Kerala HC allowed release of cash seized in full by Income Tax Department

Fact and Issue of the case

On 12.03.2017, while conducting vehicle inspection at Tholpetty Check post, Excise Officials found that the 2nd respondent is carrying cash of Rs.50 lakhs without any proper supporting documents. Consequently, the 2nd respondent was produced before the Sub Inspector of Police, Thirunelly and F.I.R. was registered as Crime No.126/2017 of Thirunelly Police Station. The amount was also seized and the same was produced before the Judicial First Class Magistrate Court-II, Mananthavady. Upon getting information from the Inspector of Police, Thirunelly, Income Tax authorities has issued summons to the 2nd respondent under Section 131 of the Income Tax Act seeking to explain the source of the said amount. He stated that the seized cash was not his money and it was handed over to him by his friends for starting a super market at Banglore. The details of the said persons were also furnished. After conducting an inquiry, the income tax authorities found that the 2nd respondent failed to explain the source of the same properly and therefore it was decided to initiate proceedings against him. As part of the same, a notice of requisition was issued to the Sub Inspector of Police under Section 132A(1)(c) of Income Tax Act, directing him to deliver the same to the Requisitioning Officer. However, it was informed by the Sub Inspector of Police that the amount is already deposited before the Judicial First Class Magistrate Court, Mananthavady and the same is in the custody of the court.

Observation of the court

The question arises in this case is as to the entitlement of the petitioner to have the amount released in their favour, under Section 451 of the Cr.PC. The claim was made by the petitioner by relying upon Section 132-A(i)(c) of the Income Tax Act. The aforesaid provision enables the authorized officer of the Department to make a requisition before any authority who is in possession and control of any assets of any person, which has not been disclosed to the Income Tax authorities for the purposes of Income Tax Act. In this case, by invoking the aforesaid powers, the petitioner had already sent a notice to the Sub Inspector of Police, Thirunelly in this regard, but by the time the notice was served upon the Sub Inspector of Police, who has seized the amount from the 2nd respondent, the amount was already deposited before the Judicial First Class Magistrate Court, Mananthavady. A petition under Section 451 of the Cr.PC was submitted in the above circumstance.

The scope of Section 451 is with regard to the interim custody of the article or asset produced before the learned Magistrate during the course of investigation in a crime. It is a well settled position of law that while deciding the question of releasing the said article, proper course open to the Magistrate is to ensure that it is entrusted to a person who can preserve the same and title of the party over the same need not be decided. In Suresh Serve V vs. State of Kerala [2020(3)KHC 41], this Court considered the scope of Section 451 of Cr.PC. The above observation was made by this Court after referring to large number of judicial precedents in this regard. From the above, it is evident that, it is not necessary that the articles are to be released to the person from whom the same was seized. What is relevant is the security of the same and whenever it appears to the court that the security of the said article is at stake, the person with whom the aforesaid entrustment was made can be directed to return the said document. The question that arises here is to be considered in the light of the above legal principles.

Thus, the question that arises herein is as to the proper person who can be entrusted with the custody of the amount involved in this case. It is evident that even though the amount in question was seized from the possession of the 2nd respondent, apparently, he could not explain the source of the same. Failure to explain the source warrants a proceeding under the Income Tax Act by the appropriate authorities under the said Act. In such circumstances, the petitioner herein is having all the authority to initiate proceedings against the 2nd respondent by issuing a notice under Section 131 of the Income Tax Act. Since the amount was seized by the Sub Inspector of Police, a notice under Section 132A(1)(c)was also a remedy available to the petitioner herein which they have already invoked. However, further proceedings pursuant to Section 132-A could not be continued because of the fact that by that time, the amount was entrusted with the custody of the court.

Even though all the aforesaid statutory provisions were brought to the notice of the learned Magistrate, the application submitted by the petitioner was dismissed by holding that the interest of the petitioner can be secured by allowing retention of the 30% of the total amount involved therein. While considering this issue, the procedure to be followed by the Income Tax Authorities after initiating proceedings under Section 132A is very much relevant. Section 132-B of the Income Tax Act provides for the manner in which the assets seized under Section 132-A is to be dealt with.

Going by the aforesaid provisions, it can be seen that, any person who has a claim over the aforesaid asset or money can submit an application before the Assessing Authority within 30 days from the end of the month in which the asset was seized. If a person who is claiming the said amount is able to convince the assessing authority as to the source of acquisition of the same, he can get the aforesaid amount back. Apart from the above, Section 153A of the Income Tax Act contemplates for a detailed procedure for assessing the tax payable on the amount. The said procedure contemplates for issuance of notice to the person from whose custody the amounts were seized and after hearing him, an assessment in this regard can be completed. Upon completion of such assessment and after deducting the tax or any other penalty payable by the assessee, the remaining amount can be released to the said person. Thus from all the above statutory provisions, it is evident that, even if the amount which is the subject matter of the dispute in this case is released to the petitioner herein, there is a specific procedure contemplated for getting the amount released in favour of the 2nd respondent, from whose custody the amounts were seized. The only stipulation is that, for getting the aforesaid amount released in favour of the 2nd respondent, he has to convince the authorities as to the source of income and to pay the amount of taxes which is assessed on the said income in accordance with the provisions of the Income Tax Act.

On the other hand, if the amount is released to the 2nd respondent herein, it is likely to cause difficulties in initiating proceedings under Section 132-A and the further proceedings thereon. Therefore, the balance of convenience is in favour of the petitioner herein which was not taken into consideration by the learned Magistrate. The question of balance of convenience arises because, as far as the proceedings under Section 451 of the Cr.PC is concerned, it is relating to the interim custody of the asset alone and it is not intended for taking a decision on the question of the title/right of the parties over the articles. Therefore, the relevant consideration is as to who is the proper person with whom the amount can be entrusted. Since the petitioner herein is a statutory authority armed with various powers including those under Sections 132-A, 132-B and 153A of Income Tax Act, preference should have been given to the petitioner in the facts and circumstances of the case. Thus the learned Magistrate committed a mistake in this regard.

It is true that even while dismissing the application submitted by the petitioner herein, the learned Magistrate ordered to retain 30% of the amount for securing the interest of the Income Tax Department. Apparently, an amount of 30% was fixed under the impression that the same would take care of the amount likely to be payable by the 2nd respondent towards tax element. However, such an exercise is beyond the scope of the jurisdiction under Section 451 of the Cr.PC and was unwarranted. The liability of tax is to be determined by the authorities concerned under the Income Tax Act after completing the proceedings contemplated therein. If it is found that there was an attempt to evade the payment of tax, in addition to the tax liability at higher rates, there are provisions for imposing penalty as well. In such circumstances, the amount actually payable by the 2nd respondent is likely to exceed far beyond 30% of the amount as fixed by the learned Magistrate. In such circumstances, the order to retain 30% of the amount cannot be treated as an order which takes care of the interest of the petitioner herein. It is evident from the facts that, the petitioner was having in his possession, huge amount of cash, which by itself is a violation of the provisions of Income Tax Act. Apart from the above, so far, he failed to explain the source of the said income to the satisfaction of the competent authorities viz. the income tax authorities.

In such circumstances, the proper course which should have been adopted by the learned Magistrate is to order the release the said amount to the petitioner herein so as to enable the parties to undergo the procedure contemplated under Sections 132-A, 132-B or 153A of the Income Tax Act as the case may be. It is true that the amount was seized from the 2nd respondent, but by virtue of the provisions of the Income Tax Act, he was bound to disclose the source of the same before the authorities and to pay the tax, as per the rates applicable. Apparently no such exercise is done in this case, at the instance of the 2nd respondent and hence proceedings under section 132-A or 153A are necessitated. Even if the said amount is released to the petitioner herein, it is possible for the 2nd respondent to make a claim of the amount, by following the procedure prescribed in the Income Tax Act. But if the amount is released to the 2nd respondent, it may cause difficulties in implementing the provisions of the Income Tax Act. In such circumstances, I am of the view that Annexure-B order passed by the learned Magistrate is to be set aside.