Nandlal Rander vs Commissioner of Customs and Others

Y.R. Meena, J.—This Appeal is directed against the judgment of a learned single Judge dated November 13, 1998.

The main grievance in the appeal is that learned single Judge was wrongly directed to serve the notice on the appellant/petitioner, to deter-mine his tax liabilities in respect of Rs. 1,36,42,000/- while the amount of Rs. 1,36,42,000/- has been disclosed under the Voluntary Disclosure of Income Scheme, 1997 (hereinafter referred as Disclosure Scheme, 1997) and further the learned single Judge has erred in not directing the Commissioner of Customs to pay the tax of Rs. 43,38,156/- to Commissioner of Income Tax, Karnataka III, Bangalore and the balance amount should be refunded to the appellant as appellant has declared the amount of Rs. 1,36,42,000/- under the Scheme, 1997.

The petitioner is an assessee under Assistant Commissioner of Income Tax. Circle 11(1) Bangalore. On 30th December, 1997 petitioner filed a declaration in the prescribed form u/s 64(1) read with section 65 of Finance Act 1997, under the Disclosure Scheme, 1997. Under the Disclosure Scheme, 1997 petitioner has declared his income of Rs.1,36,42,000/-. That amount was lying with the Commissioner of Customs, Calcutta. The respondent No. 1 held an open auction sale in respect of diverse materials more particularly specified in the auction list catalogue. Mainly the auction was for Mulberry Raw Silk weighing 9648 Kgs.

In the auction sale one Shambhu Pandey has taken part and his bid was highest. Therefore, the material was sold to Shambhu Pandey. Shambhu Pandey has deposited the amount of Rs. 1,36,42,000/- for purchase of that silk. Thereafter one writ was filed challenging that auction sale and that sale proceedings were stayed by this Court. Thereafter a request was made by the petitioner that if sale is not possible refund the amount Rs. 1,36,42,000/- which was deposited by Shambhu Pandey, the agent of the appellant.

When Customs Department was not prepared to hand over the silk nor ready to make the refund then a petition was filed for direction to the respondents to refund the said amount to the petitioner. There was dispute whether this amount of Rs.1,36,42,000/- belong to the petitioner or the weavers in Bangalore for whom the silk was purchased or to Shambhu Pandey. A direction was given for inquiry and finding on the dispute of ownership of the amount. Ultimately it was found that money belong to the petitioner and Shambhu Pandey was his agent.

Meanwhile the warrant of authorisation under sub-section (1) of section 132A has been issued in respect of the assets in form of amount of Rs. 1,36,42,000/-, lying with the Commissioner of Customs. That authorisation was issued on 7th April, 1997.

In December, 1997 the petitioner has declared the amount lying with the Customs Department, under Disclosure Scheme, 1997. Offering that amount for tax. That declaration of petitioner was rejected by Assistant Commissioner of Income Tax, tax has not been paid within the time allowed.

Learned single Judge in the impugned order directing the Customs Department to refund the money of the petitioner, however that refund will be subject to final clearance from the Income Tax Department.

The perusal of the writ Petition No. 305 of 1988 reveals that inter alia petitioner has prayed before learned single Judge that when the petitioner has disclosed and declared the money being Rs. 1,36,42,000/- under the Disclosure Scheme, 1997 and offered for tax. The respondent No. 4 should be directed to pay Rs. 43,38,156/- on behalf of the petitioner, to discharge the tax liability and balance amount should be refunded to the petitioner with interest without further delay.

Though learned single Judge has directed the Commissioner of Customs to refund the amount but that is subject to the tax liability of the petitioner on that amount. That should be discharged first. The matter regarding whether the petitioner is entitled for the benefit of income disclosed under the Disclosure Scheme, 1997 or not that left open, though the ground has been raised in the petition.

In this background of the case we have to consider whether any prejudice is caused to the appellant/petitioner by the impugned order and judgment of a learned single Judge dated 13th November, 1998.

Learned counsel for the appellant has submits that assessee disclosed Rs. 1,36,42,000/- in December, 1997. The declaration form was rejected as appellant could not pay the tax on that amount. Infact the entire amount was lying with the Commissioner of Customs. Therefore, tax amount could not be paid. There was no fault on the part of petitioner/ appellant. Therefore, the benefit of the Disclosure Scheme, 1997 should be extended to the appellant/petitioner. He further submits that once the amount of Rs. 1,36,42,000/- disclosed under the Disclosure Scheme, 1997, there was no need to give direction for notice to assess the tax liability.

Learned counsel for the respondent submits that when authorisation u/s 132A of the Act 1961 has been issued in respect of amount of petitioner lying with the Customs Department, thereafter in respect of that amount no disclosure can be made under the Disclosure Scheme, 1997. Therefore, before us the limited question is whether the appellant/petitioner is entitled for the benefit of Disclosure Scheme, 1997 fn respect of the amount Rs. l,36,42,000/- which was lying with the respondent No. 1 the Commissoner of Customs.

The admitted facts are that the warrant of authorisation under sub-section (1) of section 132A of the Income Tax Act 1961 was issued in April, 1997 in respect of the assets taken into custody by a Commissioner of Customs, Calcutta. The amount which was deposited by Shambhu Pandey, an authorised agent of the petitioner. The petitioner has disclosed this amount under the Disclosure Scheme, 1997 sub-section (1) of section 64 of the Finance Act, 1997 in the month of December, 1997 that is after the warrant of authorisation issued by the department u/s 132A of the Act 1961.

Clause (ii) of sub-section (2) of section 64 of the Finance Act 1997 which form part of the Disclosure Scheme. 1997, provides that nothing contained in sub-section (1) shall apply in relation to the income, in respect of the previous year, in which a search u/s 132 of the Income Tax Act was initiated or requisition u/s 132A of the Income Tax Act was made, which is Clearly shows that when there was a warrant of authorisation in respect of the assets or amount or income that assets or the income cannot be disclosed under the Disclosure Scheme, 1997.

Learned counsel for the petitioner/appellant further submits that the warrant of authorisation was issued in the name of Shambhu Pandey and Shambhu Pandey was not the owner of the amount deposited and there was no authorisation in the name of petitoner/appellant. The petitiner/appellant is at liberty to disclose the amount, which was lying with the Customs Department, under the Disclosure Scheme, 1997.

Section 132A of the Act 1961 is part of chapter (XIII) of the Income Tax Act. The chapter deals with the powers of the Income Tax authorities regarding discovery and production of evidence etc.

Section 131 provides and empowers the Income Tax authorities with the power which vested in the Court under the Code of Civil Procedure, 1908, such as for discovery and inspection, enforcing the attendance of any person, for examination, can compel the production of books of account or any other document and can issue Commission also.

Section 132 provides for Search and Seizure if the Director General or Director or Chief Commissioner or any authority authorised in this behalf by the Board and if either of them have any information that any income or property which has not been disclosed for the purpose of Income Tax Act 1922 or Act 1961, the aforesaid authorities can authorise to Deputy Commissioner or Assistant Director or Assistant Commissioner or Income Tax Officer to enter and search any building, place, vessel, vehicle or aircraft, where he has reason to suspect that such books of account or any document or any money, bullion, jewellery or other valuable articles or things, relating to the undisclosed income, is kept.

The authorised officer can break open the lock of any door, box, locker, safe, almirah where the key thereof are not available. That officer can also search any person who has got out of, or is about to get into, or is in, the building, place, vessel, vehicle or aircraft, the authorised officer if he has reason to suspect that such person has any such books of account, other documents, money, bullion, jewellery etc. which relates to the income escaped assessment that can be seized during the search and made a note or an inventory of such items.

Provision of section 132A inter alia provides for requisition of books of account or assets etc. where the Director General or Director or the Chief Commissioner or Commissioner, in consequence of information in his possession, has reason to believe that any assets represent either wholly or partly income or property which has not been, or would not be disclosed for the purpose of Indian Income Tax Act, 1922 or the Act 1961, by any person form whose possession or control such assets have been taken into custody by any officer or authority under any law for the time being in force. Then the Director General or Director or the Chief Commissioner may authorise any Deputy Director, Deputy Commissioner, Assistant Director, Assistant Commissioner or Income Tax Officer, who can require the officer or authority to deliver such books of account or assets or any document to requisitioning officer.

Warrant of authorisation under sub-section (1) of section 132A of the Act 1961 has been issued by Director of Income Tax on 7th April, 1997, authorising Mr. B.K. Bala, Mr. R.N. Parbat, Mr. U. Basu. Mr. A.K. Roy and Mr. Indralil Roy, to require the Commissioner of Customs Calcutta to deliver the assets/amount deposited by Shambhu Pandey to the authorised office, authorised in warrant of authorisation u/s 132A of the Act, 1961.

Learned counsel for the appellant submits that it is true that the amount in question was deposited by Shambhu Pandey but that amount belong to the appellant and when in the authorisation is in the name of Shambhu Pandey that authorisation cannot be used against the appellant for the purpose of benefit of Disclosure Scheme, 1997.

There is no dispute on the facts that the amount of Rs. 1,36,42,000/- was deposited by Shambhu Pandey with the Commissioner of Customs Calcutta and on that date department was not certain that the amount of Rs. 1,36,42,000/- belong to Shambhu Pandey or to the appellant but on record the amount has been deposited by Shambhu Pandey, in whose favour the auction sale was declared final.

The provisions of section 62 to 78 of the Finance Act 1997 deals with the Voluntary Disclosure of Income Scheme, 1997. Under the Disclosure Scheme, 1997 any person can declare his any income which was never subjected to tax under the Income Tax Act, 1922 or the Income Tax Act, 1961 or declared as wealth under the Wealth Tax Act, 1957. That declaration can be made under sub-section (1) of section 64 of the Finance Act, 1997.

Sub-section (2) of Finance Act 1997 provides that nothing contained in sub-section (1) shall apply in relation to the income assessable for the assessment year for which a notice u/s 142 or section 148 of the Income Tax Act has been served upon such person and the return has not been furnished before the commencement of this Scheme. Clause (ii) of sub-section (2) of section 64 of the Finance Act, 1997 further provides that income in respect of the previous year in which a search u/s 132 of the Income Tax Act was initiated or requisition u/s 132A of the Income Tax Act was made or survey u/s 133A of the Income Tax Act was carried out or in respect of any earlier previous year. The benefit of Disclosure Scheme, 1997 will not be available.

Relevant Clause (ii) of sub-section (2) of section 64 of the Finance Act, 1997 reads as under:--

"section 64(2) Nothing contained in sub-section (1) shall apply in relation to,

(i) .......................................

(ii) the income in respect of the previous year in which a search u/s 132 of the Income Tax Act was initiated or requisition u/s 132A of the Income Tax Act was made, or survey u/s 133A of the Income Tax Act was carried out or in respect of any earlier previous year".

It is manifest from the provision of clause (ii) of sub section (2) of section 64 of the Act 1961 that in case a requisition u/s 132A of the Income Tax Act, that is warrant of authorisation, has been issued by the competent authority regarding any ''income'' asset which was never subject to tax, that asset or the ''income'' cannot be disclosed under the Disclosure Scheme, 1997, as that has prohibited by clause (ii) of sub-section (2) of section 64 of the Finance Act, 1997. For the purpose of clause (ii) of sub-section (2) of section 64 ''income'' which was not disclosed is material and not the person, who deposited or from whose possession assets came to the custody of any any authority or person.

The warrant of authorisation under sub-section 132A reveals that the authorisation was signed by the Director of Income Tax on 7.4.1997. That was issued on information, the Director received before issue of authorisation u/s 132A of the Act 1961. That authorisation refers the amount/assest deposited by Shambhu Pandey, with Customs Commissioner. That was never subject to Income Tax.

When the authorisation was issued by the authority competent under the provisions and for the assets/amount deposited by Shambhu Pandey in respect of auction sale and that amount belong to appellant, which admittedly were never subject to tax either under Act 1922 or on 1961. That amount or asset cannot be disclosed under the Disclosure Scheme, 1997.

It is pertinent to note that the disclosure by the appellant is an admission that amount was never subject to tax under Act, 1961.

Thus the case of the appellant has come in narrow campus that when the appellant has disclosed the amount of Rs. 1,36,42,000/- under the Disclosure Scheme, 1997. Whether commissioner of Customs should pay the required income tax out of the amount lying with him as per Disclosure Scheme, 1997 and balance of amount should be returned to the appellant.

As discussed above, the warrant of authorisation under sub-section (1) of section 132A was issued refers the assets/amount deposited by Shambhu Pandey with Commissioner of Customs in respect of auction sale. The amount in question belong to the appellant. For that asset/amount warrant of authorisation u/s 132A was issued in April, 1997 that is prior to declaration made by the appellant under the Disclosure Scheme, 1997.

When the warrant of authorisation was issued prior to the declaration, Clause (ii) of sub-section (2) of section 64 of the Finance Act 1997 prohibits the disclosure of such income under the Disclosure Scheme, 1997.

Therefore, from the aforesaid discussion we are of the view that the appellant is not entitled for the benefit of Disclosure Scheme, 1997 and the amount of Rs. 1,36,42,000/- which was never subject to tax. When the amount cannot be taxed under the Disclosure Scheme, 1997 the amount has to be taxed under the provisons of the Act 1961 as income of assessee. That can be assessed only after notice to the assessee/appellant.

Therefore, in view of these facts if income is assessed after notice to the assessee there is nothing wrong in the notice. Even if he has any grievance against the assessment made he can challenge that assessment order in appeal.

In the memo of appeal the appellant has also challenged the penalty proceedings u/s 271(1)(c) of the Act 1961. If the concerned officer found that there is concealed income, in that case it is always open to the officer to initiate penalty for concealment u/s 271(1)(c) of the Act, 1961. If any penalty is imposed in a proceedings u/s 271(1)(c), the appellant can file appeal against that penalty order.

In the result the Commissioner of Customs is directed first pay the tax liabilities on behalf of the appellant out of Rs. 1,36,42,000/-, such as tax assessed, penalty amount and amount of interest as determined by tax authorities under the Act 1961. The balance amount if any out of Rs. 1,36,42,000/- be refunded to the appellant.

The appeal stands disposed of in the manner aforesaid.

G.C. De, J.

I agree.

Appeal disposed of