K.C.C.
Software Ltd. and Ors. Vs. Director of Income Tax (Inv.) and Ors. [2008] Insc
106 (29 January 2008)
Dr.
Arijit Pasayat & S.H. Kapadia
(Arising
out of SLP (C) No.3654 of 2007) Dr. ARIJIT PASAYAT, J.
1.
Leave granted.
2.
Challenge in this appeal is to the order passed by a Division Bench of the
Delhi High Court dismissing the writ petitions filed by the appellants.
3.
Background facts in a nutshell are as follows:
A
search and seizure was conducted by the respondents in the premises of the
appellants pursuant to warrants of authorization dated 3.8.2005. On 4.8.2005
certain assets including jewellery, cash and fixed deposit receipts were
seized. On that very day, appellants received a letter from the HDFC Bank at
B-28, Community Centre, Janakpuri, New Delhi that operation of five bank
accounts of appellant No.1 had been restrained by order issued under Section
132 (3) of the Income Tax Act, 1961 (in short the Act). The Bank
issued a similar letter to appellant No.3 intimating that the said appellant
had been restrained from operating her Savings Bank account by order dated
3.8.2005 passed under Section 132(3) of the Act. Appellants stand was that
existence of the lockers and the bank accounts were disclosed by the appellants
in the regular books of account maintained and no opportunity was provided to
establish the said fact. It was further submitted that the computers which
contained the details of the bank accounts were available at the business
premises at Janakpuri and no opportunity was allowed to the appellants to place
these before the authorities.
Grievance
is made that apart from the non grant of opportunity no effort whatsoever was
made to ascertain whether the accounts had been disclosed in the regular books
of account maintained by the appellants. On 8.8.2005 appellant addressed a
letter to the Additional Director of Income Tax stating inter alia that all
bank accounts under restraint have been disclosed in the regular books of
account and also that the restraint order was hampering the day to day
operations of the business of the company. On the same day, appellant No.3
wrote another letter to the concerned authority requesting him to remove the
restraint order in Savings Bank account. On 16.9.2005, appellant No.1 addressed
another letter to the Assistant Director of Income Tax (Investigation) again
reiterating its stand that the bank accounts have been disclosed in the regular
books of account and there was no justification for keeping the restraint on
the operation for the bank accounts.
4.
According to the appellants no reply was received to the letters dated 8.8.2005
and 16.9.2005 and the respondents did not make any effort to verify the
correctness of the appellants contentions. On 21.9.2005 appellant No.3
moved an application under Section 132(B) of the Act to the Deputy Commissioner
of Income Tax for release of jewellery worth Rs.4,76,588/- and FDR of
Rs.1,79,710/-. Since the nature and source was duly explained, the limitation
of 60 days in terms of Section 132(8A) expired w.e.f. 31.8.2005 i.e. the date
of issuance of the order of restraint. On 3.10.2005 appellant No.2 addressed a
letter to the Manager, HDFC Bank informing him that as per provisions of
Section 132 (8A) of the Act, the restraint order was no longer operative. On 4.10.2005
Bank through its Bank Manager sought clarification from the Deputy Director of
Income Tax. The Income Tax Department on 4.10.2005 issued two fresh warrants of
authorization under Section 132 of the Act in respect of the bank accounts. It
is alleged that the appellants were not informed about the warrants of search.
On 5.10.2005 the bank accounts of the appellants were searched and seized
through withdrawal of cash by demand drafts. Appellants stand in essence
is that the fresh warrants of authorization were without jurisdiction and in
any event since the accounts had been duly disclosed in the regular books of
account, there was no scope for operating Section 132 (3) of the Act. The
earlier order passed under Section 132 (3) of the Act ceased to be operative w.e.f.
2/3.10.2005. On 8.10.2005 the bank by a letter informed the appellants about
search and seizure of the bank accounts under Section 132 (3) of the Act and
also gave details of demand drafts issued in favour of respondent No.2
withdrawing the money from the accounts of the appellants.
5. On
28.10.2005 the appellants were supplied with copies of the Panchnama. On
29.10.2005 appellant No.1 requested the respondents to adjust towards self
assessment tax of Rs.77,68,177/- for the assessment year 2005-06 from the
seized amount of Rs.1,81,91,982/- and to release the balance.
On
29.11.2005 appellants Nos.1 and 3 moved an application under Section 132 (B) of
the Act for release of the amount seized on 5.10.2005 i.e. within 30 days of
the end of the month in which seizure took place. Several documents were filed
to substantiate the claim. Again on 16.2.2006 Income tax authorities were
requested for adjustment of Rs.40,00,000/- as advance tax for the assessment
year 2006-07 from the seized amount and to release the balance. Since the
respondents failed to respond to the requests of the appellants, writ petitions
Nos.6313-6315 of 2006 were filed inter alia for the following directions:
(a)
to respondents to release the balance amount of Rs.61,85,502/- to petitioner
No.1 after accepted adjustments;
(b) to
respondents to release amount of Rs.25,27,035 to petitioner No.3;
(c) quash
and set aside Warrants of Authorization dated 4.10.2005;
(d) declare
restraint order dated 3.8.2005 as illegal;
(e) release
FDRs/jewellery of petitioner No.3 seized on 4.8.2005.
6. The
respondents filed counter affidavit contending inter alia as follows:
(i)
Ist order of search and seizure was passed and served only on 4th August, 2005;
(ii)
The application dated 29.11.2005 had been disposed off vide order dated Ist
February, 2006 (which order was not communicated to the petitioners).
(iii)
It is contended that in the search and seizure operations carried out on
4.8.2005 authorized officer arrived at the conclusion that the Bank accounts in
question were undisclosed and immediately passed as restraint order.
(iv)
The respondent acknowledged that 60 days from the date of issue of restraint
order expired on 3.8.2005.
(v) It
is admitted that on 4.10.2005 warrants of authorization in respect of the same
accounts only were again issued by DIT.
(vi)
On the strength of such warrants and seizure operation on 4th and 5th October,
2005 amount of Rs.80,59,539, Rs.1,01,32,443 and Rs.25,27,035 respectively were
seized from the said Bank accounts.
(vii)
That the entries in the books of accounts etc. were 27.7.2005 and no entries
were found between 28.7.2005 to 4.8.2005 hence non disclosure in books of
accounts since books were not written for 5/6 days.
(viii)
It was alleged that the amounts lying in the Bank were not disclosed and not
accounted for and therefore there was no question of lifting the restraint
order.
7. A
rejoinder affidavit was filed on 2.11.2006 taking the stand that the order
dated 1.2.2006 was not served and there were apparent contradictions as regards
the search and seizure in the pleadings. By the impugned order the writ
petitions were dismissed observing that the respondents had taken a stand that
there was estimated tax liability of approximately Rs.10,00,000/-. The
satisfaction note dated 13.9.2005 of ADIT, Unit I and the notings of the
Director (investigation) clearly indicated that the stand of the appellants was
without substance.
8.
Learned counsel for the appellants submitted that the factual scenario clearly
shows that the authorities acted without jurisdiction in directing either to
retain the amount after adjustment of the self assessment and advance tax or
also withdrawing the amount by demand drafts from the bank accounts. The order
passed under Section 132B shows that it was retained for estimated liability.
Such a course is not available after deletion of the provision relating to
estimated liability in 2002. Similarly, the provisions relating to block period
assessments in Chapter XIV were deleted w.e.f. 1.6.2003. As the authorities
themselves permitted adjustment of self assessment and advance tax, there was
in effect release accepting the stand of the appellants and the balance amount
of Rs.81,00,000/- has perforce to be refundable. The power under Section 132(1)(iii)
relates to seizure and the proviso deals with assets which cannot be seized.
There is no dispute that Section 132 (3) read with Section 132 (8A) restricts
the period of operation of the order of restraint to 60 days. Section 132B
relates to adjusting liability on completion of assessment under Section 153A
and it is relatable to the year in which search and seizure was initiated and
block period in terms of Chapter XIV-B. Section 158 relates to retention and
not appropriation.
9.
Stand of the respondents on the other hand was that reference to Section 153A
in Section 132B shows that it relates to estimated liability. Though it is
accepted that the provision relating to estimated liability in terms of Section
132 (5) was deleted w.e.f. 1.6.2002, yet in view of Section 153B the period of
assessment is continuing. The amount even though withdrawn has not been taken
to the consolidated funds.
There
is no appropriation in that sense.
10. It
was stated that the order passed under Section 132 (3) was revoked but a fresh
order was passed. The money has been withdrawn in terms of Search and
Seizure Manual, 1989, particularly Paras 5.01 and 5.02 thereof. The
adjustment that has been done is for existing liability. There is no
appropriation in that sense because it can be done only after assessment is
completed by transfer.
11.
Stand of the appellants essentially was that there is no power for retaining
any amount seized for the purpose of meeting estimated liability. That
according to the appellants was permissible upto 1.6.2002 and by deletion of
Section 132 (5) the position has been materially changed.
12.
Stand of the revenue on the other hand seems to be that what is appropriated
can be cash and not money. The bank account in essence is not cash but is
money. There are different stages under Section 132 (1). First stage is
seizure, then comes adjudication on the non disclosure aspect and then
determination relatable to Section 132 (8A). Lastly, the order can be passed
under Section 132B. It has been specifically stated by learned counsel for the
revenue that Section 132(3) order was revoked. It is stated in para 10 of the
affidavit filed on 15.11.2007 as follows:
That
it is submitted that in the instant case the power under Section 132(3) was
exercised at the initial stage for the purposes of verification of the source
of funds lying in the bank account. Thereafter, when the assessee was unable to
satisfactorily explain the source of these funds, the same were seized under a
fresh warrant under Section 132(1) issued by the Director of Income Tax (Inv.),
who duly recorded his satisfaction as provided under Section 132 (1)(c).
13. In
paragraph 11 it has been stated as follows.
It
is submitted that an Authorized Officer acting under Section 132 (1)(iii) of
the Act has full power and jurisdiction to seize cash balance lying in bank
account as these would come within the meaning of money and/or
assets as provided under Section 132 (1)(iii) of the Act. It is
submitted that the subsequent action of converting these balances into a demand
draft is only a safeguard for safe custody of these assets and is irrelevant to
the legality of the seizure itself. It is therefore submitted that in the
instant case, the seizure was made legally and as per the powers vested in the
Director of Income Tax (Investigation), respondent No.1 under Section 132 (1)
of the Act.
14.
The Search and Seizure Manual to which reference has been made deals
with in Chapter V under heading Post Search Work. The relevant paras
5.01 and 5.02 read as follows:
5.01
After the return of the search parties, a check list should be prepared for
pending and immediate follow up work. The check list may inter alia include:-
(a)
List of places where search has to be continued.
(b) Details
of bank lockers sealed and to be opened subsequently.
(c)
List of places where valuables are sealed in premises itself on the ground that
verification with Wealth-tax records is not possible or pending valuation of
assets.
(d)
List of godowns holding stocks, in respect of which prohibitory orders have
been issued.
(e)
List of places where police guards have been posted.
(f)
Details of bank accounts which have been frozen under Section 132 (3).
(g)
List of places where further section has to be taken for any other reason.
(h)
List of promissory notes, fixed deposits receipts, Hundies etc. requiring
special attention.
(i)
Details of packages of cash which are to be deposited into the Personal deposit
Account in the Reserve Bank/State Bank.
(j)
Details of packages of bullions, jewellery etc. required to be deposited in the
strong room/safe deposit vault of the bank.
(k)
Work regarding valuation of jewellery seized.
(l)
Details of sealed covers containing damaged/mutilated documents.
(m)
Particulars of complaints filed in police, as result of any incident during the
search, which are required to be followed up.
5.02
Deposit of Cash The cash seized is required to be deposited in the bank in the
Personal Deposit Account of the Commissioner, at the earliest opportunity
preferably on the next working day. However, if due to unavoidable reasons, it
is not possible, the cash with other valuables may be kept in the strong room
of the Commissioner or the safe deposit vault of the bank. Where cash has been
brought in sealed packet, it is expected that the authorized officer has
already issued a letter to the assessee requesting him to be present before the
ADIT-in-charge on the following morning before 12 O clock. Where the cash
seized relates to an assessee who is assessed in the charge of some other
Commissioner, a crossed account payee demand draft in favour of the concerned
Commissioner should be obtained and dispatched to him.
15. It
is stated that amount has not become a part of the Consolidated Fund of India
and is deposited in separate PD account of the concerned Commissioner and is
held in the custody till final determination of the tax liability by the
assessing officer for the relevant assessment years.
16. On
a bare reading of the Manual it is clear that the same is relatable to cash
seized and cash in bank is conceptually different from cash in hand.
17. In
Shanti Prasad Jain v. The Director of Enforcement (1963 (2) SCR 297) it was
inter alia observed as follows:
Under
the law the time relationship between a Banker and a customer is that of a
debtor and creditor and that it makes no difference in that relationship that
the deposits were conditional.
xx xx xx
Now the law is well settled that when moneys are deposited in a Bank, the
relationship that is constituted between the banker and the customer is one of
the debtor and creditor and not trustee and beneficiary.
The
banker is entitled to use the monies without being called upon to account for
such user, his only liability being to return the amount in accordance with the
terms agreed between him and the customer. And it makes no difference in the jural
relationship whether the deposits were made by the customer himself, or by some
other persons, provided the customer accepted them. There might be special
arrangement under which a Banker might be constituted a trustee, but apart from
such an arrangement, his position qua Banker is that of a debtor, and not
trustee. The law was stated in those terms in the old and well- known decision
of the House of Lords in Foley v. Hill (1848 11 H.L.C. 289 E.R. 1002) and that
has never been questioned.
18. In
the judgment of House of Lords in Foley v. Hill [(1843 to 1860) All E.R.
Re-print 16] referred in the aforesaid judgment of the Constitution Bench, it
was inter alia held as under:
Money,
when paid into a bank, ceases altogether to be the money of the owner, it is
then the money of the banker, who is bound to return an equivalent by paying a
similar sum to that deposited with him when he is asked for it. The money paid
into the bankers, is money known by the customer to be placed there for the
purpose of being under the control of the banker; It is then the bankers
money; he is known to deal with it as his own; he makes what profit on it he
can, which profit he retains to himself, paying back only the principal,
according to the custom of bankers in some places, or the principal and a small
rate of interest, according to the custom of bankers in other places. He is
guilty of no breach of trust in employing it, he is not answerable to the
customer if he puts it into jeopardy, if he engages in a hazardous speculation;
he is not bound to keep it or deal with it as the property of the customer, but
he is, of course, answerable for the amount because he has contracted, having
received that money, to repay to the customer, when demanded, a sum equivalent
to that paid into his hands. That has been the subject of discussion in various
cases, and that has been established to be the relative situation of banker and
customer. That being established, to be the relative situation of banker and
customer, the banker is not an agent or factor, but he is a debtor.
19. At
this juncture, it is to be clarified about the impermissibility to convert
assets to cash and thereafter impound the same. We need not go into the broader
issue in view of the fact that there is no challenge to the order passed under
Section 132B of the Act. But it has been stated by learned counsel for the
revenue that it is permissible to complete the assessment by 31st March, 2008.
In view of the aforesaid scenario, we dispose of the appeal with the following
directions:
(i) In
view of the non challenge to the order passed under Section 132B, no relief can
be granted to the appellants.
(ii)
However, it would be in the interests of the assessee as well as the revenue if
the amount transferred to the PD account of the Commissioner is kept in
interest bearing fixed deposit as ultimately in the event the assessee
succeeds, would be entitled to interest as provided in the statute. The
assessment has to be completed on or before 31st March, 2008 i.e. within the
time statutorily provided.
20.
The appeal is dismissed subject to the aforesaid directions. There will be no
order as to costs.
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