# [1974] 2 S.C.R. 704

- **Citation:** [1974] 2 S.C.R. 704
- **Court:** Supreme Court of India
- **Decided:** 1973-12-14
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1974-2-s-c-r-704-6168
- **Pages:** 27

## Headnote

POORAN MAL ETC.
~.
DIRECTOR OF INSPECTION (INVESTIGATION) OF INCOMETAX MAYUR BHAVAN, NEW DELHI & OTHERS.
December 14, 1973
'[A. N. RAY, C.J., D. G. PALE~AR, Y. V. CHANl>R,ACHUD, A. ALAGIRISWAMI .AND P. N. BHAGWATI, JJ.]
.
Income Tax Act (1961)--cSectlons 132, 132.A and Rules 112, 112A-Search
and seizure-Whether violate Art. 19(1) (f) and (g) of the Constitution.
·
A
B
Income Tax Act 1961, Sec. 132(S)-8elzztre of money, bullion, ttc.-Whether
provision confiscatory.
·
C
income Tax Act, 1961, Sec. 132(1) and (S)-Search and seizure-Whether
provisions hit by Art. 14 of the Coiistitution for following different procedure
/Or the evaders of tax, who are believed to be in possession of undl.rclo1ed ,,,...
come or property and evaders against whom no such belief is entertained by the
lluthorities. .
·
Income Tax Act 1961, Sec. 132-/Vhether evidence gathered f*1m the illegal
seizure of documents is excluded at the trial-Whether a writ of prohibition· to
D
restrain the use of such ev.idence can be granted,
Income Tax Act 1961, sec. 132-"Reason to believe"-WMther Director of .
Inspection can entertain reasonable belief as not being directly connected with
the assessment-Whether the DireCttJr can entertain necessary belief for ordering
searCh and seizure where· the asstisnunt was already complet~d.
Income Tax Act, 1961, Sec. 132--Selzure of irrelevant- documents-Whether
renders .the search invalid ..
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
tjle orders of the Delhi High Court Jn writ petitions under Art. 22&-relief was
claimed in respect of. the search 6f certain premises and seizure of account
books, documents, cash, jewellery and other valuables by Incom! 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 (S) of Rule 112(A) on
tho 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 negatived all the contentions.
. Dismissing the writ petitions and appeals,
HELD: (I) When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Art. 19(1) (fl and (g).
one cannot possibly ignore how such evasions cat 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 s"ferruards
while carryin2 out search and seizure are generally on the Jines adopted by
the Criminal Procedur,. Code tb~v . would be regarded as adcauate and render
the t;emporary restrictions imposed by these measure~ as reasonable. On dcta:ted
examination of the provisions of Sec. 132 and Rule 112, it is clear that the
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safeauards are adequate to rendor the provisiOJ;lS·. of seatch and seizure ns less
onerous and restrictive u ia pouible under the circumstances. The provisions,
therefore, relatinJ lo oearch and sel%ure in sec; 132 and Rule 112 cannot be
reprded as violative of Arts. 190)(!) and (g), [714F, 717C]
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Jn the course of hia duti01, the Director of Inspection h .. ample opportunl·
ties to follow the courso of inveatigation and auessment 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 asael8ing authori·
ties. It is not. therefore. correct to argue that the Director- of Inspection could

## Text

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POORAN MAL ETC.
~.
DIRECTOR OF INSPECTION (INVESTIGATION) OF INCOMETAX MAYUR BHAVAN, NEW DELHI & OTHERS.
December 14, 1973
'[A. N. RAY, C.J., D. G. PALE~AR, Y. V. CHANl>R,ACHUD, A. ALAGIRISWAMI .AND P. N. BHAGWATI, JJ.]
.
Income Tax Act (1961)--cSectlons 132, 132.A and Rules 112, 112A-Search
and seizure-Whether violate Art. 19(1) (f) and (g) of the Constitution.
·
A
B
Income Tax Act 1961, Sec. 132(S)-8elzztre of money, bullion, ttc.-Whether
provision confiscatory.
·
C
income Tax Act, 1961, Sec. 132(1) and (S)-Search and seizure-Whether
provisions hit by Art. 14 of the Coiistitution for following different procedure
/Or the evaders of tax, who are believed to be in possession of undl.rclo1ed ,,,...
come or property and evaders against whom no such belief is entertained by the
lluthorities. .
·
Income Tax Act 1961, Sec. 132-/Vhether evidence gathered f*1m the illegal
seizure of documents is excluded at the trial-Whether a writ of prohibition· to
D
restrain the use of such ev.idence can be granted,
Income Tax Act 1961, sec. 132-"Reason to believe"-WMther Director of .
Inspection can entertain reasonable belief as not being directly connected with
the assessment-Whether the DireCttJr can entertain necessary belief for ordering
searCh and seizure where· the asstisnunt was already complet~d.
Income Tax Act, 1961, Sec. 132--Selzure of irrelevant- documents-Whether
renders .the search invalid ..
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
tjle orders of the Delhi High Court Jn writ petitions under Art. 22&-relief was
claimed in respect of. the search 6f certain premises and seizure of account
books, documents, cash, jewellery and other valuables by Incom! 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 (S) of Rule 112(A) on
tho 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 negatived all the contentions.
. Dismissing the writ petitions and appeals,
HELD: (I) When one has to consider the reasonableness of the restrictions or curbs placed on the freedoms mentioned in Art. 19(1) (fl and (g).
one cannot possibly ignore how such evasions cat 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 s"ferruards
while carryin2 out search and seizure are generally on the Jines adopted by
the Criminal Procedur,. Code tb~v . would be regarded as adcauate and render
the t;emporary restrictions imposed by these measure~ as reasonable. On dcta:ted
examination of the provisions of Sec. 132 and Rule 112, it is clear that the
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safeauards are adequate to rendor the provisiOJ;lS·. of seatch and seizure ns less
onerous and restrictive u ia pouible under the circumstances. The provisions,
therefore, relatinJ lo oearch and sel%ure in sec; 132 and Rule 112 cannot be
reprded as violative of Arts. 190)(!) and (g), [714F, 717C]
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Jn the course of hia duti01, the Director of Inspection h .. ample opportunl·
ties to follow the courso of inveatigation and auessment 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 asael8ing authori·
ties. It is not. therefore. correct to argue that the Director- of Inspection could
not entertain honeet and rouonable belief before ordering search and seizure
under, section 132(1)(a)(b) and (c). The second proviso to sub·section (5)
of sec. 132 shoWB that the ass01see can get a release of all the aasets seized
if be can make satisfactory arranaements for the payment of the estimated dues.
So also, the exceaa collection ia refundable u/s 132-A with intereat after the
regular enquiry. The provisiona of section 132(5) are not conliscatory in
nature. [717F]
M. P. Sharma v. Satish Chandra [1954] $.C.R. 1077 and Commissioner of
Commtrcial Taxes v. R. S. Jhavtr [1968]1 S.C.R. 148 followed.
(II) The provisions of section 132(1) and (5) cannot be challenged on the
ground that they make uniust dilcrlmination between two sets of tax evaden in
ordering search and seizure or retention of the seized wealth for reco\-ering
the tax, in oome c- and not orderin1 the same in other .-. All evaders
of taxes can be proceeded against u/s 132. Only in oome case., the search
may be useful because of the information about the undiaclooed Income and
wealth. Where lhOre ia 410 such information, search and oeizure would be futile.
Therefore, there is no 11t1bstance in. tho contention that two different procedures
for assessment are adopted an hence there is discrimination under Art. 14.
[720C]
C. Vtnkata Rtddy and Anothtr v. Inoome-tax Of!ictr1 (Central) I, Banga·
lore, and othm, 66 Income-tax Reports, 212 and Ramjiohal KJJlldtu v. I. G.
Deiai, Income-tax Officer, and othtrs, 80 Income-tax Reports, 721, cited with
approval.
(Ill) The Income--tax authoritiee can use as ovidence ariy information gather·
ed 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 ri,ahts can we spell out the exclusion of evidence obtained on an
illegal search. [723FJ
A. K. <Jopalan v. State of Madras, [1950] S.C.R. 88 and M. P. Sharma v.
Satish Chandra [1954] $.C.R. 1077 ..
Courts in India and_ in England have consistently refused to exclude rete ...
vant evidence merely on the ground that it is obtained by illegal search or
seizure. Where the teat of admissibility Qf evidence lies in relevancy, unless
there is an expreas or implied prohibition in the Constitution or other law,
evidence obtained as a ·result of illegal search or seizure is not liable to be
&hut out. [7230]
(IV) In writ petition No. 446/71, 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, h~ld that the petitioner was
not co·
operating with the Director of Inspection.
(V) Htld further, that seizure of books of account atid other documonts
which were afterwards found to be not a:levant, 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 proJ)er wounds for a belief for orderinJ? search and seizure under
sub-clauses (b) and (c) of sub-section {!) of Sec. 132.
Merely because the
auessment for the relevant year was already completed, it does not mean that
on the information in the. possessio~ of the P.irector of Inspection, he cannot
706
STJPlllMB COUIT 11.BPOlTS
(1974] 2 1.C.Jt..
entertain the -ary belle!, On t.cu, In Writ Petlllcici No, 16/72 h1ld that
the 1earcb end ieiz11111 were nellhor oppreulve nor dCtlllve,
,
OIUGINAL/CIVIL APPELLATE JUllSDICTION : Writ Petition Nos.
446 of 1971 and 86 of 1972.
(Under An. 32 of the Constitution for the enforcement of fund,.
mental rights).
Civil Appeals Nos. 1319 a,nd 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.
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N. D. Knrkhanis and Ram Lal, for the petitioner (in W.P. 446/
71.)
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N. D. Karkhanis, Bairam Sanghai, A. T. M. Sampath, M, M. J.,
Srivastava and E. C. Agarwala, for the petitioner (in W.P. 86/72).
·
F. S. Nariman, Additional Solicitor ~ntral of India, B. B. Ahu/a
and S. P. Nayar, for the respondents (in both W.Ps.)
M. C. Chagla, L. M. Singvl, S. Sadhu Singh, Jagmohan Kha1111a,
D
R. N. Kapoor, Nirmala Gupta and Mohinder Kaur and Veena Devi
Ta/war, 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
PALEKAll, J.~In these proceedings-two of them Writ Petitions
under Article 32 of the Constitution and two .others which are appeals
from orders passed by the Delhi Hi&h 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
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and seizure of , certain premises on the ground that the authoriF
sation 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, jewellery and other
valuables, were seized by the Income-tax authorities purportiiig to act
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under the authorisation for search and seizure issued under section
132 of the Act. Broadly speaking the constitutional challenge is
directed against sub-sections (I) 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
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search and seizure were not in accordance with section 132 read with
Rule 112.
This challenge will have to be considered in the back·
ground of the facts of the individual cases.
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POORAN v. DIP.IC TOR OP . INIPBCT!ON (Palekar, J,) '
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Chapter XIII of the Act deall with Inc0me·tax authorities, their
powers and Jurisdictions.
The holrarchy of authorities as giv011 in
section 116 shows that the class of authorities designated as I?lrector
of Inspecti011 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.
Incoine-tax Officers, and Inspectors of Income-tax.
Section 117 shows by whom these various authorities are to be appoint·
ed. 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 J?Owers.
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 3 7 ( 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 13 2.
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-&ectiori
( 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 bool<s 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
708
SUPltEME COURT 11.EPORTS
[1974] 2 s.c.a.
not, produce or cause to bC produced, any books
of account or other documents which will be useful
for, or relevant to, any proceedings under the Indian
IDcome·tμ Act, 1922 (XI of 1922) or under this
Act; or
(c) any person is in possession of any money, bullion,
jewellery or other valuable article or thing and sllCh
money, bullion, jewellery or other valuable article
or thing represents either wholly or partly income or
property which has not been disclosed for the pur·
pollCS 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~
peeling Assistant Commissioner Assistant Director of Inspection or Incom&-tax Officer (hereinafter referred to as the
authorised officer) to-
.
(i) enter and lleardJ. any building or place where he
has reason to suspect that such books of account,
other documents, money, bullion, jewellery or other
valuable article or things are kept;
(ii) break open the lock of any door, box, locker, safe,
almirah or other reccetacle for exercising . the powers
conferred by clause (1) where the keys thereof arc
not available.
(iii) seize any such books of account, other documents,
money, bullion, jewellery or other valuable article
or thing found as a result of such search;
(iv) Place marks of identification on any books of account or other documents or make or cause to be
made extracts or copies therefrom;
( v) make a note on an inventory of any such money.
bullion, jewellery or other valuable article or thing.
(2) The authorised officer may requisition the services of any police officer or of any officer of the Central
Government, or of both, to assist him for all or any of the
purposes specified in sub~ection (I) and it shall be the duty
of everY such officer to comply with such requisition.
(3) The authorised officer may, where it is not practicable to seize any such books of account, other document,
money, bullion, jewellery or other valuable article or thing,
serve an order on the owner or the person who is in imme·
diate possession or control thereof that he s.hall not remove,
part with or otherwise deal with it except with the previous
permission of such offiCCt' arid such officer may take such
steps as may be necessary for ensuring compliance with this
sub-section.
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POOllAN V, Dll\ECTOll. OP INSP&CTION (Paltkar, /.)
709
(4) The authorised officer may, during the course of the
· search or seizure, examine on oath any person who is found
to be in possession· or control of any books of accQU!lt, ·
documents, money, bullion, jewellery or other valuable article
or thing and any statement made by such person during
such examination may thereafter be used in evidence in any
proceedings under the Indian Income-tax Act,· 1922 (XI of
1922), or under this Act.
.
"(5) .·Where any money, bullion, jewellery or other article
or thing (hereinafter in this section and section 132A re-
. ferred to as the assets). is seized under sub-section ( 1) , the
Income tu Oflicer, after affording a reasonable opportunity
to the person concerned for being heard and making such
enquiry as may be prescribed, shall, within ninety dar of the
seimre, make an order, with the previous approva of the
Commissioner :
(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary
· mannCT to the best Of his judgment on the basis of
such materials as are available with him;
(ii) calculating the amount of tax on the income so
estimated in accordance with the provisions of the
Indian Income tax Act, 1922 (XI of 1922) or this
M;
.
(Iii) speclfy!ng the amount that will be required to satisfy
any existing liabillty under this Act and any one or
more of the Acts speQlied In clause (a)
of sub-
. section (1) of section 230A In respect of which
such penon Is In default or Is deemed to be In default, and retain In his custody such assets or part
thereof as arc .In his opinion iufficient to satisfy the
aggregate of the amounts referred to In clauses (ii)
and (iii) and forthwith release the remaining portion,
If any, of the assets to the person from
whose
custody they were seized;
Provided that If, after taking into account the materials
available with him, the Jncome-taX Officer is of the view
\hat It" is not possible to ascertain to which particular previous
year o~ years such income or any part thereof relates, he
may calculate the tax on such Income or part, as the case ..
may be ns If 1uch Income or part .. were the total lilcome
chargeable to tax at. the rates In. force In the financial year
In wh!ch the assets were seized; ·
Provided further that where a person has paid or made
1at!sfactory arrangements for payment of all the amounts
referred to In clause (U) and ·cw) or any part thereof, tl:c
Income-tax Officer may, with the previous approval of · tho
Commiuloner, release the assets or 1uth part thereof as he
may deem fit In the clrcumstantes of the case,
·,
710
SUPRBMB COURT llBPOllTS
[1974] 2 s.c.a.
(6) The assets retained under sub-section (S) may be
dealt with in accordance with the provisions of section 132A.
(7) If the Income-tax Officer is satisfied that the seized
assets or any part thereof were held by such person for or
on behalf of any other person, the Income-tax Officer may
proceed under sub-section ( 5) against such other person
and all the provisions of this section shall apply accordingly.
(8) The books of account or other documents seized
under sub-section (1) shall not be retained by the authorrised officer for a period exceeding one hundred and eighty
days from the date of the seizure unless the reasons for
rewining the same are recorded· by him in writing and the
approval of the Commissioner for such retention is
obtained :
Provided that the Commissioner shall not ,authorise the
retention of the books of account and other documents for
a period exceeding thirty days after all the proceedings
under the Indian Income-tax Act, 1922 (XI of 1922), or
this Act in respect .. £ the years for which the books of
account or other documents are relevant are completed.
(9) The person from whose custody any books of
account or other documents are seized under sub-section
(I) may make copies jhereof, or take extracts therefrom,
in ·the presence of the authorised officer or any other person
empowered by him in this behalf, at such place and time as
the authorised officer may appoint in this behalf.
(10) If a person legally entitled to the books of account
01' other documents s•ized under sub-section ( 1) objects
for any reason to the approval given by the Commissioner
under sub-section (8), he may make an. application to the
Board stating therein the reasons ·f<ir such objection and requesting for the return of the books ot account or o_ther
documents.
.
( 11) I( any person objects for any reason to an order
made under sub-si:ction (5), he may, within thirty days of
the date of such order, make an application to such authority, as may be notified in this behalf by the
Central
Government in the Oflicial Gazette (hereinafter In this
section referred fo as the notified authority, stating therein the reasons for such objection and requesting for appropriate relief in the matter,
( 12) On receipt of !\le application under sub-sect!Qn
( 10) the Board, or on receipt of the application under
sub-section ( 11) the notified authority, may, after giving
the applicant an opportunity of being heard, pass such orders
as it thinks fit;
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POOP.AN V, 1>111CTOI QP INIPICTION· (Pall/ur, /.)
711
( 13) The ~
· of . the Code of Criminal Proce•
dure,, 1898 CV of 1898), rel1tin1 to IO&l'Ches and 1elzure
shall apply, 10 far 11 may be, to seirehes and seizure under
sub-1eetlon ( 1).
·
( 14) The' Board. may make rules in relation to any
search or seizure under this section; in particular,
and
without prejudk:o eo lt!Je
genei:ality
of
the
foreJIOing
power, such rules may provide for the procedure to be
followed'· by the authorisCd officer.
'
(i) fbr obtainina ingreBB into such buiiding or place to be
sCarched ·where free inps thereto is not available;
(ii) felt ensuring safe custody of any books of account
oi other docuinents or asseis seized. .
.
E11pl0natlon 1.-In computiii.a the period
of
ninety
days for the purposes of 1ul>-sec11on (S), any period durin1
which any procMdlna under thil iection Is stayed by an o'rder
or lnJllllC~On of any Court shall be exi:lude_\I.
E11plantlon 2.-In th11 IO()tion, the word "proceedina" mean•
any lll'OCeedina In respect of any year, whether under the Indian
Income-tu: Aft, 1922 (XI of 1~2) or this Act, which may be pend·
~
on the date on which a search Is authorised under· this section or ·
wl:iich mav have been completed oa Or before· such date and includes
. also all . proceedings under this. Act which may be commenced afte~
such date In resoect of any , year.
Sec. 132A.
( 1) The aueta retai~ under sub-section ( S) of
section
132 may be dealt with in the followina manner, namely
(i) Tho 11111011nt of the oxlstin~ liability referred to .. In
clause (ill) of the laid sub-section and the 1amount of
tho. liability dctcrml)ied on completion of the re&ular
uaeHl!lfllt · or reauossment for all the
auesunent .
years relevant to the previous years to which the
Income referred to In clause m of that sub-tectlon
relates. and ill re1pe¢ of which he is In default or Is
d~
to be In default may be recovered out of such
llletl.
'
Cii\ If the useta colllist llQl.ely of money, ot partly of
monev and partly of other assets, the Income-tu:
Oftlcer may apply such money In the dlscharp of
the llabllltiee referred to In clause (!) and the use1·
see shall be dlacharaed oe such llablllty to tho utent
of the money 10. applied.
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(Iii) Tho .a•11eta other than money mav also be applied for
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the discharle of an..v Juch liability referred to In
cla1110' m as remains ~
ml for thla purpose such ~·sl!all be deemed to be Ulldet dist-
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SUPREME COURT lEPOP.TS
[1974] 2 1.C,R,
raint as if such distraint was effected by the Incometax Officer under authorisation from the Commissioner under sub-section (5) of section 226 and the
Income-tax Officer may recover- the amount of such
liabilities by the sale of such assets and such 11ale
shall be effected in the manner laid down in the Third
Schedule.
(2) Nothing contained in sulHection ( 1) shall preclude
the recovery of the amount of liabilities aforesaid by
any other mode laid down in this Act;
( 3) Any assets or proceeds thereof which remain after
the liabilities referred to in clause (i) of sub-section (1) are
discharged shall be forthwiih made over or paid to
the
persons from whose custdiy the assets were seized.
( 4) (a) The Central Government shall pay simple
interest at the rate of n:ile per cent per annum on the
amount by which the aggregate of money retained under
section 132 and of the proceeds, if any, of the assets sold
towards the discharr· of the existing liability referred to in
clause (iii) of sub-section (5) of that section exceeds the
aiwegate of the amounts requirell to meet the liabilities
referred to in clause (I) of sub·scction (1) of this section.
(b) Such interest shall run from the date immediately
followin2 the expiry of the period of six months from the
date of the order under sub-section (5) of section 132 to
the date of the regular assessment or reassessment referred to
in clause (i) of sub-section (1) or as the case may be, to
the date of last of such assessments or reasse11ments,
Rule 112 A which Is also challen2ed as It prescribes the procedure for the enquiry under section 132(5) is as follows:
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"112A. Inquiry under section 132(1) where any money, bullion,
jewellery or other valuable article or thin& (hereinafter referred to as
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assets) are seized. the Income-tax Officer shall within fifteen days of
the seizure issue to the person in respect of whom eOC1uiry under subsection (5) of section 132 is to be made requiri!lj blm on the date
to be specified therein (not beln~ earlier than fifteen days from the
date of sel'\'.lce ol such notice) either to attend at. the oftlce of the
Income-tax Olllcer to explain or to produce or cau1e to bl thtte
Produced evidence on whlch 1uch person may rely for explalnlDI tho
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nature of the POSlmion ankl the source of the 1cqul1ltlcin of Iha
assets.
( 2) The Income-tax Oftlcc.r may Issue a notice to the
person
referred to In sub-rule ( 1) rcquirins him on a date 1pec!W thmln
to produce or cause to be produced at 1uch time and at 1uch place II
the Income-tax Oll!cer may specify such accounts or documents or
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evidence as the Income-tax Oftlcer may require and may from t1me to
time issue further notices requirinl production of •uch further accounts
or documents or other evlden~ as be may require.
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713
( 3) The Jnco~·tax Officer may examine on oath any Qther
person or make such other inqujry as he may deem fit.
( 4) Before any material gathered in the course of the examination or inquiry under sub-rule ( 3) is used by the Income-tax Officer
a~ainst the person referred to \!). sub-rule ( 1) the lncome·tax Officer
sliall irive a · r~asanable notice to that person to show cause why SllCb
material should be used a~ai~t him ..
It will be seen in the fi!'st 1>lace that the power to ~lirect a search
and seizure is ~ven to the Direeto,r of JDBpection or the Commissioner. Secondly, the the authorisation for suc.h .search and seizure
must be in .favour of office.rs ~t below the -graile of an Jl1come-tax
Officer. Thirdly the pow~r to authorise search and seizure can be
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exercised ouly when the Director of Inspection ar the Commissioner
has reason to believe ( 1) iliat in spite of the requisitions under the
relevant provisions mentioned in section 132(l)(a) the
required
books and documents have net been produced: (2) ihat any· person,
whether requisition under the ~bove provisions is made or not, will
not, or would not, produce or cause to be produceij, any books of
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account and other documents which will be useful for, or relevant to,
any proceeding under the ~ncome-tax Act; qr (3) that any person is
in possession of any money, bullion, jewellery or any other valuable
article 9r thing representing either wholly or partly
undisc!Oled
Income or property.
Whe~ th~ authorisation is given by the Director
of Inspection or the Commissioner, as the case may be, it must be
limited to the five purposes mention!ld in sub-clauses (i) to (v) of
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sub-section (1). Sub-section (14) provide1 fQr the making of rules
In relation to any search or seizure. Accordinaly, rule 112 has been
framed which says that the powers of search and seizure under section
132 shall be exercised in att0rdance with sub-rules (2) to (14) under
rule 112. These are detailed rules setting out the procedure for male•
ing the search and seizure and· for the custody of what has beeiseized.
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Sub-section (5) of section ~32 deals with the special cases where,
on. search, money, bullion, jew~llery and other valuables believed to
be undisclosed inCOJ!lle or pro~rty are ·seiz.el:!. What 11 seized cannot be kept by the departmental authorities with them indefinitely,
Sub-section ( S) requires tl)at a 1ummary enquiry mu1t be made . by
Income-tax Officer with a view to ascertain how much of the Hlad
valuable should be retained aaalnst un1'ald tax due1. The balance
must be forthwith roleated. The aecond provl10 to 1u'o-lectlon (5)
further 1how1 that the mon.ev and vlluablN m1,v not lllo be retained
bv the Income-tax Olllctr If .th• ptrlOll co11C1rned hH !'aid or mldt
1ati1factory arranpmentl for payment of all the Income-tax
dUH
which arc 1ummuily 01tlmated under 1ub-tectlon ( 5).
The 1um.
marv enquiry under 1ub-!Jectlon (5) mu1t be ftnllhed within 90 dtys
of the teizure and the order which !1 mid• thtrtUllder Is 1ublect to
the 'Previous approval of th~ ~mluloner. 'Under 1ul>-aectlon (6)
of 5ectlon 132 the u1et1 retained under 1ub-11etlon (5) m to be
dealt with In accorllance with
the provltlolll of
•~tlon 132-A
714
SUPREME COURT REPQRTS
[1974] 2 s.c.11.
which clearly aoes to ~
thai the Income-tax Officer shall proceed
with the regular a1Ses1me11t o~ reassessment of the tax payable by
the person concerned and a!ter such assessment the amount of tax
so held payable is to be recouped from the assets retained under sub·
section ·5 of section 132. The balance, if any, is to be returned
with interest at the rate of 9 % if the assessment and reassessment is
not comoleted within six months of the date of the retention order
made under sub-section (5) of section 132. Even in regard to the
books of account and othe~ documents which are seiz.ed the authorised officer" is not entitled to retain the same for a period exceeding
180 days unless he records his reasons in writing for retaining the
same and the Commissioner approves of the retention. The person
from whose custody the books of account and other documents are
seized, is, however, entitled to receive copies or take extracts therefrom.
Any person aggrieve~ by the retention of the documents is
entitled to make a representation to the Boartl which is also the
authority to which a representation could lie made under' sub-section
(.11) by any person objecting to tho order passed under sub-section
(5) retaining the assets. Broadly it will be seen that section 132
and rules 112 and 112A deal with search and seizure and the diSposal of articles seized afte'r ~earch. Tho challenge under Articles 19
and 14 is directed against sui>1ections (I) and (5) .of section 132
and rule 112A.
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D:alin& first with the challenge under article 19 (I )(f) and (g)
of the Constitution it is to be noted that the impugned provisions are
evidently direct•.d against perSOllS who arc believed on good grounds
to have illegally evadetl the. paymen(of tax on their income and property. Therefore, drastic measures . to . get at such income and property with a view to recover the government dues would stand justified in themselves. When one· has to consider the reasonableness of
the reetrictions or curbs placed on the freedoms mentioned in article
19(f) and (g), one cannot possibly igJloro how such evasions eat into
the vitals of. tho ecooomic life of tho commumty. It is a well-known
fact of our economic life that huge sums of unaccolinted money are
In circulation eodan~ering Its very fabric. In a country which bas
adopted high rates of taxation a maior portion of the unaccounted
monet ahould normally fill tho Government coffers. · Instead of
&inR: 10 ':it distorts the ec0!10l!1Y·
Therefore, in the interest ol the
community "it is only right that the fiscal authorities should have
sufficient POWers to prevent tax evasion.
'
Search and seizure arc not a new weapon In the armoury of those
whose duty it 'is to maintain social security in its broadest sense.
The process is widely recoJ!llised In all civilized countries. Our own
Criminal Law accepted its neceAsity ·and usefulness in sections 96 to
l 03 and section 165 rJ. the Qiminal Proctklui'e Code. . In M.. P.
Shllrma v. Sail.sh Chandra(•) the challene to the power of issuing
a search warrant under section 96(1) as violative of. Article 19(1 )(f)
was repelled on the ground that a p<>Wer of search and seizure ·is tn
(I) (19541S.C.R.1077.
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l'OORAN v. DIRECTOR OP INSPECTION (Palekar, I.)
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any system of jurisprude11C9 an over-riding power of the State for the
protection of social security ll)d that power ii neceasarily reiuJated
by law. As polntell out in ~~ case a search by itself ii not a restriction on the right to hold and enjoy property though a seizure is
a restriction on the right of possession and enjoiment of the property
seized. That, however, is only temporary and for the limited purpose
of investigation. Then the CQlirt proceeds_ to say "A search and
seizure is, therefore, only a temporary interference with the right to
hold the premises searched and the articles seized. Statutory regulation in this behalf is necessary and reasonable restriction cannot per se
be considered to be unconstitutional. The damage, if any, caused by
such temporary interference if found to be in excess of legal authority is a matter for redress in. other proceedings. We are unable to
see how any qucstiqn of violation of article 19(1)(f) is involved in
this case in respect of the warrants in question which purport to be
under the first alternative of section 96(1) of the Criminal Procedure
Code." D· 1081.
Similar powers entrusted to those whose duty it was to enforce
taxation laws were upheld by this Court !n The Commllslonar of
Commercial Taxes and others v. R. S. /haver and others('). In that'
case section 41 of the Madras General Sales Tax Act of 1969 . was
under challenge. It was held by this Court that an officer empowere~ by the Gove1'11111Cnt under sub-&ection (I) of section 41 was
entitled to effect a search Bnd seir.o goods and articles as provided
in that section. Dealing with the question of search and seizure in
a taxing stafilte the court observed at page 158 : ''Now it has not
heen and cannot be disouted that the entries in the ·various Lists
of the Seventh Schedule must. be given the widelt pouible interprets..
tion. It is also not in doubt that while making a law under any
entry in the. Schedule it is competent to the legislature to make all
such incidental and ancillary provisions as may be. necessary to
effectuate the law; particularly it cannot be difputcd that in the cas'
of a taxin~ statute it is open to the legislature to enact provisions
which would check evasion of tax. It ill under this power to. check
evasion that provision for search and seizure ill made in many tax!na:
statutes. It ~t' therefore be held that the legislature has power
to orovide for search and seizure in connection with taxation laws in
or<ler that evasion may be checked." n ill, now too late in the
day to challenge the measure of search and seizure when It ii entrusted to income-tax authorities "'.ith a view to prevent large 11¢ale
tax evasion.
·
Indeed the measure would be obfectionable if its implementation
is not accomoanied by safe~ards apinst its undue and lmoropcr
exercise. As a broad prooosition It is now possible to state that if
the safeguardR are generally on the lines adopted J:iy the Criminal
Procedure Code they would be regarded as adequate and render the.
temporary restrictions imposed by the meuure reasonable. Jn the
case just cited there was a proviso to sub-section (2) of section 41
(t) [1968] (I) S.C.ll. 148
716
SUPREME COURT REPORTS
(1974] 2 s.c.a.
which prescribed that all searches under the sub-section shal~ so far
as may be, made in accordance with the provisions of the 1,;ode of
Criminal Procedure. After pointing out that section 165. of the
Criminal Procedure Code would apply mutatis mutandis to searches
made under sub-section (2), this Court observed: "We are, therefore,
of opinion that safeguards provided in s. 165 also apply to searches
made under sub-s. (2). These safeguards are-(i) the empowered
officer must have reasonable grounds for believing that anything
necessary for the purpose of recovery of tax may be found in any
place within his jurisdictio!Jo (ii) he must be of the opinion that such
thing cannot be otherwise got without undue delay,
(iii) he must
record in writing the grounds of his belief, and (iv) he must specify
in such writing so far as possi])le the thing for which search is to
be made. After he has done these things, he can make the search.
These safeguards, which in our opinion apply to searches under
sub-s. (2) also clearly show that the power to search under sub-s. (2)
is not arbitrary. In view of these safeguards and other safeguards
provided in Chapter VII of the Code of Criminal Procedure, which
also apply so far as may be to searches made under sub-s. (2), we
can see no reason to hold that the restriction, if any, on the right
to hold property and to carry on trade, by the search provided in
sub-s. (2) is not a reasonable restriction keeping in view the object
of the search, namely, pre...ention of evasion of tax."
We are, therefore, to see what are the inbuilt safeguards in
section 132 of the Income-tax Act. In the first place, it n1uit be
noted that the power to order search and seizure is vested in the
highest officers of the department.
Secondly the exercise of this
power can only follow a reasonable belief entertained by such officer
that any of the three conditions mentioned in section 132(1)(a), (b)
and (c), exists.
In this connection it may be further pointed out
that under sub-rule (2) of rulet12, the Director of Inspection or the
Commissioner. as the dlse may be, has to.record bis reasons before
the authorisation is issued to the officers mentioned in sub-section
( 1). Thirdly, the authorisation for the search cannot be in favour
of any officer below the rank of an Income-tax Officer. Fourthly, the
authorisation is for sreciftc purposes enlljtlerated in (i) to (v} . in
sub-section (1) all o which are strictly limited to the obiect of the
search. Fifthly when money, bullion etc. II seized the Income-tax ·
Officer Is to make a summary enquiry with a view to determine how
much of what is seized will be retained by him to cover the estimated
tax liability and bow much will have to be returned forthwith. The
object of the enquiry under rub-section CS) Is to reduce the !neon·
venicnce to the use11cie as much 11 po11lblt to that within a reason.
able time what ts estimated due to the Oovornment may be retah1ed
and what 1hould be uturned to tho •a11e11oe may
be Immediately
returned to him. Bven with reaard to the book1 of account and
documents ieizod, their return Is guaranteed after a reasonable time.
In the meantime the person ftom whose custody they are te!zed I•
permitted to make cople1 and take extracts. Sixthly, where money,
bultion etc, is •cized, it can al•o be im111ed!ately returned to the
peraon concerned after ho makea appropriate provlllon for the pay·
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POOlAN v. DlllECTOR OP INSPECTION (Palekar, I.)
717
ment ·of the estimated tax dues under sub-section (5) and lastly, and
this la moat important, the ·provisions of .the Criminal Procedure Code
relating to aearch and seizure apply, as far as they may be, ·to all
searches and eeizures under section 132. Rule 112 provides for the
actual search and ·seizure being made after observing normal decen·
cies of behaviour. The person in charge of the premises searched is
immediately given a copy of the list of articles seized. One copy is
forwarded to the authorising officer.
Provision for the safe custody
ofJhe articles after seizure is also made in rule 112.' In our opinion,
the safeguards are adequate to render the provisions of search and
llQizure as less onerous and restrictive as is possible under the cir·
cumstances.