IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 23.12.2010 C O R A M: THE HONOURABLE MR.JUSTICE F.M.IBRAHIM KALIFULLA and THE HONOURABLE MR.JUSTICE N.KIRUBAKARAN WRIT APPEAL No.1205 of 2010 1. Assistant Director of Income Tax (Inv) (AIU), 108, Nungambakkam High Road, Chennai – 34. 2. Income Tax Officer, Ward 1(3), Thirunarayanapuram East Road, Gandhi Nagar, Kumbakonam. 3. The Director of Income Tax (Inv), Chennai – 34. 4. The Director General of Income Tax (Inv), Air Intelligence Unit, Chennai – 34. .. Appellants vs. Apparasu Ravi .. Respondent Writ Appeal filed under Clause 15 of Letters Patent Appeal against the order of the learned Single Judge in W.P.No.921 of 2010, dated 13.04.2010. Petition presented under article 226 of the constitution of India to issue a writ of certiorarified Mandamus calling for the records of the 2nd respondent made in S&S/KUM/I(3)/ 2009-10 dated 10.12.2009, and quash the same and further direct the 4th respondent to retrun the assorted gold jewelry weighing 9957/430 grams seized from the petitioner at the gate of Anna International Airport, chennai on the night/early moring of 14th August 2009 as such search and seizure are ex-facie invalid and void abinitio and the provisions of Income Tax Acts has no application to the petitioner forthwith. For Appellants : Mr.J.Narayanaswamy Standing Counsel for IT Dept. For Respondent : Mr.B.Kumar, Senior Advocate for Mr.T.Chezhiyan https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T F.M.IBRAHIM KALIFULLA, J. The Income Tax department is the appellant. The challenge is to the order of the learned Single Judge dated 13.04.2010, passed in W.P.No.921 of 2010. 2. By the impugned order, the learned Single Judge set aside the order of the second appellant dated 10.12.2009, passed under Section 132B of the Income Tax Act and consequently directed the fourth appellant to return the gold jewellery weighing 9957/430 grams seized from the respondent at the gate of Anna International Airport, Chennai on the night of 13th August, 2009/early morning of 14th August, 2009. 3. The brief facts which are required to be stated as pleaded by the appellants are that the respondent travelled from Singapore to Chennai on 13.08.2009, with 10 kg of gold. He was intercepted by the Air Intelligence Unit of the Income Tax Department at the Airport after Customs clearance. When he was asked as to whether he was carrying any valuable items from Singapore, the respondent informed that he was carrying 10 kgs of gold jewellery. When he was asked about the purpose of carrying 10 kgs of gold jewellery from Singapore to India, the respondent stated that he does not own 10 kgs of gold, that after obtaining boarding pass at Singapore Airport, when he was ready to enter the check-in area to complete the other formalities, an unknown person approached him with a request to carry 10 kgs of gold jewellery to Chennai. The said person is stated to have offered Rs.8,000/- to the respondent to carry the said gold jewellery to Chennai and hand it over to a person at Chennai at the International Airport arrival. According to the respondent, when he asked him as to how he could identify the receiver of the gold jewellery at the Chennai Airport, the said unknown person informed him that if he furnishes the mobile number, the other person will be able to identify him. The said unknown person also stated to have told him that if the other person at Chennai reveal the respondent's mobile number furnished by him at the Singapore Airport, he should hand over the 10 kgs of gold to him. The said unknown person is also stated to have given USD 10950 for the purpose of payment of Customs Duty at Chennai Airport and that the sum of Rs.8,000/- would be paid by the person waiting at the Chennai Airport on receipt of 10 kgs of gold jewellery. 4. It is the case of the appellants that when the above information was gathered from the respondent, in order to hold a search on him, they obtained necessary sanction from the Competent Authority and thereafter held the search on the respondent on 14.08.2009. https://hcservices.ecourts.gov.in/hcservices/ 5. It is stated that in the course of the search on 14.08.2009, the respondent took the very same stand as regards the 10 kgs of gold jewellery carried by him and he also stated that he would be staying in India for about two months and that he has not purchased his return ticket till that point of time. He is also stated to have revealed his place of abode as his ancestral house at No.4/175, Gandhi Nagar, Thirumallaivasal, Sirkali Taluk, Nagai District. 6. The appellants thereafter, seized the gold jewellery under Section 132 of the Income Tax Act. After the seizure, the respondent filed a writ petition in W.P.No.20083 of 2009 for Mandamus to direct the first appellant to forthwith release the gold jewellery weighing 9957.43 grams, which he imported after paying the Customs Duty thereon, which was seized from him at Anna International Airport in F.No.ADIT/A.I.U./2009-10. 7. The said writ petition was filed by one S.Manikandan son of K.Subramanian claiming himself to be the Power of Attorney Agent of the Respondent. In the affidavit filed in support of the writ petition, the petitioner therein claimed that the respondent had been doing business in gold jewellery in Singapore and that he had brought the jewellery into India as his stock-in-trade of business, which cannot be seized at all under the amended provisions of Section 131 of the Income Tax Act. 8. He further claimed that he was coerced by the appellant to admit as though the gold jewellery brought by him belonged to somebody else. The respondent also sent a communication dated 02.09.2009, stating that the jewels belonged to him and that he was a Non Resident Indian and that the jewels should be returned to him. 9. The said writ petition was disposed of by an order dated 20.10.2009, by which, the appellants were directed to complete the enquiry within a period of ten weeks from the date of receipt of a copy of the order and depending upon the out come of the enquiry, the prayer of the petitioner for release of the gold jewellery can also be considered by the appellants. The respondent was directed to extend all his co-operation in completing the enquiry within the stipulated time limit. 10. Thereafter, the second appellant passed an order dated 10.12.2009, under Section 132B(1) of the Income Tax Act holding that the passport entries of the respondent revealed that he stayed in India during the period 16.10.2004 to 28.11.2007 more than 365 days apart from 60 days stay in the relevant previous year as stipulated under Section 6(1)(c) of the Income Tax Act and that therefore, he was a resident in India and hence his total income was taxable in India. https://hcservices.ecourts.gov.in/hcservices/ 11. According to the second appellant, as the respondent was a resident of India within the meaning of Section 6(1)(c) of the Income Tax Act, a formal notice under Section 153A(1)(a) of the Act was also issued to him calling upon upon him to file his returns of total income for the Assessment Years 2004-05 to 2010-11. The order also revealed that a notice dated 02.11.2009, was issued to the respondent extending an opportunity to explain the nature and source of acquisition of the jewellery/asset seized from him. 12. It is stated that the respondent did not appear for the hearing fixed on 09.12.2009. On the above statement of facts, the second respondent held that since the nature of source of acquisition of jewellery which was valued at Rs.1,37,21,202/- and the source for purchase of foreign exchange amounting to USD 10950 (Rs.5,03,700/-) not having been satisfactorily explained by the respondent, a sum of Rs.1,42,24,902/- would be deemed to be the income of the assessee from the unexplained sources for the Financial Year 2009-10 (Assessment Year 2010-11). 13. It was further held that since the respondent would be an assessee and has not filed his return of income in India for the Assessment Years 2004-05 to 2010-11, the tax liability is likely to be more than the amount of seized asset, which according to the second appellant worked out to Rs.58,49,217/- and such amount would attract penalty leviable at 200% on the tax sought to be evaded under Section 271(1)(c) of the Act in a sum of Rs.1,16,98,434/- in all a sum of Rs.1,75,47,651/-. 14. The second respondent thereafter, held that since the tax liability was more than the value of the seized asset, the assessed jewellery would be retained towards the tax liability and the jewellery cannot be released pending finalisation of the assessment and recovery of the entire tax or completion of the assessment. 15. It was further observed that the exemption provided under the Customs Act for acquiring gold jewellery cannot be taken for granted in all circumstances for claiming immunity when it comes to the question of Income Tax Act. 16. As against the said order of the second appellant, the respondent preferred the present writ petition in W.P.No.921 of 2010. The second appellant has filed a counter affidavit resisting the claim of the respondent for return of jewellery. 17. By the order impugned in this appeal, the learned Single Judge held that the respondent stayed in India for 96 days during the previous year viz., 2009-10 relevant to the Assessment Year 2010-11. https://hcservices.ecourts.gov.in/hcservices/ 18. The learned Single Judge also held that admittedly, the respondent was in India for more than 365 days between 17.10.2004 and 28.11.2007 and thereafter from 13.08.2009 onwards on different dates for 96 days. The learned Single Judge also repelled the contention of the appellants that the stay in India in the previous year should be counted only in respect of a voluntary stay and that the respondent had never been in India prior to 13.08.2009 and the 60 days stay in India was only on account of the proceedings initiated by the appellants. 19. The learned Judge however held that the respondent's case was covered by Explanation (b) to Section 6(1)(c) of the Act and since the respondent did not stay in India in the previous year viz., 2009-10 for 182 days, the appellants had no jurisdiction to treat the respondent as a 'resident' for the purpose of passing orders under Section 132B of the Act. 20. The learned Judge therefore held that the impugned order dated 10.12.2009, was invalid and consequently directed the fourth appellant to return the gold jewellery weighing 9957/430 grams seized from the respondent at the gate of Anna International Airport, Chennai on the night of 13th August, 2009/early morning of 14th August, 2009. 21. Assailing the order of the learned Single Judge, Mr.J.Narayanasamy, learned Standing Counsel for the appellants contended that going by the facts revealed, it was brought out that the respondent who initially claimed, prior to the seizure, that 10 kg of gold jewellery brought by him into India along with USD 10950 did not belong to him and that subsequently, he took a contradictory stand that the gold jewellery belonged to him, which he brought for his daughter's wedding as well as to start gold jewellery business and having regard to the purpose of stay of the respondent during the previous years between 2004-2007 and the number of days stay in India in the relevant previous year viz., 2009-10, he was covered by Section 6(1)(c) of the Act and consequently liable to payment of tax in India. 22. The learned Standing Counsel would further contend that the search and seizure effected under Section 132B of the Act ought not to have been interfered with by the learned Single Judge. 23. According to the learned Standing Counsel the respondent should therefore undergo the assessment proceedings and depending upon the out come of the assessment to be made, the return of jewellery can be decided. https://hcservices.ecourts.gov.in/hcservices/ 24. As against the above submissions, Mr.B.Kumar, learned Senior Counsel appearing for the respondent submitted that under the Notification No.31/2003, dated 01.03.2003, issued under the provisions of the Customs Act, exemption was granted in public interest for import of gold bars or gold in any form, at the rate prescribed under the said Notification subject however to the condition that duty should be paid in convertible foreign currency and the quantity of gold imported in any form should not exceed ten kilograms per eligible passenger. The said Notification also provided for such import either by carrying it by the eligible passenger at the time of his arrival in India or by import within 15 days of such arrival in India. The eligible passenger has been explained in the very same Notification by stating that "a passenger of Indian origin or a passenger holding a valid passport, issued under the Passports Act, 1967, who is coming to India after a period of not less than six months of stay abroad and even short visits, if any, made by the eligible passenger during the aforesaid period of six months shall be ignored if the total duration of stay on such visits does not exceed thirty days and such passenger has not availed of the exemption under this Notification at any time of such short visits." 25. The learned senior counsel for the respondent would further contend that the respondent was an 'eligible passenger' since prior to his visit on 13.08.2009 to India, he stayed in abroad for nearly 3 years and therefore he was entitled to bring 10 kg of gold when he visited India on 13.08.2009. 26. The learned senior counsel by referring to yet other directions issued by the Government of India dated 02.03.1995 and 22.04.1992 to the effect that it is not necessary for a passenger to own the gold in order to become eligible to import and that any incoming passenger can import the gold as long as he satisfied the conditions of stay abroad and those relating to payment of duty in foreign exchange and the maximum quantity permitted, as well as that there was no condition that the source of earning from which the gold was purchased be verified. It was therefore contended that the directions therefore made it clear that it would be beyond the jurisdiction of the Customs officials to go into this aspect. 27. The learned senior counsel for the respondent also referred to a further Notification issued under Section 3 of the Foreign Exchange Management Act, 1999 by which many constraints in dealing with the money by NRI came to be relaxed. 28. The learned senior counsel then contended that in order to satisfy the stipulations contained in Section 6(1)(c) to that the respondent was a 'resident' in India, the appellants were bound to satisfy the twin requirement that he stayed in India for 365 days https://hcservices.ecourts.gov.in/hcservices/ within four years preceding the previous year and that by virtue of the explanation (b) to Section 6(1), he should have stayed in India in that previous year for 182 days. 29. The learned senior counsel therefore submitted that the Income Tax authorities cannot place an interpretation under Section 6 (1)(c) to bring out the situation which the Government of India wanted to avoid and thereby create a friction. According to the learned senior counsel Section 6(1)(c) must be dissimilated which will not create a friction. 30. The learned senior counsel contended that if the search and seizure could not have been made on the date of seizure for non- compliance of Section 6(1)(c), it cannot be given an extension by taking into account the subsequent event of the respondent's stay after the seizure. 31. According to the learned senior counsel there was violation of the right to property which is Constitutionally protected under Article 300(A) in the absence of any statutory provisions. 32. The learned senior counsel also contended that the search and seizure effected by the appellants was in violation of Section 132 of the Act, in as much as, there was no prior information available in order to effect seizure and consequently the very seizure was invalid. 33. The learned senior counsel placed heavy reliance upon the decision of the Delhi High Court reported in (2000) 242 ITR 302 (Ajit Jain Vs. Union of India) which was also affirmed by the Hon'ble Supreme Court in the decision reported in (2003) 260 ITR 80 (Union of India Vs. Ajit Jain and Another). The learned senior counsel further contended that the estimated tax liability and penalty in the order dated 10.12.2009, does not fit in to Section 132 of the Income Tax Act, which only refers to ascertaining the liability of tax and interest. 34. By way of reply Mr.J.Narayanasamy, learned standing counsel contended that the decision relied upon by the respondent varies in facts and therefore the same cannot be applied to the case on hand. 35. The learned standing counsel also contended that mere compliance of the Notification issued under the Customs Act will have no bearing on the action taken under the provisions of the Income Tax Act. 36. According to the learned standing counsel going by the version of the respondent himself, there were contradictions as regards the ownership of the gold brought by him and therefore in the present juncture the seizure effected by the impugned order dated https://hcservices.ecourts.gov.in/hcservices/ 10.12.2009, should not be interfered with. The learned standing counsel contended that if seizure of gold is released as directed by the learned Single Judge, having regard to the fact that the respondent had secured two passports and also taken steps to secure a third passport, the balance of convenience is also not in favour of the release of the gold jewellery seized and that he can very well await the assessment proceedings and depending upon the out come, the appellant can be allowed to decide the disposal of the gold jewellery seized. 37. The learned standing counsel also stated that the appellants are always prepared to conclude the assessment proceedings at any early date even though it has got time till 31.12.2012, to pass the order of assessment. 38. It was lastly contended by the learned standing counsel that since the respondent himself came out with two different statements as regards the ownership, if ultimately some other party claimed ownership for the gold jewellery, the same will create serious implications and therefore the release of the gold jewellery ordered by the learned Single Judge should not be sustained. 39. Having heard the learned standing counsel for the appellants and the learned senior counsel for the respondents, the issues that calls for consideration in this appeal are three fold viz., (a) Whether the search and seizure made on 14.08.2009, was in accordance with the provisions of the Income Tax Act ? (b) Whether the respondent can be held to be a 'resident' of India falling under Section 6(1) (c) of the Act ? and (c) Whether the order passed under Section 132B of the Act dated 10.12.2009 can be sustained, awaiting the conclusion of the assessment proceedings ? 40. Based on the answers to the above questions, the relief to be granted will have to be decided. 41. As far as the first question is concerned, it is necessary to refer to certain basic facts relating to the search and seizure made on 14.08.2009, based on the original file placed before the Court. The file discloses that on 13.08.2009, a sworn statement was recorded under Section 131 of the Income Tax Act after issuing a summons to the respondent at 11.00 pm. After recording the formal identification of the respondent relating to his address, avocation, family set up etc., he was asked as to whether he was carrying any valuable items from Singapore to Chennai. The respondent gave the following answer: https://hcservices.ecourts.gov.in/hcservices/ "This 10 kgs gold jewellery is not own to me. After obtaining boarding pass at Singapore Airport, I was ready to enter check-in area to complete other check-in formalities. An unknown person came and approached me at the check-in area with a request to carry 10 kgs of gold jewellery to Chennai. He further instinct me and offered Rs.8000 to carry these gold jewellery to Chennai and hand it over to the person known to him (unknown to me) at the International Airport arrival hall in Chennai Airport. I asked him how I will identify the receiver of the gold jewellery at the Chennai Airport, for which he replied that his man in Chennai will easily identify me and ask my mobile number. When his persons reveals my mobile number which I gave him at Singapore Airport, I have to hand over the 10 kgs of gold jewellery. In addition he has given US$10950 for the purpose of customs duty to be paid at Chennai Airport. Further he stated that Rs.8,000 will be paid by his person waiting at Chennai Airport on receipt of the 10 kgs of gold jewellery at the time of handing over of gold jewellery." 42. Thereafter, based on the said information, necessary permission was sought for warrant of authorisation under Section 132 of the Income Tax Act to make a search on the respondent. Necessary authorisation was secured from the fourth appellant and was issued to the first appellant. Based on the said authorisation, search was conducted on the respondent under Section 132 of the Income Tax Act, which resulted in seizure of the gold jewellery worth Rs.1,37,21,202/-. The search and seizure was effected on 14.08.2009. 43. In the first instance, when we examine the initial search and seizure effected on the respondents, the contention on behalf of the respondents was that the same was in violation of Section 132(1) of the Income Tax Act. 44. According to the learned senior counsel for the respondent in order to effect the search and seizure on the respondent, there should have been prior information about the possession among other items jewellery which would not be disclosed for the purpose of the Act to be dealt with as undisclosed income or property and that there should have been reason to believe such information in order to hold the search and seizure. 45. In support of the said submissions, the learned senior counsel placed reliance upon the decision reported in (2000) 242 ITR 302 (Ajit Jain Vs. Union of India) which was also affirmed by the https://hcservices.ecourts.gov.in/hcservices/ Hon'ble Supreme Court in the decision reported in (2003) 260 ITR 80 (Union of India Vs. Ajit Jain and Another). 46. The Division Bench decision of the Delhi High Court reported in (2000) 242 ITR 302 (Ajit Jain Vs. Union of India) was a case where the petitioner therein went from Mumbai to Chennai on 09.01.1996, with a sum of Rs.8.60 lakhs, which was duly reflected in the company's cash book, in which he was the Managing Director and on reaching Chennai, he stayed in Hotel Chola Sheraton. According to him the said money was to be deposited with a bank for making a bank draft for payment of custom duty on 12.01.1996. While he was staying in the said hotel, a raid was conducted by the officers of the CBI on 11.01.1996 and a sum of Rs.8.6 lakhs was recovered from him. On the information of the CBI the respondents 4 and 5 therein viz., the Director of Income Tax (Investigation) and Assistant Director of Income Tax (Investigation) arrived in the room and took into possession of the said amount of Rs.8.5 lakhs. A statement of the petitioner was recorded on oath by the said respondent 5, wherein in answering to a question with regard to the source and purpose for which the money was kept by him, he stated that the money was out of the sale proceeds fully recorded in the books of the company and he was carrying it because the same was to be deposited with the SIB (Customs). The said petitioner was summoned to appear before respondent No.5 on 12.01.1996, with the proof for the said amount for being reflected in the cash