Case: Director Of Inspection Of Income Tax(Investigation) New Del Vs. Pooran Mal &amp; Sons &amp; Another

The facts stated therein are set out below for the sake of brevitypetitioner, Pooran Mal, is a partner in a number of firms-some of them doing business in Bombay and some in Delhi. His permanent residence is 12-A, Kamla Nagar, Delhi. His business premises in Delhi are A-14/16, jamuna Bhavan, Asaf Ali Road, New Delhi. It would appear that on an authorisation issued by the Director of Inspection, his residence and business premises in Delhi were searched on October 15/16, 1971. On the 15th his premises in Bombay were also searched and at that time it appears the petitioner was present in Bombay......The search in the business premises was made when a number of persons who usually worked there were present. Books of account, documents, some jewellery and a large amount of cash amounting to about Rs. 61, 000 was seized.On October 16 there was a search in the branch offices of the Laxmi Commercial Bank and the Punjab National Bank. 84 silver bars were seized from Laxmi Commercial Bank and 30 silver bars were seized from the Punjab National Bank. (It appears that the bars themselves were not actually seized but were only attached under the provisions of sub-section (3) of section 132 ofthe Income-tax Act, 1961). The value of these silver bars comes to nearly Rs. 18 lakhs. It is the case of the petitioner that these bars belong to M/s. Pooran mal and sons of Bombay who sent the same to the Motor and General Finance Company of which the petitioner is a partner and this finance company, it is alleged, kept these bars with the two banks. 84 bars were kept in the account of M/s. Udey Chand Pooran mal for an alleged overdraft limit while the 30 silver bars were pledged with the Punjab National Bank in the account of the finance company. In all these aforesaid firms the petitioner is a partner and it is the departments case that all these bars are the undisclosed assets of the petitioner. It appears that the Income-tax Officer made a summary enquiry as required by section 132(5 after issuing notice to the petitioner and his order dated January 12, 1972, shows, of course, prima facie, that all the assets which had been seized in the house, the business premises and the banks, except for the value of the ornaments declared by Mrs. Sharda Devi in her wealth-tax return, had to be retained for being appropriated against tax dues from 1969 onwards which amounted to nearly 42 lakhs. Indeed this prima facie liability was subject to regular assessment andthe case dealt with earlier by this court the constitutional validity of section 132 and legality of the search and seizure alone were under consideration. This court held the provisions valid and the search and seizurerespondent No. 1, which is a firm of which Poorna Mal was a partner, and respondent No. 2, who claims to be another partner of the first respondent-firm, filed Writ Petition No. 82 of 1972, challenging the order of the Income-tax Officer dated January 12, 1972. This writ petition was disposed of on April 6, 1972, on the basis of the consent of the parties. The relevant portion of the order is as followsG. C. Sharma, learned counsel appearing for the respondents, fairly and frankly conceded that such an opportunity was not afforded to the petitioner. The parties are agreed that the impugned order be quashed and that the department be permitted to look into the matter afresh after giving an opportunity to the petitioner to place his case before the department in respect of the contention thab the property belongs to the firm and not to Pooran Mal individually.The parties are also agreed that the property shall remain in the custody of the department and shall not be sold by them till fresh decision mistaken by the department in the light of evidence to be supplied by the parties.Mr. B. S. Gupta, Income-tax Officer-cum-Assistant Director of Inspection (Intelligence), is personally present and he has undertaken to complete this case within two months.The writ is accordingly accepted and disposed of in terms of the submission of the parties recorded above, but with no order as towhat writ petition the contention of the petitioners was that the silver bars were the property of the first respondent-firm and not that of Pooran Mal, the individual, who was only one of the partners. After the disposal of the writ petition the Income-tax Officer duly held a fresh enquiry and passed an order on June 5, 1972, holding that the silver bars belonged to Pooran Mal, the individual, and not to the first respondent-firm. Respondents Nos. 1 and 2 thereafter filed Civil Writ Petition No. 595 of 1972, out of which this appeal arises, contending that the silver bars belonged to the first respondent-firm and that the order of the Income-tax Officer holding that they represented the undisclosed income of Pooran Mal, the individual, was illegal. It was also contended that the Income-tax Officer had no jurisdiction to pass the impugned order beyond the period prescribed in sub-section (5 of section 132. This second contention found favour with the learned judges of the High Court. As a result they set aside the order of the Income-tax Officer dated June 5, 1972, and ordered return of the 114 silver bars to respondents Nos. 1 and 2.

Court's reasoning:
Even if the period of time fixed under section 132(5) is held to be mandatory that was satisfied when the first order was made. Thereafter, if any direction is given under section 132(12) or by a court in writ proceedings, as in this case, we do not think an order made in pursuance of such a direction would be subject to the limitations prescribed under section 132(5). Once the order has been made within ninety days the aggrieved person has got the right to approach the notified authority under section 132(1) within thirty days and that authority can direct the Income-tax Officer to pass a fresh order. We cannot accept the contention on behalf of the respondents that even such a fresh order should be passed with in ninety days. It would make the sub-section (11) and (12) of section 132 ridiculous and useless. It cannot be said that what the notified authority could direct under article 226 of the Constitution. To hold otherwise would make the power of courts under article 226 wholly ineffective. The court in exercising its powers under article 226 has to mould the remedy to suit the facts of a case. If in a particular case a court takes the view that the Income-tax Officer, while passing an order under section 132(5), did not give an adequate opportunity to the party concerned it should not be left with the only option of quashing it and putting the party at an advantage even though it may be satisfied that on the material before him the conclusion arrived at by the Income-tax Officer was correct or dismissing the petition because otherwise the party would get an unfair advantage. The power to quash an order under article 226 can be exercised not merely when the order sought to be quashed is one made without jurisdiction in which case there can be no room for the same authority to be directed to deal with it. But, in the circumstances of a case, the court might take the view that another authority has the jurisdiction to deal with the matter and may direct that authority to deal with it or where the order of the authority which has the jurisdiction is vitiated by circumstances like failure to observe the principles of natural justice, the court may quash the order and direct the authority to dispose of the matter a fresh after giving the aggrieved party a reasonable opportunity of putting forward its case. Otherwise, it would mean that where a court quashes an order because the principles of natural justice have not been complied with, it should not while passing that order permit the Tribunal or the authority to deal with it again irrespective of the merits of thewas made to various decisions of the various courts which have held that the particular period of limitation under consideration by the court should be strictly construed. There is no doubt that there is no equity about limitation. Most of the decisions relied on relate to provisions which laid down a period of limitation for taking one kind of action or other in order to assessee to tax the person concerned. Naturally, after the period of limitation has expired no proceedings can be taken to assess nor could any period of limitation laid down by the Act be extended merely by a superior tribunal directing an inferior tribunal to make an assessment or to take proceedings which result in assessment after the period of limitation is over. They are in pair material with the present proceedings. In deciding to whom any property seized under section 132(1) belongs, the Income-tax Officer cannot be said to be exercising any powers of taxation. He is not deciding the question of taxing a person after the period prescribed therefor is over. He is really deciding to whom the property seized belongs and to such a case the provisions of ordinary law which deals with tribunals and courts which decide the questions of title to properties should be deemed to apply. This is not a case where equity is relied upon to tax a person who is not otherwise liable to be taxed. It is a general principle applicable to all judicialthe most important principle on the basis of which the order of the Income-tax Officer should be upheld is that it is in pursuance of an agreement between the parties which has obtained the imprimatur of the court that this order has been made. The period of limitation is one intended for the benefit of the person whose property has been sized. It is open to him to waive it. We consider that to hold that the period of ninety days which is mentioned in section 132(5) is an immutable one would cause more injury to the citizen than to revenue. It is, therefore, open to the aggrieved person, as happened in this case, to agree to a fresh disposal of the case by the Income-tax Officer and thereby waive the period ofapart from the consent of the parties it was open to the court in Writ Petition No. 82 of 1972, to have set aside the earlier order of the Income-tax Officer and direct a fresh disposal of the matter by the Income-tax Officer on the ground which was in fact agreed to by the parties, that the aggrieved party had no reasonable opportunity of putting forward its case, it was within its power to do so. If respondents Nos. 1 and 2 wanted to urge that the order of the Income- tax Officer impugned in W.P. No. 82 of 1972 was liable to be set aside as they had no reasonable opportunity to put forward their case they could have done so. They need not have agreed to the matter being considered afresh. The court would in any case have passed such an order. Having agreed and thus persuaded the court to direct the Income-tax Officer to pass a fresh order respondents Nos. 1 and 2 cannot question the order of the Income-tax Officer on the basis of such direction. They should be deemed to be estopped from so contending. They had by their consent made the Income-tax Officer to put himself at a disadvantage, because he is now faced with the contention that he had no jurisdiction to pass a fresh order. Furthermore. It is not a case of the court conferring jurisdiction on the Income-tax Officer to decide a case after he had lost jurisdiction over the matter. The procedure from the date of seizure to the date of the second order of the Income-tax Officer is an integrated process. Though a proceeding under article 226 is an original proceeding and not by way of an appeal against the order of a court or of a tribunal, it is part and parcel of our established judicial procedure and to treat it as though it were something outside the normal procedure and not part of an integrated whole would be wholly unrealistic. It is, therefore, possible for the parties to agree to a fresh disposal by the Income-tax Officer even as the court would have ordered. It is also not a case of the parties conferring jurisdiction on the Income- tax Officer by consent. It is a case where the parties agreed to a particular mode of exercise by the Income-tax Officer of a jurisdiction which he cannot be said to have lost or in respect of which he has become functus officio. Though it is true that on passing an order under section 132(5) the Income-tax officer can be said to become functus officio it is the courts order that revives his powers andalso find ourselves unable to accept the contention on behalf of the respondents that the order contemplated to be passed by the Income-tax Officer after the fresh inquiry in pursuance of the order of the High Court in W.P. No. 82 of 1972 was not necessarily an order under section 132(5). It was an order under section 132(5) that was impugned before the High Court. It was that order that was set aside by consent. It was the subject-matter of that order which had to be considered by the Income-tax Officer after giving a fresh opportunity to the petitioners and a new order passed. It could not therefore be anything but an order under section 132(5) that was under contemplation when thi consent order was passed by the High Court in W.P. No. 82 ofare, thus, satisfied that as the period of limitation prescribed by section 132(5) is intended for the benefit of persons like the respondents, it is competent for them to waive it, that the respondents have in fact waived it, and the order of the High Court in W.P. No. 82 of 1973 is a consequence of such waiver, that the Income- tax Officer had, therefore, the jurisdiction to pass a fresh order. It follows, therefore, that as the High Court did not go into the question of the correctness or otherwise of the fresh order of the Income-tax Officer that the property belonged to Pooran Mal, the individual, and not to the 1st respondent-firm, it was not competent for the High Court to order the return of the 114 bars of silver to the 1st respondent-firm.