Income Tax authorities entitled to seek interim custody of seized currency notes: Kerala High Court

The Kearla High Court recently held that authorities under the Income Tax Act, 1961 (Act) are entitled to seek interim custody of currency notes that have been seized and produced/ reported to the jurisdictional Magistrate as per Section 102 of the Code of Criminal Procedure [Kasinath Ragonda Kanade v. State of Kerala].

A Division Bench of Justices PB Suresh Kumar and C Pratheep Kumar noted that the provisions of the Act confer power on the competent authorities to requisition and obtain assets of the assessee and adjust the same towards their liabilities.

Consequently, the competent authorities are also entitled to seek interim custody of seized assets if they have reason to believe that the assets represent income or property which has not been or would not have been disclosed as required under the Act.

"When the Act confers power on the competent authority under the Act to issue a requisition and obtain assets of assessees and adjust the same towards their liabilities, if the competent authority has reason to believe that the asset represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act, according to us, the best suited person to hold the currency notes which have been seized in cases of this nature until the culmination of the enquiry or trial, would be the competent authority under the Act provided it is alleged that the asset represents either wholly or partly income or property which has not been or would not be disclosed for the purposes of the Act," the order stated.

The Bench arrived at the conclusion from a combined reading of Sections 132 (search and seizure), 132A (powers to requisition books of account, etc.) and 132B (application of seized or requisitioned assets) of the Act.

It noted that the object of the provisions is to enable the authorities to hold the assets seized or requisitioned so that it can be appropriated towards existing and future liabilities of the assessee except in cases where the assessee is able to explain the nature and source of the asset.

The division bench's judgment was passed on a batch of four cases that was referred to it by single-judge Justice Bechu Kurian Thomas who noted that two other single-judges had delivered contrary judgments on the issue.

In Union of India v. State of Kerala, a single-judge had opined that in the light of the provisions contained in the Act, especially Sections 132A and 132B, the authorities under the Act are entitled to seek interim custody of the currency notes.

However, in R Ravirajan v. State of Kerala, another single-judge had held that in the absence of a valid order of assessment and demand for income tax, the party from whom the amount is seized is entitled to seek interim custody.

The petitioners in the present batch of cases had different sums of money seized from them by various authorities. When produced before the jurisdictional magistrate, the competent authorities under the Income Tax Act were granted interim custody of the seized currency notes.

This prompted them to move the High Court challenging the orders of the Magistrate in this regard.

After going through the provisions of the Act, the Division Bench concurred with the position in Union of India v. State of Kerala regarding the entitlement of the competent authority to seek interim custody of seized assets.

However, it disagreed with the judgment with regard to its direction that the competent authority under the Act, on receipt of the seized currency notes, shall complete the proceedings contemplated within a period of six months. As per the Union of India judgment, if the proceedings are not completed in six months, the amount shall be redeposited and shall be released to the person from whom it was seized.

The Bench held that the direction is not in accordance with law stating that it was unwarranted as the scope of the proceedings is only to decide who is best suited to have custody of seized currency notes until the conclusion of enquiry or trial.

The petitioners were represented by Senior Advocate M Ramesh Chander and advocates Bejoy Joseph PJ, P Raghunath, Govind G Nair, Bonny Benny, and Balu Tom.

Additional Solicitor General of India ARL Sundaresan assisted by advocate Navaneeth N Nath appeared for the Income Tax Department.

[Read Order]