Madras H.C : Claim of the petitioner for payment of interest on the shares retained beyond the period of six months from the date of order under section 132(5) of the Income-tax Act

High Court Of Madras

Anil Kedia vs. Settlement Commission Of Income-Tax & Wealth-Tax

Assessment Year : 1991-92

Section : 132A

Jyothimani, J.

Writ Petition No. 600 Of 2003

W.M.P. No. 730 Of 2003

January  20, 2011 

JUDGMENT

1. Jyothimani, J. – The writ petition is directed against the order of the first respondent, Settlement Commission of Income-tax and Wealth-tax, dated October 25, 2002 in so far as it relates to the portion of the order rejecting the claim of the petitioner for payment of interest on the shares retained beyond the period of six months from the date of order under section 132(5) of the Income-tax Act and for direction against the first respondent to allow the claim of the petitioner for such interest.

2. The petitioner is a member of the Madras Stock Exchange, carrying on the business as a share broker in the trade name, “Viswanath Anil Kedia” in his individual capacity. As a stock broker, he buys and sells shares in the stock exchange on behalf of his clients apart from selling and purchasing in his own name. While carrying on the purchase and sale of shares in his name, he is known as “jobber” who buys shares for lower price and sells at higher price and makes his profit. The shares held by him accordingly form part of the working capital of his business without retaining liquid cash. According to him, in the nature of business of a stock broker, such shares are equivalent to cash since the amounts are realized within 10 days of sale.

(a) There was a search and seizure conducted by the Income-tax Department in the office and residential premises of the petitioner on July 15, 1992, and during the course of the said operation, cash, shares and jewellery were seized from the.petitioner and his family members and also shares and debentures in the form of documents kept on behalf of the clients were also seized. The market value of the shares seized from the residential premises of the petitioner on the date of seizure amounts to Rs.107 lakhs and the value of shares seized from the office amounts to Rs.36 lakhs and in addition to that, certain jewellery and cash were also seized from the residential house.

(b) As per the provisions of section 132 of the Income-tax Act, when the Department enters into residential and office premises of the assessee and seizes the books of account, money, jewellery, etc., the Income-tax Officer, within 120 days, after giving opportunity has to make an order estimating the undisclosed income in a summary procedure and calculate the tax liability. He will also determine the interest and penalty, if imposable and thereafter retain the custody of the assets. The assets thus retained are dealt with under the provisions of section 132B which provides that such retained assets shall be used for existing tax liability of the assessee and also the liability arising out of such search or seizure and the remaining assets after adjustment of the abovesaid liability are to be returned forthwith to the person from whom they were seized. Under section 132B(4)(a) of the Income-tax Act, it is the duty of the Central Government to pay simple interest at the rate of 15 per cent. per annum on the amount by which the aggregate of money retained under section 132, etc.

(c) After the seizure was effected, it is stated that the petitioner and his family members made applications on July 15, 2002, seeking release of the seized assets which were accounted in the books of account of the petitioner as well as his family members. The order under section 132(5) of the Income-tax Act retaining the custody was passed on November 12, 1995, estimating the income-tax and penalty payable by the petitioner at Rs. 1.93 crores and, therefore, the assets and shares having market value of Rs. 1.46 crores were retained under the said provision. The open documents seized from the office premises of the petitioner were released after representation on September 30, 1992, on the petitioner’s father and mother providing their house property as security for a period of six months.

(d) On November 23, 1992, the petitioner, on his behalf and on behalf of his family members, filed application under section 132(11) of the Income-tax Act before the Commissioner of Income-tax raising objections to the orders passed under section 132(5) of the Income-tax Act dated November 12, 1992. The objections were that the seized shares were duly accounted in the books of account and being a stock broker, the shares are the working capital, of the business and the market value of the shares fluctuates and, therefore, the shares seized caused lot of difficulties since the petitioner was unable to carry on his business. A further representation was filed on February 2, 1993, before the Commissioner of Income-tax for release of the seized shares.

(e) According to the petitioner, the shares are equivalent to money for the purpose of business. However, the Income-tax Department did not release the shares, while disposing of the application under section 132(5) of the Income-tax Act. It was after prolonged representations, the Department having realized that the retention of the said assets were needed for adjusting any possible tax liability, released the shares on various dates, viz., March 16, 1993, June 3, 1993, February 4, 1994, February 10, 1995, November 27, 1996, and January 24, 1997. The market values of the shares of the petitioner and his family members represented Rs. 49,50,732, Rs.24,16,174, Rs. 5,53,455, Rs. 1,22,200, Rs. 2,15,000 and Rs. 25,08,439 totalling a sum of Rs. 1,07,66,000.

(f) On September 5, 1994, the petitioner and his brothers filed an application before the Settlement Commission for settlement of cases relating to the assessment years 1991-92, 1992-93 and 1993-94. The Settlement Commission passed an order on January 23, 1995, under section 245D(1) of the Income-tax Act, thereby getting exclusive jurisdiction on the cases pending before it with powers to be exercised on all matters pending with the income-tax authority. The petitioner, on receipt of the order passed under section 245D(1) of the Income-tax Act, made application on March 13, 1995, seeking release of the seized shares.

(g) The contention of the petitioner before the Commission was that the term, “money” contemplated under section 132B(4) of the Income-tax Act also includes “shares” seized on the facts and circumstances of the case and, therefore, the expression cannot be restricted to cash alone, since the intention of the legislators could be gathered to the effect that it does not contemplate cash alone which would be a narrow and restricted meaning. Ignoring the said contention, the first respondent passed the impugned order by construing the term, “money” only to the restricted meaning of cash and consequently, refused to grant interest to the petitioner under section 132B(4) in respect of the shares seized.

(h) It is against the said order, the writ petition is filed on various grounds including that the term, “money” under section 132B of the Income-tax Act has to be construed broadly to mean not only cash but also all other securities including shares which are capable of being valued in terms of money, especially when the term “money” has not been defined under the Act, that as per section 132B(4), the term, “money” includes not only cash, but also shares by referring to various definitions of the term “money” defined in the Corpus Juris Secundum, that in view of the undisputed facts and settled legal position that the seized shares represented working capital of the business of the petitioner which would be converted into cash within a week’s time, the seized shares which were duly accounted for in the accounts, would not represent undisclosed income ; that the seized shares were released without adjusting any tax liability of the petitioner and that the specific request of the petitioner was to release the shares in order to use the sale proceeds for payment of tax.

3. The respondents have not filed any counter-affidavit.

4. It is the contention of the learned counsel for the petitioner that inasmuch as the shares seized formed part of the working capital of the business of the petitioner as a jobber, and ultimately, the income-tax authorities returned the shares after coming to a conclusion that the retention of shares is not needed for adjustment against the possible tax liability and, therefore, it should be treated as “money” and under section 132B(4) of the Income-tax Act the Central Government is bound to pay interest at 15 per cent per annum. In the absence of the definition of the word “money” under the Income-tax Act by referring to the term under the Corpus Juris Secundum, it is his submission that the true meaning of “money” should be construed taking into account the context and, therefore, the word has got more than one meaning to be interpreted and in the context of the present case, according to the learned counsel, the term, “money” cannot be restricted to the word “cash”.

5. On the other hand, Mr. T. Narayanasamy, learned counsel for the respondents would submit that under the taxation law, one has to construe the terms of the provisions of the Act strictly as per the terms and there is no scope for going beyond the words of the statute. According to the learned counsel, when section 132B(4) of the Income-tax Act makes it abundantly clear that the amount of interest payable by the Central Government is only in respect of the amount of money retained under section 132 of the Income-tax Act, there is no scope for extending the meaning of the term “money” to the shares seized and retained by the Income-tax Department when the search was made.

6. I have heard the learned counsel for the petitioner and the learned counsel for the respondents and given my anxious thoughts to the issue involved in this case.

7. The simple point to be considered on the facts and circumstances of the present case is, as to whether the Central Government is liable to pay interest on the shares which were seized by the Income-tax Department and retained under section 132 of the Income-tax Act which, of course, were subsequently released after a few years, without adjusting any possible tax liability. The fact that on application made by the petitioner on September 5, 1994, the Settlement Commission passed orders on January 23, 1995, is not in dispute. That order was passed on the application made by the petitioner under section 245C(1) which is as follows :

“245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :

Provided that no such application shall be made unless-

(i) the additional amount of income-tax payable on the income disclosed in the application exceeds three lakh rupees ; and

(ii) such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.”

for the assessment years 1991-92 to 1993-94. As per the requirements of section 245D(1) of the Act, the Settlement Commission proceeded to enquire and in fact, the Commissioner of Income-tax reported that the application was suitable for settlement. Accordingly, the order was passed by the first respondent on January 23, 1995, with necessary direction to the Commissioner of Income-tax.

8. By that time, the search and seizure effected by the Income-tax Department under section 132 of the Act was pending. Since the shares were seized from the petitioner on July 15, 1992, and July 16, 1992, to the value of Rs. 107 lakhs and odd, stated to be the shares dealt with by the petitioner as a jobber, viz., share broker, who purchased shares for a lesser price and sold the same for higher price, thereby earning profit. The said shares which were seized in July, 1992, were released on various dates as given by the petitioner in the form of the following particulars in the affidavit filed by him.

Sl. No Date of release Market value of shares of the petitioner Market value of shares of fami1y members of the petitioner Total (Rs.)
1 16th March, 1993 5,69,151 43,81,581 49,50,732
2 3rd June, 1993 2,34,695 21,81,479 24,16,174
3 4th February, 1994 0 5,53,455 5,53,455
4 10th February, 1995 0 1,22,200 1,22,200
5 27th November, 1996 0 2,15,000 2,15,000
6 24th January, 1997 1,62,062 23,46,377 25,08,439
Total 9,65,908 98,00,092 1,07,66,000

9. Admittedly, the release of shares were ultimately made by the Department without adjusting any possible tax liability and, therefore, the petitioner claims interest on the shares seized and subsequently released under section 132B(4) of the Income-tax Act. Since in the meantime, the first respondent was seized of the matter under section 245 of the Act on the application made to the first respondent, which resulted in passing the impugned order rejecting the claim of the petitioner for payment of interest on the ground that what was seized was only shares and it cannot be deemed to be an aggregate amount of money retained.

10. The provisions relating to search and seizure are referred to section 132 of the Income-tax Act. Under section 132(5) which was in existence at the time when the shares were seized since the said section 132(5) along with section 132(6) was omitted by the Finance Act, 2002, with effect from June 1, 2002 only, it contemplated that when money, jewellery or other valuable articles were seized as per section 132(1) or (1A) of the Act based on the search effected before July 1, 1997, by the Income-tax Officer, after giving reasonable opportunity to the person concerned and within 120 days of the seizure, he must make an order with the approval of the Joint Commissioner estimating the undisclosed income in a summary manner, calculating the amount of tax on the income estimated, apart from interest payable on the amount, and penalty and also specifying the amount that is required to satisfy the existing liability under the Act. The said section 132(5), which stood as on the said date, is as follows :

“132.(5) Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in sections 132A and 132B referred to as the assets) is seized under subA-section (1) or sub-section (1A), as a result of a search initiated or requisition made before the 1st day of July, 1995, the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Joint Commissioner,-

(i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner 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 (11 of 1922), or this Act ;

(iia) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act, as if the order had been the order of regular assessment ;

(iii) specifying the amount that will be required to satisfy any existing liability under the Act and any one or more of the Acts specified in clause (a) of sub-section (1) of section 230A in respect of which such person is in default or is deemed to be in default,

and retain in his custody such assets/or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in clauses (ii), (iia) 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 Income-tax Officer is of the view that it is not possible to ascertain to which particular previous year or years such income or any part thereof relates, he may calculate the tax on such income or part, as the case may be, as if such income or part were the total income chargeable to tax at the rates in force in the financial year in which the assets were seized and may also determine the interest or penalty, if any, payable or imposable accordingly :

Provided further that where a person has paid or made satisfactory arrangements for payment of all the amounts referred to in clauses (ii), (iia) and (iii) or any part thereof, the Income-tax Officer may, with the previous approval of the Chief Commissioner or Commissioner, release the assets or such part thereof as he may deem fit in the circumstances of the case.”

11. Section 132(6) of the Act, which stood as on that date, which is as follows :

“132.(6). The assets retained under subA-section (5) may be dealt with in accordance with the provisions of section 132B.”

enables to deal with the assets as per section 132B of the Act. Under section 132B(1) of the Act, the assets thus retained under section 132(5) are to be applied for the amount of existing liability under the Income-tax Act or the Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act. Section 132B(3) contemplates that after dealing with the said seized assets for adjusting the tax stated under section 132B(1) and after discharging such liability, any further assets remain, the same shall be forthwith returned to the person from whose custody the assets were seized. Section 132B(3) is as follows :

“132B.(3) Any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized.”

12. The crucial section that is relevant for the purpose of this case is section 132B(4) of the Act which is as follows :

“132B.(4)(a) The Central Government shall pay simple interest at the rate of six per cent. per annum on the amount by which the aggregate amount of money seized under section 132 or requisitioned under section 132A, as reduced by the amount of money, if any, released under the first proviso to clause (i) of sub-section (1), and of the proceeds, if any, of the assets sold towards the discharge of the existing liability referred to in clause (i) of sub-section (1), exceeds the aggregate of the amount required to meet the liabilities referred to in clause (i) of sub-section (1) of this section.

(b) Such interest shall run from the date immediately following the expiry of the period of one hundred and twenty days from the date on which the last of the authorisations for search under section 132 or requisition under section 132A was executed to the date of completion of the assessment under section 153A or under Chapter XIV-B.”

13. The said provision imposes an obligation on the part of the Central Government to pay simple interest in respect of retention of aggregate amount of money seized under section 132 or as requisitioned under section 132A, as reduced by the amount of money. Therefore, in respect of the obligation of the Government to pay simple interest in respect of delayed release under section 132B(4)(a) of the Act, a bare reading of the said provision makes it clear that it relates to only money seized under section 132 of the Act or requisitioned under section 132A which is reduced into amount of money, which means that it relates to any assets which are reduced in terms of money. Section 132(1)(c) which is as follows :

“132.(1)(c) any person is in possession of any money, bullion, jewellery or other valuable article or thing and such money, bullion, jewellery or other valuable article or thing represents either wholly or partly income or property (which has not been, or would not be, disclosed) for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act (hereinafter in this section referred to as the undisclosed income or property),”

only uses the word, money, bullion, jewellery or other valuable articles or things. The authority contemplated can ultimately seize under section 132(1)(c)(iii), any such books of account, other documents, money, bullion, jewellery or other valuable articles or things as a result of such search. Likewise, section 132A(1)(c) which is as follows :

“132A.(1)(c) any assets represent either wholly or partly income or property which has not been, or would not have been, disclosed for the purposes of the Indian Income-tax Act, 1922 (11 of 1922), or this Act by any person from whose possession or control such assets have been taken into custody by any officer or authority under any other law for the time being in force.”

relates to the assets to be handed over to the requisitioning officer having powers under section 132A(3) which is as follows :

“132A.(3) Where any books of account, other documents or assets have been delivered to the requisitioning officer, the provisions of subA-sections (4A) to (14) (both inclusive) of section 132 and section 132B shall, so far as may be, apply as if such books of account, other documents or assets had been seized under subA-section (1) of section 132 by the requisitioning officer from the custody of the person referred to in clause (a) or clause (b) or clause (c), as the case may be, of sub-section (1) of this section and as if for the words ‘the authorised officer’ occurring in any of the aforesaid subA-sections (4A) to (14), the words ‘the requisitioning officer’ were substituted.”

14. Therefore, while the powers given to the authorities under sections 132(1) and 132A are wider relating to the seizure of money and other assets, section 132B(4) (a) imposes an obligation on the Government to pay interest only in respect of those seized matters which are either money or being reduced into the amount of money. The term “money” is not defined in the Income-tax Act. In respect of payment of advance tax under section 234B of the Act, the assessee is liable to pay interest on the amount of tax. The word, “amount” used under the said provision has to be necessarily construed to mean “cash”. Such cash seized under section 132(1) of the Act, if not utilized even for payment of advance tax, which falls due after seizure of cash, also would come within the term “money” for the purpose of enabling the assessee to claim interest under section 132B(4)(a) of the Act. Therefore, in the absence of the words like, assets or shares which are capable of being reduced into the value of money, specifically incorporated in the said provision, it is not possible to accept the contention of the learned counsel for the petitioner that the shares seized should also be treated as money. Therefore, the construction for the purpose of payment of interest under the said provision, viz., section 132B(4)(a) shall be only in respect of money which has been seized in the form of cash or any other assets like, bullion which are capable of being assessed in terms of cash, which can alone be covered for the purpose of payment of interest. The shares held by the petitioner which were seized may form part of capital assets of the business in his day-to-day business, but that will become money only if the amount contemplated under the shares is encashed and that encashment from the shares requires the process of sale to ascertain their value and, in my considered view, it cannot be stated to be either “money” or “assets” which can be reduced into money.

15. The term, “money” which is defined in the Corpus Juris Secundum relied upon by the learned counsel for the petitioner has to be construed on the facts and circumstances of the case. On the facts and circumstances of the present case, merely because the shares seized did form part of the capital assets of the petitioner and the petitioner as jobber was in the process of buying and selling shares which is his avocation, it does not mean that the shares should be construed as money, for the purpose of claiming interest. This aspect has in fact been considered by the first respondent in the impugned order. The construction of the term, “money” in the form of cash by the first respondent, the Settlement Commission, in my considered view, in the present context, cannot be said to be either alien to the present scenario or illegal by looking into any angle.

16. In such view of the matter, I am of the considered view that there is no illegality in the order of the first respondent. Accordingly, the writ petition fails and the same is dismissed. Consequently, the order of the Settlement Commission, the first respondent herein stands confirmed. No costs. Connected miscellaneous petition is closed.

[Citation : 341 ITR 613]

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