Shivangi Tiwari
Harmonizing the Interests of Individuals and Tax Officials by Circumscribing the Use of the Power of Search and Seizure
Introduction
In common parlance, the term search means the act of seeking or looking out for something. While the term seizure means taking away the possession of some goods. The term raid is usually used for denoting the act of searching under the income tax view-point. However, under the Income Tax Act, there is no such term as a raid. In the modern ages, there have been great changes in the ambit of the prime functions of the government. The government today of all the major countries have adopted the role of a well fare nation than being a police state where the only function was the safety of the people residing in the territory. This transition from the police state to the welfare state has increased the socio economic responsibility of the state to many folds.
This increase in the socio economic responsibility of the state has resulted into the increased need of the functional cost. This cost is obtained by the government by the means of taxes. Though, it is the duty of each citizen to do its bit in the promotion of the welfare of the country by the timely paying their taxes, but a lot of people usually try to escape the duty. This evasion of taxes results into the running of a parallel economy in the country. Therefore, the need for creation of the income tax authorities and vesting them with the powers to keep a check on the tax evaders and the holders of the black money arises. The power of search and seizure is one such tool with the income tax authorities.
The present study, the author has aimed to:
- Bring out the meaning of the authority of search and seizure under the Income Tax Act,
- Judiciary’ s view towards the validity of the power,
- The way in which the private interest of the people be balanced with the interest of the society and
- Finally, the assessment along with some recommendation as to the role of the search and seizure in curbing the black money in the country has been made.
Meaning of Search and Seizure
The act of search connotes the exploratory exercises which are undertaken by the income tax officials who try to find out some hidden income or wealth in any person’s place who is hiding his real state of financial affairs as a means of avoiding the tax. Seizure denotes the act of taking away the possession of any document, thing, asset which has been undisclosed by a person who tried to avoid the tax. Thus, the search and seizure is a powerful tool of unveiling the concealed income and valuables provided to the officials of the income tax department. Section 132 of the Income tax Act contains provisions relating to the search and seizure. Section 132 empowers the Principal Director General or Director General or Principal Director or Director or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner to authorize proceedings under this section. The authorities who have been conferred with the power of initiating the search can authorize any officer below the rank of an income tax officer to conduct the search procedure.
The officers who have been authorized to conduct the search operation have following powers:
- The authority to enter into the building, place, vehicle, or any other place which they suspect could be a place for hiding;
- The income tax officers are also authorized to break open any lock o door, building or any other receptacles;
- To search any person who has entered, got out or in the building or place where the search operation is being carried out;
- To enable any person to facilitate any officer to inspect any book or document that is of some value to the income tax department;
- The income tax officers can seize any book, a document, account, or any money which they have found as a result of the search which was made by them;
- The income tax officers can also administer the oath of any person found to be in possession of any document, record or any other unrecorded asset. This oath can be used by the officers as having evidentiary value.
Some additional powers and duties of the income tax officers have been enlisted in Section 132 of the income tax act, 1961.
Judicial approach towards the law relating to search and seizure
Since interception of the law relating to the search and seizure, the judiciary’s view has always been inclined towards circumscribing the power of search and seizure with the income tax authorities:
The Validity of the law on constitutional touchstone
The question as to the constitutional validity of the provisions relating to search and seizure has time and again appeared before the court. The judicial approach in relation to the relevant provisions of te constitution of India are as follows:
Article 14
Article 14 of the constitution guarantees equality before law and equal protection before the law. It is a well-settled principle that this section does not prohibit class legislation provided that there has been intelligible differentia. In Khandge Sham Bhatt v. Agricultural Income-tax[1], the Supreme court examining the applicability of Article 14 on the taxation law concluded that keeping in view the inherent complexities present in the system, legislation is entrusted with wide discretion in matters of classification. Till the time the actions of the legislature are not violative of the fundamental rights of citizens. Similarly, the Supreme Court in Pooran Mai v. Director of Inspection[2] set aside the petition for declaring sub sections 1 to 5 of section 132 of the income tax act as being violative of article 14 of the article.
Article 19 article 20(3)
In suraj mall mahta and co. v. A.V. Vishwanatha[3], the constitutional validity of general laws relating to the search and seizure were challenged on the ground of them being violative of article 19(1)(f) and article 20(3). The court negative the contention that search by itself does not amount to the restriction on the right to hold the property. While, seizure merely constitutes the temporary restriction on the possession and enjoyment of the property. While, analyzing the provision relating to self-incrimination under section 20, the court opined that the power of search and seizure constitute overriding powers guaranteed to the state to protect the social interest of the society. This is the very purpose of the law in the society. Therefore, the provision can not be drained out as being unconstitutional.
Similarly, in Commissioner of Commercial Taxes v. Ram Kishan Shrikisan[4], the Supreme Court held that whenever the legislature enacts any law under the seventh schedule of the constitution. It becomes eligible to enact some ancillary rules to it in order to work out the laws which it made.
Article 21 and 31
In Venkata Reddy v. I.T.O[5] the Supreme Court held that the fiscal authorities should be granted huge powers in the interest of the welfare of the citizens of the country. Therefore, both on the score of legislative Competence and the test of being in accordance with, and is not violative of the fundamental rights guaranteed under part III of the Constitution, section 132 of the Act is a valid.
Balancing the Interest of Individual and Interest of Society
There are two prominent measures in order to minimize the inevitable clash between private individuals and the income tax officers which results from the collision of interests of the private individuals and the interest of the society.
1. The first and the foremost step to be undertaken is safeguarding the people from arbitrary actions of the income tax authorities. The actions of the income tax officers may be struck down in case it violated the Section 132 of the income tax act, rules which are made under and the provisions under the criminal procedure code. Various courts have specifically laid down the provisions against the arbitrary act of the income tax officers.
2. Secondly, the interest of the individual assessee can be preserved by guaranteeing him redressal in case he is subjected to some unfair practices by the income tax officials.
The two measures have been discussed in great details below:
Curbing the Arbitrary Actions of the Income Tax Officials
In the Surajmal’s case, the court sequentially laid down the procedures and rules relating to search and seizure. The decision of the court has been summed up below:
- The commissioner of income tax who is considered to be a high official only has been entrusted with the power to authorize anyone to make search operations;
- The commissioner is bound to authorize an officer specifically in every case and not generally;
- The authorization so make must be backed by reason that certain assets can be found;
- The commissioner has to specify to the authorized officer, the place where he has to carry out search;
- The power granted under Section 132 can only be followed after there has been a reasonable belief by the authorizing officer that any of the three conditions under Section 132 exists;
- The officer prior to the search and seizure must record the reason for which the search should be carried out;
- The authorization must be made for specific purposes which are mentioned under Section 132(1) of the Act;
- The person from whose possession the documents are seized has the right to take the extracts;
- The search must be carried out in the presence of two or more person of the place where the search is being conducted.
In Income-tax Officer v Seth bros[6]., the court admitting that by the exercise of the powers of search and seizure constitute a grave invasion of the right to privacy observed that the powers which are guaranteed to the income tax authorities must exercised in accordance with the various safeguards and limitations which are provided under the various statutes. The court has the power to strike down any overtly malicious act which is contrary or which exceeds the powers which are granted to the authorities.
In H.L. Sibal v. C.I.T.[7], “the High Court of Punjab and Haryana quashed the proceedings initiated against an advocate under section 132(5) after they were founded on lack of information, and been exercised for collateral purposes. The court even directed the issuance of show cause notice as to why complaint under section 193 of the Indian Penal Code should not be filed against them.”
In I.T.O v. Seth bros., the court directed the income tax authorities to apply their prudence and sieze mostly those documents which have relevance to the proceedings.
In SC Sibal’s case, the court quashed the search carried on by the authorized officer where he seized the cash and jewellery conforming to the instructions which were given to him over phone. The court holding the act of the officer to be carried on under extraneous orders from unauthorized officer observed that there was no application of the brain on the side of the authorized officer.
Similarly, the court in Jagmohan Mahajan v. C.I.T.[8], quashed the search and seizure proceedings where the warrant was general in nature as the person whose premises were to checked was not named.
In Anand Swaroop v. C.I.T[9]., the court quashed the inquisitorial searches on the ground of them being against the morals of a civilized society as they were done solely on the question as to why the assessee was not rich.
Remedies Available to the Assessee
1. Civil suit
The income tax act, 1961 under Section 293 prevents an assessee from bringing a civil suit for modifying or bringing aside an order which is made under the Act. In C.I.T. v. The Tribune Trust[10], the court reaffirmed the section 293 holding that an assessee has to find the remedy under the income tax act only to redress any of his grievance. The same position of the law was also laid down in State of Kerala v. Ramaswami Iyer.[11]
However, with passage of time and the rise of the similar questions before the courts. The Supreme Court who is the guarantor of the fundamental rights under part 3 of the constitution, modified the position in Bharat Kala Bhandar (P) Ltd. v. Municipal Committee[12]. The court held that the courts are vested with the powers for trial of a suit which is made against the validity of the provisions o the law under which the assessment is made and regarding the refund of money which has been confiscated under the mistake of facts. This decision of the court rested on two grounds, which are:
1. Where the act of the authorities is ultra vires, that cannot be regarded as the act committed under the aegis of the authority granted to it under the act;
2. The authorities created under the act cannot deny the validity of the act committed under the provisions of the income tax act. Therefore, the Supreme court and the high courts are vested with the jurisdiction of deciding the validity of the acts.
2. Writ jurisdiction
The High court and the Supreme courts of India have been conferred with various writ jurisdictions under “Article 226 and Article 32 of the constitution of India”. However, the Supreme Court has the power to issue writs only in cases of violation of the fundamental rights. Any aggrieved assessee also has the option of invoking writ jurisdiction of the courts. The high courts, may issue various writs to safeguard the rights of the aggrieved where it is found by the court that the income tax authorities have acted in a manner contrary to the powers granted to it under the law.
The high court can order the writ of prohibition to limit stop the income tax authorities who have overridden their authorities. It may also compel the tax authorities to do their work by issuance of the writ of mandamus, the court can quash the quasi judicial proceedings of the income tax officials which exceed their jurisdiction by issuing the writ of certiorari. The court can issue the writ of quo warranto and make the income tax officers to give the justification for conducting a proceeding which aggrieved the assessee.
The limitation which is imposed by Section 293 o the income tax act, 1961. Which mandates that an aggrieved assessee has to find the redressal of his grievance under the fences of the act only.
Black Money and Parallel Economy
The black money has not been defined anywhere in the statutes but it usually means the unaccounted money. The movement, use or origin of such money is not disclosed by the person having such money so as to avoid and escape taxation. Such money is usually received from the parallel economy or underground economic activities.
The parallel economy arises from the fact that the unaccounted money or the black money can not be transacted in the normal economy as doing so will bring the person having such money in the eyes of the government. Therefore, in order to avoid the eyes of the government such a parallel economy is created. The black money is transacted parallel to the government system devoicing citizens and the government of its rightful share. There are a number of reason which have resulted in the piling up of the black money in the country. Some of the prominent of those are as follows:
- Due to the increased amount of the tax deduction in the country, people are not in favor of giving huge portions of their hard earned money;
- People are apprehensive of the fact that the amount of money which they will pay as taxes will not be utilized adequately in their favor;
- The ways in which the income tax officials treat people is not very nice;
- Some part of the money which the income tax officers forfeit as a result of the search and seizure operation is usually retained by them;
- The authorities which are assigned the search and seizure responsibilities are not always well versed with the laws relating to the same;
- The income tax proceedings are not obliged with the rules of natural justice and due to this the inherent biasness of the mind of the deciding authorities’ creeps into the judgment.
The power of the search and seizure has greatly contributed to the holding out of black money holders. It is evident from the information recently furnished by the government to the Supreme Court where it states that the income tax department has disclosed close to Rs 71,941 crore undisclosed income. The affidavit released by the Finance Ministry said that during the three year period, searches were undertaken by the IT department in over 2,027 groups “which led to the admission of undisclosed income of more than Rs 36,051 crore”.
The recent facts and figure clearly indicate the invaluable contribution of the income tax department in the prevention of the parallel economy which runs in a country due to the presence of black money.
Conclusion
The main objective of taxation of the income tax is the welfare of the country and the people. Though, it is the duty of each citizen to do its bit in the promotion of the welfare of the country, but a lot of people usually try to escape the duty so that they don’t have to shell out any money from their pockets. This evasion of taxes results into the running of a parallel economy in the country. Therefore, the creation of the income tax authorities and vesting them with the powers to keep a check on the tax evaders and the holders of the black money. The power of the search and seizure has greatly contributed to the holding out of the black money holders. However, there have been numerous instances of the abuse of power by the income tax authorities.
The reason for such abuse for power is that, most often people who have the black money have a lot of power and status in the society and due to this reason the officers of the income tax department who are not at par with them usually fall prey to the greed served to them as bait. Also the other reason is that the quasi judicial function of the income tax authorities of deciding the cases before them is prone to a lot of criticism due to the inherent biasness the proceedings arising from the non application of the principles of natural justice. Keeping all these points in mind it appears to be the need of the hour that the government frames policies which adequately addresses and drives away all these shortcomings.
[1] 1963 AIR 591
[2] AIR 1974 SC 348
[3] (1954) 26 ITR 1 (SC)
[4] AIR 1968 SC 59 A
[5] (2014) 5 SCC 328
[6] 1979 118 ITR 917 AP
[7] 1975 101 ITR 112 P H
[8] 1976 103 ITR 579 P H
[9] 1976 103 ITR 575 P H.
[10] (1948) 50 BOMLR 566
[11] 1966 AIR 1738
[12] 1966 AIR 249
