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Petitioner: SRI VENKATESWARA LODGE VS Respondent: COMMISSIONER OF INCOME-TAX, HYDERABAD, JUDGMENT
Court Name: Andhra Paradesh High Court Judge(s): Basi Reddy, Sambasiva Rao Title:SRI VENKATESWARA LODGE vs COMMISSIONER OF INCOME-TAX, HYDERABAD,
JUDGMENT
Reported As: 1972 PTD 205 Result: accordingly dismissed Judgment JUDGMENT BAST REDDY, J.-On the 5th January 1966, the premises of Sri Venkateswara Lodge, Lakdi-ka-pool, Hyderabad, were searched by four Income-tax Officers and their staff, and during the search, which went on from 9-30 a.m, up to 7-30 p.m. That day, a large number of account books, documents and slips were seized. The Income-tax Officers were armed with a warrant of authorisation issued by the Commissioner of Income-tax, Hyderabad, under section 132 of the Income-tax Act, 1961, authorising the Income-tax Officer to enter the said premises and size books of account, other documents, money, bullion, jewellery or other valuable article or thing, which may be found necessary or useful for the purpose of Income-tax assessment proceedings till then pending or in respect of future assessment affecting Sri Venkateswara Lodge. In pursuance of that warrant Of authorisation, the Income-tax Officers seized large number of account books, documents and slips after observing the formalities proscribed by rule 112 of the Income-tax Rules, 1962, as amended by the Rules of 1965. This writ petition has been filed by A, Ramaswamy and IC. Ramamurty in their capacity as partners of Sri Venkateswara Lodge, challenging the legality and regularity of the entire proceedings pertaining to the search and seizure ,seed seeking a writ of prohibition with the following prayers: "(1) to issue a rule nisi calling up the records leading up to and inclusive of the notices 724(r) and 725(r) dated February 26, 1965, including the assessment orders dated March 29, 1966, for the assessm ent year 1961-62 and all the documents seized on the date of the seizure dated January 5, 1966, including the uninventoried two gunny bags of documents and the search warrant and the
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orders preceding thereon passed by the first respondent (Commissioner of Income-tax, Hydera-- bad) ; (2) to quash the search warrant and restrain the respondents from using the information contained in the seized material and making any use of either for re-opening the proceedings under section 147 or finalising the assessments for the year 1962-63 onwards ; (3) to quash the notices Nos. 724(r) and 725(r) dated February 26, 1966 ; (4) to stay all further proceedings in pursuance of the notice issued under section 147 of the Act dated February 26, 1966. " It may be mentioned that the three respondents to this petition are respectively the Commissioner of Income-tax, Hyderabad, the Income-tax Officer, A-1 "A" Ward, Hyderabad .And the Income-tax Officer, Income-tax-cum-Wealth tax Circle II, Hyderabad. So that, the relief which the petitioners seek in this writ petition is that, inasmuch as the search and seizure is illegal, the respondents should be interdicted from using any of the materials seized from Sri Venkateswa ra Lodge as a result of that search for any purpose, either in respect of pending proceedings or future proceedings. Before adverting to the contentions raised by the learned Advocate for the petitioners in support of the writ petition, it is necessary to state the rival versions-the version of the petitioners, on the one side, and the version put forward on behalf of the income-tax Officials, who took part in the search, on the other, to see as to what exactly happened at the search and how the seizure was effected. The affidavit in support of this writ petition is sworn to by A. Ramaswamy, one of the partners of Messrs Sri Venkateswa ra Lodge. According to the affidavit, A. Ramaswamy and K. Ramamurty have been carrying on hotel business as partners since August 1957. Prior to that date, Ramaswamy himself was doing that business as the sole proprietor. Prior to the formation of the partnership firm and subsequent thereto, income-tax returns were being submitted on the basis of the turnover accepted by the sales tax authorities in respect of assessments to sales tax. For the assessment year 1961-62 the return was filed on May 11, 1964, and it was represented to the concerned Income- tax Officer that the books of account and documents relating to Sri Venkateswara Lodge and been seized by the sales tax Department and had not been returned to the petitioners and, consequently, they could not be produced before the concerned Income-tax Officer. After submitting the return for the year 1961-62, they were awaiting orders of the concerned Income-tax Officer. Then, on the day in question i.e., January 5, 1966, during the absence of the deponent, the income-tax officials raided the premises of Sri Venkateswara Lodge at 9-30 a.m. In paragraph 4 of his affidavit this is what the deponent says: "However, to my great dismay and distress, the Income-tax Officer, A-1(A) Ward, the 2nd respondent herein on January 5, 1966, at about 9-30 a.m. With nearly twenty officers, inspectors and peons without any prior notice entered my business premises, Sri Venkateswara Lodge, at Lakdi-ka-pool, and Sri Venkateswa ra Lunch Home near Secretariat and also the residential house at Erramanzil and searched all my belongings including the closed places wherein women live. During the course of these searches at all the three places, the officers did not find any cash, bullion, jewellery or other valuable articles except a cash of Rs. 222 and little jewellery belonging to the women. All this was done at the inssance of one Mr. N. S. Mani, who was ex-manager of our business Lie worked for about six years and when we questioned his behavior regarding the business dealings and also his omission to make proper representation before the income-tax authorities in these assessm ent proceedings he grew inimical towards us and obtained from duty since March 1965, and began to blackmail us for money and with other motives. When the Income- tax Officer and his assistants came to my business premises at Lakdi-ka-pool, the said Mr. N. S. Mani brought two gunny bags containing loose sheets and small books and with the aid of the income-tax officials he brought those bags inside the business premises and the search party had
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made an inventory of some of the papers therein and also seized them stating that they relate to our business. When the search party came, I was not at my business premises and on receiving information I came to that place at about 11 a.m, and I immediately protested that the two gunny bags load of books of accounts and loose sheets do not belong to our business and it was foisted on us by Sri Mani who bore ill will against us and who waited outside the premises of Venkateswara Lodge from 7-30 a.m. With bags and brought into the premises just at the time when the search began. It is obvious he is hand-in --glove with the officers in search as a pre-planned affair. I was forced and pressed to pay rickshaw charges of Rs. 2 and under protest I was even forced and pressed to sign some of the docu--ments so illegally seized against my will. I requested the officer to record statements from Sri N. S. Mani regarding the custody of these documents and how he could get them without our knowledge, but he slipped away even during the process of search. However, the officer was prepared to note in my statement that they were brought from Sri N. S. Mani's house (appendix "D''). Accordingly they took a statement from me and, even without verifying the nature of documents contained in these bags, prepared an inventory for some of them, and they did not have the necessary patience to prepare a full inventory and so bundled up the documents after noting them as bundle of papers. After some time they could not do even that but simply collected all those loose papers in those gunny bags. The officer did not give a receipt for the gunny bags but the Inspector who accompanied the Income-tax Officer gave a receipt (Appendix "C") stating that two gunny bags containing loose papers, etc., relating to Messrs Venkateswa ra Lodge, Lakdi-ka --pool, Hyderabad, were received. The documents relating to other business concerns, namely, Srinivasa Lodge, belonging to Sri Krishnamurty, and Srinivasa Lunch Home, now defunct, were also seized. Thus, it is clear the seizure is enormous and not in proper exercise of the powers and is clearly mala fide in the sense that there was an abuse of power conferred on the Income-tax Officer under section 132 of the Act (XLIII of 1961), as it stood unamended and after the Amendment Act (I of 1965)." It will thus be seen that, according to this affidavit, the villain of the piece was one N. S. Mani, ex- manager of Sri Venkateswa ra Lodge, who, after he had been discharged from service, bore illwill against the petitioners, colluded with the income-tax officials and at the nick of time, produced two gunny bags containing books of account, loose sheets, etc., which were somehow connected with the affairs of Sri Venkates--wara Lodge, though in fact they had nothing to do with them. The further allegation is that the Income-tax Officers seized the contents of those bags without making an inventory of all of them and forced the deponent (A. Ramaswamy to put his signature in some of those documents. Although it is stated in the paragraph extracted above that the documents relating to other business concerns, via., Srinivasa Lodge belonging to Sri Krishnamurty, and Srinivasa Lunch Home, now defunct, were also seized, it is not stated that those documents were recovered from the gunny bags brought by N. S. Mani. On the contrary, while the earlier sentences in that paragraph refer to loose papers, etc., seized from gunny bags purporting to relate to Sri Venkateswa ra Lodge, it is not stated that the documents relating to the other two lodges, Srinivasa Lodge and Srinivasa Lunch Hone, which were admittedly seized, came out of the two bags, and were not seized from the premises themselves. Further, the affidavit shows that a statement was recorded from A. Rama--sawamythen and there. The statement reads as follows:--- Appendix "D" "I, A. Ramaswa my s/o Alagappa aged 30 years, resident of Erram Manzil and one of the partners of Messrs Venkateswa ra Lodge, Lakdi-ka-pool, Hyderabad, solemnly declare on oath as under: I have been carrying on hotel business for the last 10 years. The business has been run as a firm of two partners for the last about 8 years. The account books and vouchers connected therewith from the year 1959-60 were seized by the sales tax authorities who now plead that the same might have been returned as they were not traceable in their office.
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Today, when you visited the hotel at 9-30 a.m., I was not present in hotel and I was told by my manager, Sri Chittal, that you were waiting for my appearance from 9-30 a.m. I was told that two bags containing account books and vouchers were brought to the hotel by rickshaw by Sri Mani, who was the former manager of this hotel, and who was not attending for the last about one year, to be given plea that these records related to the business of this hotel. These bags, it is told by my manager, were opened by your inspectors and the papers and vouchers were stamped by you and signed by you. My subscribing to signature on these records cannot be taken that the same are genuine and related to this hotel business as I have no time to minutely examine them. However, whenever, necessary, I shall be present in your office to explain them. Taken by me, read over and accepted by the deponent as correct. (Sd.) D. B. R. Rao, 5-1-66 (Sd.) A. Ramaswa my Witnesses(Sd.) 10-1-60 1. (Sd.) A. Samad. Income-tax Officer, 2. (Sd.) Laxmaiah. Hyderabad, A.P." As against this version, the version on the side of the Department appears from the counter- affidavit sworn to by the income-tax Officer, Income-tax- cum-Wealth Tax Circle 11, Hyderabad, the 3rd respondent in the writ petition. This is what he states: "The true facts are as follows: Consequent on information made available to the 1st respondent (Commissioner of Income-tax, Hyderabad) he had reason to believe that the petitioner would not produce or cause to be proceduced books of account and the other documents which will be useful for or relevant to assessm ent proceedings under the income-tax Act and he is in possession of money, etc., not disclosed for the purposes of the Income-tax Act, he accordingly authorised four Income-tax Officers to search the petitioner's premises and seize any books of account and documents, etc. Pursuant to this authorisation these officers, of whom I was one, conducted a search of the petitioner's premises and seized various papers. The search and seizure were carried out with due regard for all the requirements of law. It is also true that the residence of the deponent of the affidavit was searched under another warrant. The allegation that "closed place where women live "were searched is obscure. Due decorum was invariably observed when searching residential premises. What was seized was listed out in the inventory. The several allegations in paragraph 4 of the affidavit that the search was carried out at the instance of Mr. N. S. Mani and in collusion with him, etc., are not correct. It is true that, during the search, Mr. Mani arrived at the premises with some account books and papers which were subsequently handed over to us by the deponent of the affidavit under reply after he had subscribed his signature thereto. A receipt was also issued to him. The statement recorded at that time from the deponent of the affidavit under reply may be perused. The petitioners are put to strict proof of the allegation that there were ill-feelings between Mr. Mani and the petitioners and Mr. Mani was blackmailing them and out of ill-will Mr. Mani has foisted two gunny loads of account books and loose sheets, etc., on them. The statement that those gunny bags contain papers which were unconnected with the petitioners business is not correct. The allegation that the seizure is enormous is imprecise. The quantum of the material seized per se does not render the seizure illegal. The allegations of mala fide or abuse of power are vague and irresponsible." To the allegation that the seizure in question was unreasonable or excessive and constitutes abuse of power, this is what is stated in the counter-affidavit: "(a) The quantum of the material seized would depend upon the quantum available and has no sinister significance. The validity of tale search will never depend upon the number of records seized.
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(b) It has been found after enquiry that the concerns 'Srinivasa Lodge' and `Srinivasa Lunch Home' are concerns belonging to the petitioner. (c) The allegation that some of the papers seized are not relevant is vague. (d) The documents were seized after bestowing due thought and consideration. (e) The papers in the gunny bags which were not separately inventoried cannot in strict law be treated as the documents seized. Those documents were handed over by the deponent of the affidavit under reply to one of our inspectors and a receipt taken. . . (i) There were three search parties covering three different premises and their strength was not abnormal having regard to the size of the premises search. (j) Sri N. S. Mani was examined on oath. (k) The allegation of connivance in para. 6(k) is untrue . . . ." It will be observed that, according to this counter-affidavit sworn to by the 3rd respondent, who was one of the Income-tax Officers who was authorised to conduct the search and was present throughout the proceedings, which culminated in the seizure of a large number of account books, documents, etc., the Income-tax Officers, conducting the search, genuinely believed that the materials seized were relevant and useful for the purposes of assessment pro--ceedings relatings to Sri Venkateswa ra Lodge, of which the two petitioners are partners. It also appears from his affidavit that the search was conducted with due regard to all the requirements of law, and there was no element of high-handedness or arbitrariness, nor was there any indiscriminate seizure of all materials good, bad or indifferent. As regards the part played by N. S. Mani in the search and seizure, according to the 3rd respondent, the allegation that the arrival of N. S. Mani with incriminating material was pre-arranged and the whole thing was stage-managed is not true. Ills version is that Mani came in, while the search was in progress, with two gunny bags and the contents of those gunny bags were handed over by A. Ramaswamy, one of the partners, who arrived at 11-30 a.m. And was present throughout the search from that time. It further appears that Ramaswa my himself put his signature on quite a large number of papers, which were taken out from those gunny bags. As regards the other papers which were taken out of the gunny bags, Ramaswa my himself told the Income-tax Officers to put them back and take the bags away. The seizure of account books and other documents and papers from the various portions of the premises of Sri Venkateswa ra Lodge were all carefully inventoried and stamped by the Income-tax officials who seized them. The case set out in the counter-affidavit is that the search was not done arbitrarily and in disregard of the provi--sions of law or in any high-handed manner but in strict confor--mity with the provisions of section 132 and rule 112. Only such materials were seized as the Income-tax Officers bona fide believed to be relevant for the assessment pertaining to Sri Venkateswa ra Lodge. The documents and papers relating to Srinivasa Lodge and Srinvivasa Lunch Home, which were recovered from the premises of Sri Venkateswara Lodge, were, according to the 3rd respondent's affidavit, of concerns belonging to the writ petitioners, and that was why they were seized in the course of the search. It is to be mentioned that N. S. Mani, who even according to the affidavit filed by Ramaswamy, slipped away when the search was in progress, was later examined on oath by the Income-tax Officer on March 18, 1966, and this is the statement he gave then: "Statement on oath given by Sri N. S. Mani, aged 35 years, son of Nageswara Ayyar, 223-C, Krishna Bhavan, Maredpalli, Secunderabad. I have attended your office today in response to a summons under section 131 of the Income-tax Act, 1961, I was asked to identify some papers which were said to have been seized by the income- tax authorities on January 5, 1966, from the premises of Sri Venkateswara Lodge, Lakdi-ka-pool. The papers have been identified by me as relating to the business done in the name and style of Sri Venkateswa ra Lunch Home, Venkateswara lodge, etc. Some of them are in my handwriting. They
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came in my posses--sion when I was the paid manager of Sri Venkateswara Lodge (inclusive of branches). I left the services of Sri Venkateswara Lodge in May. 1965. Thereafter, my services were required again in about September 1965. Some of the voucher books, etc., shown to me are in my handwriting while others are in the handwriting of others. They came into my possession in the normal course of my duties and were returned to the owners on January 5, 1966.'' These are the material facts pertaining to the search and seizure, which were effected on that fateful day. We will now advert to the contentions advanced by Mr. Kodanda Ramayya, learned Advocate for the petitioners. The first point made by him was that the power of search and seizure conferred by section 132 of the Income-tax Act is ultra vires the Constitution, because it offends Articles 14 and 19. The learned Advocate first advanced his arguments on Article 19(1)(f) and (g) of the Constitution. Article 19(1) lays down: "All citizens shall have the right- . . . . ( f ) to acquire, hold and dispose of property ; and (g) to practise any profession, or to carry on any occupation, trade or business." Clauses (5) and (6) of Article 19 make all the fundamental rights conferred by Article 19 and in particular Article 19(1)(f) and (g) subject to reasonable restrictions imposed by law made by the State. So the question in this case would be whether the right to property or to carry on business is subjected to reasonable restrictions by law. The learned Advocate for the petitioners did not advance the conventional argument that the power of search and seizure is per se violative of Article 19(1)(f) and (g) for the obvious reason that the Supreme Court has in M. P. Sharma v. Satish Chandra (AIR 1954 SC 300) repelled such a contention. In that case, Jagannaduadas J., delivering the judgment of the Court, said this at page 306 : "A power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law. When the Constitution-makers have thought fit not to subject such regulation to constitutional limitations by recognition of a fundamental right to privacy, analogous to the American Fourth Amendment, we have no justification to import it, into a totally different fundamental right, by some process of strain--ed construction. " No doubt, in that case their Lordships were dealing wield searches and seizures under the provisions of the Criminal Procedure Code, but the same reasoning would apply to searches and seizures under the various tax laws conducted with a view to unearthing material for the purpose of detecting tax evasion and levying and collecting taxes which are legitimately due to the State. But what was contended by Mr. Kodanda Ramayya was that in Sharma's case their lordships upheld the constitutional validity of searches and seizure because, under the Criminal Procedure Code, the power of issuing search warrants, which is a judicial function, is entrusted to judicial functionaries like Magis--trates. The learned Advocate relied on the following passage in the above judgment at page 307: "Nor is it legitimate to assume that the constitutional protec--tion under Article 20(3) would be defeated by the statutory provisions for searches. It is to be remembered that searches of the kind we are concerned with are under the authority of a Magistrate (excepting in the limited class of cases falling under section 165 of the Criminal Procedure Code). Therefore, issue of a search warrant is normally the judicial function of the Magistrate. When such judicial function is interposed between the individual and the officer's authority for search, no circum--vention thereby of the fundamental right is to be assumed. We are not unaware that in the present set up of the magistracy in this country, it is not infrequently that the exercise of this judicial function is liable to serious error, as is alleged in the present case. But the existence of scope for such occasional error is no ground to assume circumvention of the constitutional guarantee."
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It is difficult to see how this passage lends support to the contention of the learned Advocate that only search warrants issued by Magistrates or other judicial officers would not infringe the fundamental right of the citizen under Article 19(1)(f) and (g), but if search warrants are issued by an executive or administrative officer, however highly placed he may be, the fundamental right is defeated. That certainly is not the ratio of the decision of their Lordships in Sharma's case. They were merely pointing out in that particular case that the warrant had been issued by a Magistrate who was a judicial officer and, therefore, circumvention of the fundamental right could not readily be assumed. In the present case, the authorisation warrant was issued by the Com--missioner of Income-tax, who is a highly placed official in the departmental hierarchy of income-tax, and even a bare perusal of the warrant issued by him and the reasons recorded by him before he issued the warrant make it clear that he had applied his mind and given the matter serious thought and consideration which it deserved, and had only thereafter issued the warrant of authorisa--tion to the Income-tax Officers to search the premises of Venkates--wara Lodge and other premises belonging to the writ petitioners. Moreover, under the scheme of the Income-tax Act, the Commissioner does exercise quasi-judicial functions in some matters. In any view of the matter, the contention of the learned Advocate must be negatived. Although the learned Advocate mentioned Article 14 of the Constitution, he did not elaborate his argument and show how article 14, which guarantees equality before the law and the equal protection of the laws, has been infringed in this case by the conferment of power to search and seize under section 132 of the Income-tax Act. The main plank of the learned Advocate on behalf of the petitioners was that the search and…
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