Government, however, decided to revoke the order of November 7,1962 and instead decided to pass an order under the rales on the same day, namely November 10, 1962. In these circumstances it would be in pur opinion an empty formality to allow the appellants to go out of jail on the revocation of the order of November 7 and to serve them with the order dated November 10, 1962 as soon as they were out of jail. " The Madras High Court in the decision in Mohammed Kunhi v. Mohammed Koya and others 1973 (91) I. T. R. 301 has taken the view that the sub-clauses (i ). and (ii) of clause (c) of sub-section (1) of S, 132 of the Act are merely enabling provisions and the fact that it was unnecessary to resort to those clauses will not take away the power given by clause (c) of sub-section (1) of S. 132 which the court found was in substance and in effect a power of seizure. The learned judge expressed himself in somewhat strong terms and it is useful to read a passage from that judgment. "the argument is that as the discovery of money in court deposit is not claimed to be the result of search of any building or place referred to in clause (iii) of sub-section (1) of S. 132 of the Act, the question of applying the provisions of clause (iii) of S. 132 (1) cannot arise. This argument, it is true, has found favour with two learned judges, one of the orissa High Court (K. Ahmad C. J.) in Union of India v. Hadibandhu Das and the other of the Kerala High Court (K. Bhaskaran, J.) in Crl. Revision Petition no. 306/72. With great respect to the two learned judges, I find myself unable to frustrate the legislative intent by putting too narrow a construction upon the language of S. 132 of the Income-tax Act. The primary power conferred by parliament upon the Income-tax Officer is the power of seizure. The power to enter and search any building or break open the lock of any door, box, locker, safe, almirah or other receptacle is only an incidental power, the exercise of which will be only a means to the primary end, viz. , the seizure. To say that the power of seizure is not exercisable,unless it is preceded by the search of a building or breaking open of locks is to confuse the end with the means and to caricature the intention of the legislature, which, in order to facilitate the power of seizure, has provided also for the ancillary power of invading the privacy of people, by entering and searching their buildings and breaking open the receptacles where the thing to be seized might remain concealed. It would indeed be a captious and pernicious play on words to tell the Income-tax officer, 'you have, no doubt, the power of seizure; but you cannot exercise it, unless you go through the physical motions of entering a building, searching it, breaking open the locks therein and then finding the thing you want to seize as a result of your searching efforts. It is conceivable that the thing to be seized, is lying at the threshold of the building and without entering the building and searching and breaking open the locks, the Income-tax Officer may seize the thing straightaway. To say that such a seizure is illegal because it is not the result of such a search as is contemplated in clauses (i) and (ii) of sub-section (1) of S. 132 of the Act is to indulge in a self-defeating piece of sophistry. After all, what is the meaning of the word "search"? the Concise Oxford Dictionary says that it means "look for" or "seek out". What the Income-tax Officer has done in this case is to enter the building of the Court of the Second Presidency Magistrate and to look for or seek out the amount kept in court custody and ask that it may be paid over to him, because it represents wholly or partly undisclosed income of mohammed Koya. Be it noted that the section does not say that the Income-tax officer can enter and search only the building of the person who had failed to disclose his income for the purposes of the Indian Income-tax Act. What the section says is that where any person is in possession of any money which represents wholly or partly undisclosed income, the Income-tax Officer can enter and search any building or place where he has reason to suspect that such money is kept. This means that seizure can be effected even from the custody of a person other than the person who has failed to disclose his income and from a building belonging to any person other than the defaulter. Putting even the narrowest construction upon clause (hi) of sub-s. (1) of S. 132 of the Act, I hold that the Income-tax Officer has found the money in court deposit only as a result of such search as has been contemplated in the section. The resulting position is that the order of the court below directing refund of the entire amount in court deposit to the V-Income-tax Officer, Madras, is correct, and is hereby upheld. The criminal revision case of Mohammed Kunhi is dismissed. "
Reference was made to the decision of this Court to which we have already adverted to in K. Choyi, Income-tax Officer, Assessment iv, Calicut v. Syed Abdulla Bafakki Thangal and another 1973 (91) ITR. 144:1972 klt 1076 as well as to a decision of the Orissa High Court in Union of India v. Hadibandhu Das and others 1973 (91) ITR. 156. But the learned judge differed from the view taken in these two decisions. The view taken by the Madras High court has also been taken by the Madhya Pradesh High Court in the decision in pannalal v. Income-tax Officer, B-Ward, Chhindwara and others 1974 (93) ITR. 480. This exhausts the rulings on the subject that have been brought to our notice excepting the decision of the Supreme Court dealing with the ambit and scope of S. 132 in Income-tax Officer, Special Investigation Circle "b" Meerut v. Seth Brothers and others 1959 (74) ITR. 836. The dictum in that decision is the following: "since by the exercise of the power under S. 132 of the Income-tax Act, 1961, serious invasion is made upon the rights, privacy and freedom of the taxpayer, the power must be exercised strictly in accordance with the law and only for the purposes for which the law authorises it to be exercised. If the action of the officer issuing the authorisation or of the designated officer is challenged, the officer concerned must satisfy the court about the regularity of this action. If the action is maliciously taken or power under the section is exercised for a collateral purpose, it is liable to be struck down by the court. If the conditions for the exercise of the power are not satisfied the proceeding is liable to be quashed. But where power is exercised bona fide, and in furtherance of the statutory duties of the tax officers, any error of judgment on the part of the officers will not vitiate the exercise of the power. Where the Commissioner entertains the requisite belief and for reasons recorded by him authorises a designated officer to enter and search premises for books of account and documents relevant to or useful for any proceeding under the Act, the court, in a petition by an aggrieved person, cannot be asked to substitute its own opinion whether an order authorising search should have been issued. Any irregularity in the course of entry, search and seizure committed by an officer acting in pursuance of the authorisation will not be sufficient to vitiate the action taken provided the officer has, in executing the authorisation, acted bona fide. "
(3.) COUNSEL for the petitioner contended that the section must be strictly construed as it. contains a drastic provision permitting the invading of the privacy of an individual and deprivation of his property by seizure and merely for the purpose of imposing income-tax for which other elaborate machinery is provided under the Act; the proceeding has been characterised as summary and it was emphasised that the decision is almost final subject only to an appeal to the Board as provided by sub-section (11) of s. 132 of the Act. The normal remedy under the Act when tax is imposed which is claimed as unjustifiable is to file appeals, two of them and then seek a reference to the High Court with a further appeal to the Supreme Court if the high Court was satisfied that an appeal should be permitted as envisaged by s. 261 of the Act. Therefore it was submitted that we must construe the section so as to limit its scope and ambit. So construed it was contended that the procedure adopted in the two cases would not be justified. It was also contended that an officer who under the authority of law bad seized the monies cannot be said to be a person in possession against whom an order under sub-section (3) of S. 132 could be passed. It was vehemently argued that clause (c) of sub-section (1) of S. 132 will have no application against such an officer. It was emphasised that the provisions in the Customs Act and the Foreign exchange Regulation Act say that he who seized the articles must return the same to the person from whom it was seized.
We considered the question in all its aspects in the light of the elaborate arguments which lasted for more than a day. We think the problem has to be viewed in a different manner from which it has been looked at by the decisions that have been cited before us. When articles have been seized pursuant to a provision in a statute as long as the enquiry is pending the person who seized the articles will be in the position of a bailee. We have the authority of the Supreme Court in The State of Gujarat v. Memon Mahamed Haji hasam AIR. 1967 S. C. 1885 for this proposition. But once the proceedings were over that officer will no more be a bailee. The statutory obligation cast on him to return the article to the person from whom it was seized would come into operation. He would therefore be holding the article on behalf of the person from whom it was seized. If that be so, we think that under sub-section (1) (c)of S. 132 the articles can be seized from such person because his possession was on behalf of the person who had possession before seizure. The procedure followed namely the issuance of notice Ext. P1 in O. P. 2226 of 1972 and a similar notice Ext. P2 in O. P. 2884 of 1972 is only to demand that the money be handed over to the Income-tax Officer. Apart from that it is seen from the panchanama already referred to regarding the seizure after search of the customs Officer and a similar one regarding the obtaining of possession of the sum of Rs. 25,010. 15 the subject-matter of O. P. 2884 of 1972 that actual searches were made and seizure of the amounts effected. The word "search" in S. 132 (1) (c) (i) considering the object and scope of the section should not be given a far too technical meaning. The word search has varied meanings and we think it should be given the general meanings "to look for" or "seek" which are well-known meanings attributable to the word. S. 132 itself specifically envisages that a seizure can be had from a person other than the owner of the assets seized. A reading of sub-section (7) of S. 132 of the Act would make this clear: "132. (7) If the Income-tax Officer is satisfied that the seized assets or any part thereof were held by such person, for or on behalf of any other person, the Income-tax Officer may proceed under sub-section (5) against such other person and all the provisions of this section shall apply accordingly. ";