# J. R. MALHOTRA & ANR v. ADDITIONAL SESSIONS JUDGE, JULLUNDUR & ORS

- **Citation:** [1976] 2 S.C.R. 993
- **Court:** Supreme Court of India
- **Decided:** 1975-12-11
- **Case number:** Civil Appeal No. 999 of 1975
- **Bench:** A. N. Ray, M. H. Beg, R. S. Sarkaria, P. N. Shinghal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j-r-malhotra-anr-v-additional-sessions-judge-jullundur-ors-6602
- **Pages:** 5

## Headnote

J11cnme tax-Money seized from assessee suspecting offence-Prosecution
dropped for want of eridence-Right of Revenue to keep money seized from
assessee without valid order df assessment.
Under a search warrant issued under s. 132, Income Tax Act, 196 l, the
Income Tax Authorities seized certain documents and money from the respondent. The Police also registered a criminal case against him. Thereafter, the
Income Tax Officer assessed him to tax and adjusted the money seized against
the tax due. The respondent moved the High Court, and the High Court held
that the search and seizure were illegal and directed the Revenue authoritie9 to
hand over the money and documents to the Police to enable them to proceed
in accordance with Jaw.
The Police. however, dropped the proceedings (filed as
untraced) against the respondent for want of evidence.
The respondent then moved the Magistrate for return of the documents and
the money, alleging that the Police had not filed any challan against him for a
long time, while the Revenue Authorities applied for retaining . them. The
Magistrate directed their return to the Police. The order was confirmed by the
Sessions Court The High Court, in revision, set aside the order of the Sessions
Court and remanded the matter to the Magistrate to decide whether the adjustment of the amount against tax was permissible and valid.
Meanwhile, the respondent had appealed against the order of assessment
and Appellate Assi9tant Commissioner stayed the rewvery of the tax assessed.
The Magistrate after remand held that the amount seized be retained by the
Revenue in partial satisfaction of the tax due from the respondent, but the
Additibnal Sessions Judge in revision directed the Income Tax Authorities to
return the documents and money to the respondent.
A writ petition filed by the Revenue challenging the order was dismissed by
the High Court.
Dismissing the appeal to this Court,
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HELD : After the prosecution against the respondent was dropped f'or want
of evidence, the authorities had no right to keep the money seized from him
under any p~ovision ~f Jaw.
There is also no question of its adjustment, because, there IS no valtd order of assessment and there is no demand for tax.
In fact, the Appellate Assistant Commissioner finally held that there is no order
of assessment and that there was no demand for income tax. The Revenue
G
Authorities cannot indirectly keep, the money on the plea that there will be a
demand and that, therefore, they should be allowed to keep the money.
There
must be authority of law under which the monev can be kept. but in this case
there was no legal order to keep the money. [997-C-D]

## Text

J
993
J. R. MALHOTRA & ANR.
v.
ADDITIONAL SESSIONS JUDGE, JULLUNDUR & ORS.
December 11, 1975
[A. N. RAY, C. J., M. H. BEG, R. S. SARKARIA AND
P. N. SHINGHAL JJ.]
J11cnme tax-Money seized from assessee suspecting offence-Prosecution
dropped for want of eridence-Right of Revenue to keep money seized from
assessee without valid order df assessment.
Under a search warrant issued under s. 132, Income Tax Act, 196 l, the
Income Tax Authorities seized certain documents and money from the respondent. The Police also registered a criminal case against him. Thereafter, the
Income Tax Officer assessed him to tax and adjusted the money seized against
the tax due. The respondent moved the High Court, and the High Court held
that the search and seizure were illegal and directed the Revenue authoritie9 to
hand over the money and documents to the Police to enable them to proceed
in accordance with Jaw.
The Police. however, dropped the proceedings (filed as
untraced) against the respondent for want of evidence.
The respondent then moved the Magistrate for return of the documents and
the money, alleging that the Police had not filed any challan against him for a
long time, while the Revenue Authorities applied for retaining . them. The
Magistrate directed their return to the Police. The order was confirmed by the
Sessions Court The High Court, in revision, set aside the order of the Sessions
Court and remanded the matter to the Magistrate to decide whether the adjustment of the amount against tax was permissible and valid.
Meanwhile, the respondent had appealed against the order of assessment
and Appellate Assi9tant Commissioner stayed the rewvery of the tax assessed.
The Magistrate after remand held that the amount seized be retained by the
Revenue in partial satisfaction of the tax due from the respondent, but the
Additibnal Sessions Judge in revision directed the Income Tax Authorities to
return the documents and money to the respondent.
A writ petition filed by the Revenue challenging the order was dismissed by
the High Court.
Dismissing the appeal to this Court,
A
B
c
D
E
F
HELD : After the prosecution against the respondent was dropped f'or want
of evidence, the authorities had no right to keep the money seized from him
under any p~ovision ~f Jaw.
There is also no question of its adjustment, because, there IS no valtd order of assessment and there is no demand for tax.
In fact, the Appellate Assistant Commissioner finally held that there is no order
of assessment and that there was no demand for income tax. The Revenue
G
Authorities cannot indirectly keep, the money on the plea that there will be a
demand and that, therefore, they should be allowed to keep the money.
There
must be authority of law under which the monev can be kept. but in this case
there was no legal order to keep the money. [997-C-D]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 999 of 1975.
Appeal by special leave from the Judgment and order dated the
6th May 1975 of the Punjab and Haryana High Court at Chandigarh
H
in Civil Writ Petition No. 2292 of 1975.
S. P. Nayar for the appellant.
994
SUPREME COURT REPORTS
[1976] 2 s.c.R.
A
B. Datta and Harbans Singh for respondents 2-4.
B
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The Judgment of the Court was delivered by
RAY, C.J. This appeal is by special leave from the order dated 6
l\fay 1975 of the High Court of Punjab and Haryana dismissing in
limihe the writ petition of the appellant.
The appellant filed a writ petition in the High Court challenging
the order dated 4 January 1975 of the Additional Sessions Judge, Jullundur who allowed the revision petition of the respondent Romesh
Chander and dismissed the petition of the appellant.
The facts leading to the order are these : On 6 August. 1971 the
respondent Romesh Chander was travelling in a car.
His car was
intercepted by the police.
A sum of Rs. 1,61,411/- was found in a
bag in his hands.
The respondent Romesh Chander was taken to the
police station.
A criminal case was registered against him under sections 411, 413 and 414 of the Indian Penal Code and under sections
4, 5, 6 and 8 of the Foreign Exchange Act, 1947. The Commissioner
of Income Tax issued a warrant of authorisation empowering certain
officers under section 132 of the Income Tax Act to conduct a search
and seizure.
Pursuant to that authorisation the :rnthorised officer
seized the sum of Rs. 1,61,411/- and certain books and documents.
The business premises of the responaent Romesh Chander and the
other respondents who were his partners were searched and certain
documents and books were seized.
E
The respondent Romesh Chander by a writ petition c.hallenged the
warrant of authorisation.
The High Court of Punjab ~.nd Haryana
on 25 May 1972 held the search to be invalid and directed the Revenue to return the money and the books.
On appeal the High Court
on 22 November 1972 accepted in part the appeal of the Revenue and
held that the amount and the books and documents be returned by the
Revenue to the Station House Officer, Police Station, Kartarpur who
F
was directed to proceed in accordance with law.
G
8
The respondent Romesh Chander filed an application on 12 March
1973 in the court of the Judicial Magistrate, Jullundur and alleged
that the police had not filed any challan against the respondent Romesh
Chander for a long time and prayed for an order that the Station House
Officer, Kartarpur be directed to get the money from the Income-tax
Authorities and comply with the orders of the High Court.
The Revenue Authorities filed an application under section 523
of the Code of Criminal Procedure on 25 March 1973 before
the
Judicial Magistrate, Jullundur and prayed that orders might be passed
directing that the sum of Rs. 1,61,411/- be retained by the Income-tax
Department in partial satisfaction of their outstanding demand against
the respondent Ramesh Chander, and the papers of the Respondent
Ramesh Chander be also retained by the Revenue Authorities for
completion of assessment proceedings against the respondent Romesh
Chander.
J. R. MALHOTRA V. ADDL. SESSIONS JUDGE (Ray, C.J.)
99 5
'
Jn the aforesaid application of the Revenue Authorit!es before the
Judicial Magistrate, Jullundur it was alleged that a regular assessment
order had been passed on 26 June 1972 against the respondent Romesh
Chander and the demand of the Revenue Authorities against the respondent Romesh Chander was Rs. 7,90,293/-. The Revenue further
alleged that the respondent Romesh Chander was given 35 days notice
to pay the amount and because he did not pay the amount demanded,
the sum of Rs. 1,61,411/- was adjusted on 5 Q,:tcber 1972, towards
the outstanding demand. It also appeared in the uforesaid application of the Revenue before the Judicial Magistrate, Jullundur that the
criminal case registered against the respondent Romesh Chander had
been "filed as untraced" by the order of the Court dated 25 January.
1973.
The Judicial Magistrate on 24 April 1973 passed an order directing the Income-tax authorities to return the amount in dispute, the
books and other documents to the Station House Oflicer, Police Station,
Kartarpur.
The order of the Judicial Magistrate was affirmed by the Additional Sessions Judge, Jullundur in revision on 5th May 1973.
The order of the Judicial Magistrate and the order of the Additional Sessions Judge, Jullundur were challenged by the Revenue in
Criminal Revision No. 430 of 1973 in the High Court of Punjab and
Haryana. On 26 June 1974 the High Court set aside the orders ~.nd
remanded the matter to the Judicial Magistrate, Jullundur for determining whether the amount in dispute could be adjusted in Jaw against
the outstanding tax dues from the respondent Romesh Chander and
further whether the adjustment made by the Commissioner of Incometax on 5 October 1 972 was valid and justifiable.
Meanwhile the respondent Romesh Chander filed an application
under section 146 of the Income Tax Act before the Income-tax
Officer against the order of assessment.
The respondent Romesh
Chander also filed an appeal against the assessment orders before
the Appellate Assistant Commissioner on 3 August, 1972. The application of the respondent Romesh Chander under :;ection 146 of the
Income Tax Act was rejected by the Income Tax Officer on 2 August
1973. The respondent Romesh Chander filed an appeal against the
rejection of the petition on 27 August 1973. On 17 Septeniber 1973
the appeals filed by the respondent Romesh Chander against the orders
of the Revenue in -regard to assessment of Income tax of the respondent were heard. The Income Tax Officer on 18 September 1973
asked for adjournment to explain the departmental case. The Appellate Assistant Commissioner granted adjournment and informed the
respondent Romesh Chander by letter dated 22 September 1973 that
steps had been taken by the department to stop all recovery proceedings against the respondent Romesh Chander and that the apoeal would
be heard later on.
,
On 22 September 1973 the respondent Romesh Chander filed an
application before the Appellate Assistant Commissioner that the operatlon of the assessment order during the pendency of the v.ppeals
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996
SUPREME COURT REPORTS
[ 197 6] 2 S.C.R.
A
might be stayed and the demand of the tax be held in abeyance.
The
Appellate Assistant Commissioner by letter dated 27 September 1973
informed the respondent Ramesh Chander that recovery of demand
of Rs. 7,90,293/- for the assessment year 1972-73 had been stayed by
order of the Revenue Authorities dated 18 September 1973.
B
c
It is in this background that the Judicial Magistrate, Jullundur on
3 June 1974 on revision petitions filed by the appellant and the respondent Romesh Chander held that the amount of Rs. 1,61,411/- be
retained by the income-tax department in partial satisfaction of their
outstanding demand against the respondent Romesh Chander.
The
Judicial Magistrate also held that in view of the invalidity of the order
made under section 132(5) of the Income Tax Act the adjustment of
the amount in dispute by the Commissioner of Income Tax on 5 October 1972 was not valid.
The Judicial Magistrate further held that
the business papers of the respondent Romesh Chander might be retained by the Income-tax department for the statutory period for completing pendmg assessment proceedings.
The respondent Romesh Chander went up in revision against the·
order of the Judicial Magistrate. The Revenue also went up in reviD
sion.
By order dated 4 January 1975 the Additional Sessions Judge,
Jullundur allowed the revision petition of the respondent Romesh
Chander and dismissed the petition of the appellant Revenue.
The
Additional Sessions Judge, Jullundur directed the Income Tax Authorities to return the amount of Rs. 1,61,411 /- and the books to the respondent Romesh Chander.
E
The appellant Revenue filed a writ petition in the High Court
F
G
H
challenging the order dated 4 January 1975 of the Additional SessionsJudge, Jullundur.
The High Court rightly rejected the writ petition at sight.
The
Additional Sessions Judge, J ullundur held that the criminal case against
the respondent Ramesh Chander was filed by an order of the Judicial
Magistrate dated 25 January 1973. The second linding of the Additional Sessions Judge is that the High Court by order dated 20 March
1974 remanded the matter to the court of the Judicial M:agistrate to
find out whether it was permissible in law to adjust the amount of
Rs. 1,61,411/- against the outstanding dues of the respondent Romesh
Chander and the Judicial Magistrate held that adjustment was 1:..ot justifiable under the relevant statutory provision.
The Judicial Magistrate,
however, held that the respondent Romesh Chander was not entitled·
to the amount and that the income-tax department could retain the
amount in partial satisfaction of their outstanding demand.
Before
the Additional Sessions Judge, Jullundur the Revenue contended that
the assessment was valid under section 226 ( 4) of the Income Tax Act
independently and under section 132 of the Income Tax Act. The
Additional Sessions Judge, Jullundur referred to the appeals filed by
the respondent Romesh Chander against the assessment proceedings
and observed that the appeal had been heard on 17 September, 1973
and on the following day, viz., 18 September 1973 th~ !1rntter was. adjourned at the instance of the Revenue.
The Ackht10nal Sessions
J. R. MALHOTRA V. ADDL. SESSIONS JUDGE (Ray, C.J.)
997
Judge, J ullundur further said that the search and seizure were illegal
and therefore, the assessee was entitled to the return of all the documents and the amount in question.
The orders of the Appellate Assistant Commissioner dated 17
October 197 5 show that there is no order of assessment and there is
no income-tax demand.
There is no criminal case against the respondent Romesh Chander.
B
The order of the High Court dated 25 May 1972 directed the return
of the sum of Rs. 1,61,411/- and the documents to the respondent
Romesh Chander. The order of the learned Single Judge was affirmed
by the High Court on 22 November 1972. No appeal was preferred
against the order of the High Court.
The order of the High Court
was that the amount of Rs. 1,61,411/- and the books and other docuC
ments were to be returned to the Station House Officer.
After the
criminal case had been filed the authorities have no right to keep the
money, under any provision of law.
There is no question of adjustment of the sum of Rs. 1,61,411/- by reason of the fact that there is
no valid order of assessment and there is no demand for income-tax.
The Revenue cannot indirectly keep the money 0n the plea that
Th
. there will be a demand, and, therefore, the money should be allowed
to be kept with the Revenue. There must be authority of law under
which the money can be kept.
There is no legal order to keep the
money.
The appeal, therefore, fails and is dismissed with costs.
V.P.S ..
Appeal dismissed_