Supreme Court of India
Pooran Mal Etc.
Vs.
Director of Inspection (Investigation) Of Income-Tax
Date of Judgment- 14/12/1973
Citation – 1974 AIR 348, 1974 SCR (2) 704, 1974 SCC (1) 345
BENCH: D.G. PALEKAR, A.N.RAY (CJ), Y.V. CHANDRACHUD, A. ALAGIRISWAMI, P.N. BHAGWATI
ACT: Income Tax Act (1961)-Sections 132, 132A and Rules 112, 112A-Search and seizure-Whether violate Art. 19(1)(f) and (g) of the Constitution.
Income Tax Act 1961, Sec. 132(5)-Seizure of money, bullion, etc.-Whether provision confiscatory.
Income Tax Act, 1961, Sec. 132(1) and (5)-Search and seizure- Whether provisions hit by Art. 14 of the Constitution for following different procedure for the evaders of tax, who are believed to be in possession of undisclosed income or property and evaders against whom no such belief is entertained by the authorities.
Income Tax Act 1961, Sec. 132-Whether evidence gathered from the illegal seizure of documents is excluded at the trial- Whether a writ of prohibition to restrain the use of such evidence can be granted.
Income Tax Act 1961, sec. 132–“Reason to believe”-Whether Director of Inspection can entertain reasonable belief as not being directly connected with the assessment-Whether the Director can entertain necessary belief for ordering search and seizure where the assessment was already completed.
Income Tax Act, 1961, Sec. 132-Seizure of irrelevant documents-Whether renders the search invalid.
HEADNOTE:
In the proceedings before the Supreme Court two of them being writ petitions under Art. 32 of the Constitution and two others being appeals from the orders of the Delhi High Court in writ petitions under Art. 226-relief was claimed in respect of the search of certain premises and seizure of account books, documents, cash, jewelry and other valuables by Income-tax authorities purporting to act u/s 132 of the Income Tax Act, 1961. The petitioners/ appellants challenged the validity of Sec. 132(1) and (5) of Rule 112(A) on the ground that they violate Art. 14, Article 19(1)(f) and (g) and 31 of the Constitution. It was also contended that a writ of prohibition to restrain the authorities from using the ‘information gathered from the documents seized should be issued. In the writ petitions, the actual search and seizure were challenged on the ground that they were carried out in contravention of the provisions of Sec. 132 and Rule 112-A.The Court negative all the contentions. Dismissing the writ petitions and appeals,
HELD: (1) When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Art. 19(i) (f) and (g), one cannot possibly ignore how such evasions eat into the vitals of the economic life of the community. Therefore, in the interest of the community, it is only right that the fiscal authorities should have sufficient powers to prevent tax evasion. As a broad proposition, it can be stated that if the safeguards while ‘carrying out search and seizure are generally on the lines adopted by the Criminal Procedure Code they would be regarded as adequate and render the temporary restrictions imposed by these measures as reasonable. On detailed examination of the provisions of Sec. 132, and Rule 112, it is clear that the Safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, therefore, relating to search and seizure in Sec. 132 and Rule 112 cannot be regarded as violative of Arts. 19(1)(f) and (g).
In the course of his duties, the Director of inspection has ample opportunities to follow the course of investigation and assessment carried on by the income Tax Officers and to check the information received from his sources with the actual material produced or not produced before the assessing authorities. It is not, therefore, correct to argue that the Director of Inspection could not entertain honest and reasonable belief before ordering search and seizure under Section 132(1)(a)(b) and (c). The second proviso to sub-section (5) of Sec. 132 shows that the assessee can get a release of all the assets seized if he can make satisfactory arrangements for the payment of the estimated dues. So also, the excess collection is refundable u/s 132-A with interest after the regular enquiry. The provisions of Section 132(5) are not confiscatory in nature.
M. P. Sharma v. Satish Chandra [1954] S.C.R. 1077 and Commissioner of Commercial Taxes v. R. S. Jhaver [1968] S.C.R. 148 followed.
(II) The provisions of Section 132(1) and (5) cannot be challenged on the ground that they make unjust discrimination between two sets of tax evaders in .ordering search and seizure or retention of the seized wealth for recovering the tax, in some cases and not ordering the same in other cases. All evaders of taxes can be proceeded against u/s 132. Only in some cases, the search may be useful because of the information about the undisclosed income and wealth. Where there is no such information, search and seizure would be futile. Therefore, there is no substance in the contention that two different procedures for assessment are adopted an hence there is discrimination under Art.
C. Venkata Reddy and Another v. Income-tax Officer, (Central) 1, Bangalore, and others, 66 Income-tax Reports, 212 and Ramjibhai Kalidas V.I. G. Desai, Income-tax Officer, and others, 80 Income-tax Reports, 721, cited with approval.
(III) The Income-tax authorities can use as evidence any information gathered from the search of the documents and accounts and articles seized. Neither by invoking the spirit of our Constitution nor by strained construction of the fundamental rights can we spell out the exclusion of evidence obtained on an illegal search.
A. K. Gopalan v. State of Madras, [1950] S.C.R. 88 and M. P. Sharma v. Satish Chandra [1954] S.C.R. 1077.
Courts in India and in England have consistently refused to exclude relevant evidence merely on the ground that it is obtained by illegal search or seizure. Where the test of admissibility of evidence lies in relevancy, unless there is an express or implied prohibition in the Constitution or other law, evidence obtained as a result of illegal search or seizure is not liable to be shut out.
(IV) In writ petition No. 446171, on facts it was found that the allegations of mala fide and oppressiveness and highhandedness in search and seizure were not proved. On examining the records, held that the petitioner was not co- operating with the Director of Inspection.
(V) Held further, that seizure of books of account and other documents which were afterwards found to be not relevant, along with the documents relevant for the enquiry, does not make the search and seizure illegal. It may at the most be an irregularity. On the material on record, the Director of inspection had proper grounds for a belief for ordering search and seizure under sub-clauses (b) and (c) of sub-section (1) of Sec. 132. Merely because the assessment for the relevant year was already completed, it does not mean that on the information in the possession of the Director of Inspection, he cannot entertain the necessary belief. On facts, in Writ Petition No. 86/72 held the search and seizure were neither oppressive nor excessive.
Judgment
ORIGINAL/CIVIL APPELLATE JURISDICTION: Writ Petition Nos 446 of 1971 and 86 of 1972.
(Under Art. 32 of the Constitution for the enforcement of fundamental rights).
Civil Appeals Nos. 1319 and 1320 of 1968.
From the Judgment and Order dated the 22nd March, 1968 of the Delhi High Court in Writ Petitions Nos. 798-D and 800-D of 1966.
N.D. Karkhanis and Ram Lal, for the petitioner (in W.P.
N. D. Karkhanis, Balram Sanghai, A. T. M. Sampath, M. M. L Srivastava and E. C. Agarwala, for the petitioner (in W.P. 86/72).
F. S. Nariman, Additional Solicitor General of India, B. B. Ahuja and S. P. Nayar, for the respondents (in both W.Ps.) M.C. Chagla, L. M. Singvi, S. Sadhu Singh, Jagmohan Khanna R. N. Kapoor, Nirmala Gupta and Mohinder Kaur and Veena Dev Talwar, for the respondents (in appeals). F.S. Nariman, Additional Solicitor General of India, S. T. Desai. B.B. Ahuja and S. P. Nayar, for the respondents. (in appeals) The Judgment of the Court was delivered by PALEKAR, J.-In these proceedings-two of them Writ Petition under Article 32 of the Constitution and two others which are appeal from orders passed by the Delhi High Court under Article 226relief is claimed in respect of action taken under section 132 of the Income-tax, Act, 1961 (hereinafter called the Act) by way of search and seizure of certain premises on the ground that the authorisation for the search as also the search and seizure were illegal. The challenge was based on constitutional and non-constitutional grounds For the appreciation of the constitutional grounds it is not necessary to give here the detailed facts of the four cases. It is sufficient to state that in all these cases articles consisting of account books and documents and in the Writ Petitions, also cash, jewelry and other valuables, were seized by the Income-tax authorities purporting to act under the, authorisation for search and seizure issued under section 132 of the Act. Broadly speaking the constitutional challenge is directed against sub-sections (1) and,(5) of section 132 of the Act and incidentally also against rule 112A on the ground that these provisions are violative of the fundamental rights guaranteed by Articles 14, 19(1) (f)
(g) and 31 of the Constitution. The non-constitutional grounds of challenge are based up on allegations to the effect that the search and seizure were not in accordance with section 132 read with Rule 112. This challenge will have to be considered in the background of the facts of the individual cases.
Chapter XIII of the Act deals with Income,-tax authorities. their ,powers and jurisdictions. The heirarchy of authorities as given in section 116 shows that the class of authorities designated as Director of Inspection is shown below the Central Board of Direct Taxes and above the class of authorities known as Commissioner of Income-tax. The other authorities mentioned are Assistant Commissioners of Income-tax. Income-tax Officers, and Inspectors of Income- tax. Section 117 shows by whom these various authorities are to be appointed. Section 118 deals with subordination and control. Section 119 deals with the powers of the higher authorities to give instructions and directions to subordinate authorities. Under section 120 Directors of Inspection have to perform such functions of any other Income-tax authority as may be assigned to them by the Board. The Board, it is clear, might assign to the Director of Inspection the functions of any other authority under the Act.
We, may then turn to part ‘C’ of this Chapter which deals with the powers. Section 131 says that the authorities from the Commissioner down to the Income-tax Officer shall have the same powers as are vested in a court under the Code of Civil Procedure in respect of several matters including the enforcing of attendance of any person or compelling the production of books of account and other documents. Section 132 provides for search and seizure. It appears that under section 37(2) of the Income-tax Act, 1922 a limited Power of search and seizure had been first given to the Income-tax authorities in 1966. The present Income-tax Act initially gave that power under section 132 on the same lines as the old section 37(2). But there were further amendments in section 132 in 1964 and 1965. Under the amendment of 1965, two sections namely sections 132 and 132A were substituted for the original section 132. We are concerned with these sections and it will be therefore, necessary in the first instance to reproduce the same “132. (1) Where the Director of Inspection or the Commissioner. in consequence of information in his possession, has reason to believe that-
(a) any person to whom a summon under sub-
section (1) of section 37 of the Indian Income-tax Act, 1922 (XI of 1922) or under sub-section (1) of section 131 of this Act, or a notice under sub-section (4) of section 22 of the Indian Income-tax Act, 1922, or under sub-section (1) of section 142 of this Act was issued to produce, or cause to be produced, any books of account or other documents has omitted or failed to produce, or cause to be produced, such books of account or other documents as required by such summons or notice, or
(b) any person to whom a “summons” or notice as aforesaid has been or might be issued will not, or would not, produce or cause to be produced, any books of account or other.documents which will be useful for, or relevant to, any proceedings under the Indian Income-tax Act, 1922 (XI of 1922) or under this Act, or
(c) any person is in possession of any money, bullion jewelry or other valuable article or thing and such money, bullion, jewelry or other valuable article or thing represents either wholly or partly in come or property which has not been disclosed for the purposes of the Indian income-tax Act, 1922 (XI of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property).
he may authorise any Deputy Director. of Inspection, Ins- pecting Assistant Commissioner, Assistant Director of Ins- pection or Income-tax Officer (hereinafter referred to as the authorised officer) to-
