Income Tax Authorities Have The Power To Seek Interim Custody Of Currency Notes Produced Before The Magistrate: Kerala High Court

The Division Bench of Justice P. B. Suresh Kumar and Justice C. Pratheep Kumar was answering a question referred to it by the Single Bench. The Single Bench had noted that there is contradiction in the High Court decisions in Union of India v State of Kerala (2022) and R. Ravirajan v State of Kerala (2023).

In Union of India, the High Court held that the authorities under Income Tax Acy is entitled to seek interim custody of the currency notes from the Magistrate.

However, in R. Ravirajan, the Court 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. Section 132A of the Income Tac Act says that if any officer or any authority has taken into custody any asset of a person which is not or would not have been disclosed for the purpose of Income Tax Act, the income tax authority can require the officer or authority to deliver such asset to the income tax authority. In the case of Ravirajan, a requisition under Section 132A was not made. The income tax authorities approached the Magistrate under Section 451 of Code of Criminal Procedure (Cr.P.C) to get interim custody of the currency. The Court had held in that case that since a requisition under 132A was not made from the authority who seized the currency, the same cannot be made to the Court.

The High Court in this instant case however held that the view of the High Court in Ravirajan is incorrect. The Court held that the purpose of sections 132, 132A and 132B of the Act is to enable the income tax authorities to hold the assets seized or requisitioned by them which they reasonably believe is or is part of asset which is or would not be disclosed for the purpose of the Act. Such assets can be appropriated towards the existing and future liabilities of the assessee. If the assessee is able to explain the nature and source of those assets within the prescribed time, those assets shall be released to him.

The Court held that if the income tax authorities are not able to seek interim custody of the currency from the magistrate, these provisions will become futile in cases where the authority is unable to issue a requisition as the asset has been already produced before the Magistrate after the seizure.

The Court also referred to Abdul Khader v Sub Inspector of Police (1988) where it was held that income tax authorities cannot make a requisition to court for delivery of assets but they can seek interim custody of the assets.

The Court held that in cases where the income tax authority has reason to believe that the asset is wholly or partly not declared or would not have been declared for the purpose of the Income Tax Act, then the income tax authorities are the competent authority to hold such assets.

“When the Act confers power on the competent authority under the Act to issue a requisition and obtain assets of assesses 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 purpose 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 Court further said that as per Section 132B of the Act, the authorities can apply the money requisitioned not only for the existing liabilities but also any liabilities determined on completion of assessment or reassessment or recomputation and also the assessment of year relevant to the previous year in which the requisition is made.

The court also added that while deciding on an application for interim custody, the court does not determine the right to ownership. The court only decides who gets to keep the assets till the conclusion of the enquiry or trial.

The Court in Union of India, had said that the authority on receipt of the seized currency shall complete the proceedings against the concerned person within a period of six months and if not, the amount shall be released to the person from whom the amount was seized. The High Court in this instant case held that such a condition is not accordance with law as the court is only deciding the interim custody of the currency notes. The Court can decide only on the disbursement of the amounts at the conclusion of the enquiry or trial.

Counsel for the Petitioner: Advocates M. Ramesh Chander (Sr.), Bejoy Joseph P. J., P. Raghunath, Govind G. Nair, Bonny Benny, Balu Tom

Counsel for the Respondent:

Case No: Crl.M.C. No 1742 of 2024

Case Title: Kasinath Rangoda Kanade v State of Kerala