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PETITIONER: J. R. MALHOTRA & ANR.

       Vs.

RESPONDENT: ADDITIONAL SESSIONS JUDGE, JULLUNDUR & ORS.

DATE OF JUDGMENT11/12/1975

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) BEG, M. HAMEEDULLAH SARKARIA, RANJIT SINGH SHINGAL, P.N.

CITATION:  1976 AIR  219            1976 SCR  (2) 993  1976 SCC  (1) 430  CITATOR INFO :  D          1991 SC 236  (7)

ACT:      Income  tax-Money   seized  from   assessee  suspecting offence-Prosecution dropped  for want  of evidence-Right  of Revenue to  keep money  seized from  assessee without  valid order of assessment.

HEADNOTE:      Under a  search warrant issued under s. 132, Income Tax Act,  1961,   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 authorities to hand over  the money  and documents  to the Police to enable them to proceed in accordance with law. 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  Assistant  Commissioner stayed the recovery of the tax assessed.      The Magistrate after remand held that the amount seized be retained  by the  Revenue in  partial satisfaction of the rex due  from the  respondent, but  the Additional  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

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order was dismissed by the High Court.      Dismissing the appeal to this Court, ^      HELD: After  the prosecution against the respondent was dropped for  want of  evidence, the authorities had no right to keep  the money  seized from  him under  any provision of law. There  is also  no question of its adjustment, because, there is no valid 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 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 money  can be  kept, but in this case there was no legal order to keep the money. [997-C-D]

JUDGMENT:      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 in Civil Writ Petition No. 2292 of 1975.      S. P. Nayar for the appellant. 994      B. Datta and Harbans Singh for respondents 2-4.      The Judgment of the Court was delivered by      RAY, C.J.  This appeal  is by  special leave  from  the order dated  6 May  1975 of  the High  Court of  Punjab  and Haryana dismissing  in  limine  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 authorised  officer seized the sum of Rs. 1,61,411/- and certain books  and documents.  The business  premises of the respondent Romesh Chander and the other respondents who were his partners  were searched  and certain documents and books were seized.      The  respondent  Romesh  Chander  by  a  writ  petition challenged the  warrant of  authorisation. The High Court of Punjab and  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 was directed to proceed in accordance with law.      The respondent  Romesh Chander  filed an application on 12 March  1973 in  the court  of  the  Judicial  Magistrate,

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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 Romesh  Chander, and the papers of the Respondent Romesh Chander  be also  retained by the Revenue Authorities for  completion   of  assessment   proceedings  against  the respondent Romesh Chander. 995      In the aforesaid application of the Revenue Authorities 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 October  1972,  towards  the  outstanding  demand.  It  also appeared in  the aforesaid 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 Officer, 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 and remanded the matter to the Judicial Magistrate, Jullundur  for determining whether the amount in dispute could be adjusted in law against the outstanding tax dues from  the respondent Romesh Chander and further whether the adjustment  made by  the Commissioner of Income-tax on 5 October 1972 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  section 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 September 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

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that steps  had been  taken by  the department  to stop  all recovery proceedings  against the  respondent Romesh Chander and that the appeal would be heard later on.      On 22  September 1973  the  respondent  Romesh  Chander filed  an   application  before   the  Appellate   Assistant Commissioner that  the operation  of  the  assessment  order during the pendency of the appeals 996 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  Romesh 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.      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 pending assessment proceedings.      The respondent  Romesh  Chander  went  up  in  revision against the  order of  the Judicial  Magistrate. The Revenue also went  up in revision. 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.      The appellant Revenue filed a writ petition in the High Court challenging  the order  dated 4  January 1975  of  the Additional Sessions Judge, Jullundur.      The High  Court rightly  rejected the  writ petition at sight. The  Additional Sessions  Judge, Jullundur  held that the criminal  case against the respondent Romesh Chander was filed by  an order  of  the  Judicial  Magistrate  dated  25 January 1973.  The second finding 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 Magistrate 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  not  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  the  matter  was adjourned at  the instance  of the  Revenue. The  Additional Sessions

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997 Judge, Jullundur  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 1975  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. 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 documents 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 on  the plea that  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. 998